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FST case – Johlyn Financial Advisory Services/GW Venter vs M McNamara/FAIS Ombud

Publish date: 07 December 2018
Issue Number: 51
Diary: CompliNEWS
Category: Case

Summarised by Lee Rossini

Financial Services Tribunal – Case No.: FAB22/2018

In the matter between: Johlyn Financial Advisory Services (Pty) Ltd (First Appellant) and Getruida Wynetta Venter (Second Appellant), and Michael McNamara (First Respondent) and Ombud for Financial Services Providers (Second Respondent)

The matter concerned an application for the reconsideration of a decision made by the FAIS Ombud.  The Ombud had found the appellants liable to compensate Mr McNamara for the sum of R420 000 plus interest.

Following the decision of the FAIS Ombud, the appellants filed an application for leave to appeal.  The filed the appeal on the basis that they only became aware of the matter after receiving the Ombud’s determination.  Their appeal was rejected.  The appellants then filed an application according to section 28(5)(b) of the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS Act), read with section 230 of the Financial Services Regulation Act 9 of 2017 (the FSR Act).

Factual Background
On or about August 2010, Mr McNamara sought to invest in Sharemax (Pty) Ltd (Sharemax) directly.  Sharemax put him in contact with the appellants.  After meeting with them, Mr McNamara invested R420 000 in The Villa Retail Park Holdings 2 Limited, a company owned by Sharemax.

In February 2010, Mr McNamara realised that Sharemax was in financial trouble and followed up with Sharemax to establish the prospects of his investment for the better part of 2011 and 2012 but without much success.  He remained in contact with the appellants although the relationship between the two parties was strained as he was unable to receive a proper explanation regarding his investment.  Mr McNamara had given up on getting his investment back until he found out that the Ombud was a possible avenue to recover his money. 

In February 2013, Mr McNamara lodged a complaint against Sharemax with the FAIS Ombud stating that he was unable to get his money back from them.  It was not disputed that his broker, Mr Venter, a director of the first appellant, had provided financial advice to Mr McNamara in respect of his investment into Sharemax and that contact had taken place through him.  However, in the form used to lodge the complaint with the Ombud, Mr McNamara identified Sharemax as the person/company against whom his complaint was directed.

The two related issues dealt with in the matter are whether there was compliance with section 27(1) of the FAIS Act, and whether the complaint against the appellants had become time barred.

Relevant Legislation

Section 27(1) of the FAIS Act deals with the receipt of complaints, prescription, jurisdiction and investigation.  

Section 27(2) deals with receipt and applies to an officially received complaint.  The implication is that prescription is only suspended if a complaint is validly brought, and a complaint is only validly brought when it complies with section 27(1)(a) to (c).

In order to determine whether there had been compliance with section 27 by the FAIS Ombud, the definition of ‘complaint’ as per section 1 of the FAIS Act was evaluated.

From the above, it is clear that the complaint is required to disclose the details of alleged contraventions and to establish a connection between the contravention and the loss suffered by Mr McNamara.  The Tribunal decided that the common thread throughout the definition is that the subject of the complaint must be clear from the complaint itself. 

On the complaint received by the FAIS Ombud, Mr NcNamara had identified Sharemax as the subject of his complaint.  This highlights the issue of whether the Ombud has the right to pursue a complaint against a person or persons (the appellants) other than a person who has been named as the cause of the complaint (Sharemax).  On the basis of the facts, there was never a complaint against the appellants.  Therefore the FAIS Ombud pursued a complaint against a person who had not been identified as the subject of the complaint.  As such, the Ombud had acted outside its mandated authority.  

The Tribunal found that the Ombud had joined the appellants to the complaint in a manner which is not permitted by the law.  As such, the Ombud had failed to comply with section 27 of the FAIS Act because the complaint did not comply with the definition of complaint in section 1 of the FAIS Act.

The Tribunal further emphasised that the Ombud cannot do more than it is statutorily permitted and it should act cautiously so as not to stray outside of the parameters of its mandate.

Finally, because Mr McNamara had not made a complaint against the appellants and the Ombud had not received an official complaint against them in the manner prescribed in section 27(2), prescription was never interrupted.  His complaint is therefore time barred as he became aware he could potentially lose his investment in February 2011, a period of over three years.

The Tribunal made an order upholding the appellants appeal.  The determination of the FAIS Ombud was set aside and each party was ordered to pay its own costs.


Working Smart

By Lee Rossini

Most financial advice businesses start off small, usually with the founder playing the role of owner, manager and financial adviser. However, as the business grows, planning and implementing organisational structures becomes more of a priority as the need for specialised positions and departments arises. The organisational chart, job design and analysis form an important part of this process. The information gathered from these exercises, specifically the job analysis, is subsequently used to draw up the job descriptions (JD).    


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