New trends revealed in annual FAIS Ombud report
The Office of the FAIS Ombud (OFO) released its Annual Report for the year 2018/2019 last week.
Highlights
Of the 9 323 complaints received during the financial year, a total of 5 589 fell within the OFO's mandate and this equates to 60% of all complaints received during the financial year. There was an increase in the number of complaints settled or resolved in favour of the complainant, which rose from 1 392 during 2017/2018 to 1 871, an increase of 34%.
A total of 3 684 of the 9 323 complaints were dismissed, a total of 2 770 complaints were referred to alternative fora and 1 209 complaints were settled in favour of the complainant, which represents a significant increase over the 883 complaints for the 2017/2018 financial year.
The settlement value increased from R60 889 786 during 2017/2018 to R66 668 302 during the 2018/2019 financial year an increase of 9.5%. As in the previous year, short-term insurance (3 012) again formed the majority of complaints received, together with long term insurance at 2 676.
Complainants domiciled in Gauteng remained the source of the majority of complaints received by the OFO (44.41%), followed by the Western Cape and Kwa-Zulu Natal at 13.72% and 13.55% respectively.
Trends
One of the functions of the OFO during the course of the complaints investigation process is that it observes trends and identifies problem areas. It would be of no value if these learnings are not brought back to the consumers and industry alike.
Some of the new trends identified in 2019 were in the areas of robo-advice, forex investments, banking complaints and crypto-currencies.
Robo-Advice
The emergence of FinTech and the provision of financial services via online platforms, commonly referred to as robo-advice, has seen the OFO receive complaints from consumers of financial services providers (FSPs) dissatisfied with the solutions provided. Solutions, which they assumed provided specific benefits and cover, but would then appear to fall to fall short of what was required or expected issues which more often than not only reveal themselves in the event of a claim. From the complaints received to date, which would appear to be steadily increasing, the OFO has been successful in bringing about positive resolutions by focusing specifically on the nature and extent of the disclosures provided by these online solutions and whether the complainant had been able to appreciate the implications of the selections being made and whether those disclosures had been sufficient to have allowed the complainant the opportunity to make an informed decision.
Forex Investments
There has been an increase in forex investment complaints, where consumers of financial services are lured by the prospects of making what is purported to be quick and easy profits. Whether this is as a result of the current economic climate or as a result of more and more individuals having access to the various social media platforms, there would appear to be a growing trend of individuals investing in forex platforms after having been enticed by social media posts on, for example, Facebook and Twitter. These more often than not turn out to be scams and the funds are ultimately lost.
There is also a growing trend of what is referred to a ‘Copy Cat’ forex traders. These are individuals and/or entities that are not registered FSPs in accordance with the FAIS Act and who provide prospective clients the ‘opportunity’ to copy their trades for an agreed upon fee. These entities are not concerned as to whether forex is suitable to the clients’ needs and circumstances, but also take no responsibility for any losses incurred, losses that invariably occur without any substantial explanation or justification.
Finally, there are those entities that in an attempt to circumvent the FAIS Act and its corresponding legislation entice clients by offering forex training software, with the promise of turning one into a forex trader. Subsequent to the conclusion of the transaction, the client is then offered broker services by the entity which is then that losses are incurred that are not explained or substantiated.
Banking Complaints
Specifically, complaints surrounding the failure by banks to provide assistance to clients who are the victims of fraud. The banking institutions remain of the view that should any alleged fraudulent act occur as a result of the complainant’s personal details being compromised instead of their safeguards having been breached then they are not liable for any losses incurred.
Crypto-currency complaints
The OFO is starting to receive on an increasing basis complaints related to investments into such currencies, primarily Bitcoin, where these currencies are being marketed as mainstream investment solutions, and in some instances the performance is even guaranteed. No disclosure is made that these products are unregulated or what the risks associated with these investments are, and the implications that these have on the complainant’s investment. Investigations into a few matters are at an advanced stage, and the OFO is looking to issue its first determination on this type of investment early in the 2019/2020 financial year.
Replacement policies
There has been an increase in complaints surrounding the replacement of existing policies, specifically long- and short-term insurance policies. This too may be systemic of the economic climate but the OFO has noted that more and more policies are being replaced in favour of a more affordable policy, which may provide temporary relief on a monthly basis, but often comes with reduced benefits or higher excesses that are often only discovered in the event of a claim. Whilst the Code does provide for FSPs to specifically disclose to a prospective client the implications and consequences associated with a replacement, and to maintain a record of such disclosures having been made, the records provided to the OFO fall short of what would be required for one to have made an informed decision as to the appropriateness of the replacement policy.
It is also noted that the updated Policyholder Protection Rules (PPRs) do now provide greater protection to consumers, by placing a greater responsibility on the product providers themselves to ensure that such transactions and in fact the conduct of those intermediaries who market their products and services are in keeping with what is in the client’s best interests.