Maximum award Fais Ombud can issue lifted to R3.5m

The maximum amount that can be awarded as compensation by the Ombud for Financial Service Providers (the FAIS Ombud) for financial prejudice or damage has been increased to R3.5m from the R800,000 set in 2004. 

The increase is contained in the amended rules for the Fais Ombud, which were gazetted by the Ombud Council and came into operation this week. The draft rules were published for comment in September 2023. 

The compensation can be paid for the financial prejudice or damage suffered by a complainant related directly or indirectly to a financial service rendered by a person authorised as a financial services provider or by a person acting on behalf of such a person. 

The rules state the complaint to the ombud must not constitute a monetary claim in excess of R3.5m for a particular kind of financial prejudice or damage unless the respondent has agreed in writing to this limitation being exceeded or the complainant has abandoned the amount in excess of R3.5m. 

The statement of need, intended operation and expected effect of the new rules published on the Ombud Council’s website states the council agrees with the statement of the Financial Sector Conduct Authority (FSCA) that the proposed limit of R3.5m is appropriate “when considering factors such as the market realities of consumers’ risk exposure and the fact that a very low financial limit for awards to complainants jeopardises the restitution outcome of determinations”. 

The World Bank also recommended the R800,000 limit be reviewed. 

The statement says the increased limit is necessary to ensure that the monetary compensation that the Fais Ombud is empowered to award: 

• takes account of changes in the value of money and market realities since the compensation limit was set two decades ago; 
• is somewhat more consistent with the compensation levels available from other financial sector ombud schemes; and
• does not compromise the effectiveness of the ombud system by inappropriately restricting customer’s access to affordable, effective, independent and fair alternative dispute resolution for complaints against financial service providers and representatives leading them to have to resort to formal litigation to seek redress.

The Ombud Council does not anticipate the new maximum limit will result in an increased volume of complaints, noting in the statement that the Fais Ombud is already empowered to deal with complaints involving amounts higher than R800,000 if the complainant abandons the amount in excess of the limit or if the respondent agrees to the limit being exceeded.

“The limit increase will therefore not necessarily significantly increase the number of complaints submitted to the FAIS Ombud but will reduce the number of cases where the FAIS Ombud is unable to order fair compensation,” the statement said. 

“To the extent that the amendment may result in an increase in complaint volumes, the Ombud Council believes this would be indicative of the relevance and need for the change.” 

Compensation

Submissions made on the draft rules queried the basis on which the proposed new compensation limit of R3.5m was calculated, pointing out that it was in excess of the inflation rate over the period. Some commentators proposed that the increase should be limited to an inflationary increase. But the Ombud Council’s statement said inflation was not the only factor considered in proposing the revised limit.

The statement noted the new rules retained the substance of the previous rules and did not entail any material changes in the Fais Ombud’s complaint handling process. They also did not impose any new obligations on financial service providers or representatives. 

The rules state that the Fais Ombud will not deal with complaints related to the investment performance of a financial product unless such performance was guaranteed expressly or implicitly or if the performance appeared to the Ombud to be so deficient as to raise a prima facie presumption of misrepresentation, negligence or maladministration on the part of the person against whom the complaint was brought, or that person’s representative. 

ensorl@businesslive.co.za