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Fais Ombud aims to eradicate property syndication backlog by March 2022

Appeals high court order it believes will destroy its mandate to provide free, quick and informal complaint resolution.
Thousands of investors have lost billions to failed property syndication schemes in SA. Image: Shutterstock

Acting Financial Advisory & Intermediary Services (Fais) Ombud Nonku Tshombe has an aspiration to eradicate the backlog of 1 114 property syndication complaints by the end of March 2022.

However, the Fais Ombud’s office has been hamstrung by a number of issues in dealing with these complaints, including a Pretoria High Court decision that the office is appealing.

Read: Fais ombud battling to finalise property syndication complaints

Two parties – close corporation and licensed financial services provider (FSP) CS Brokers, and FSP and broker Emile Storm – successfully applied to the Pretoria High Court earlier this year to review and set aside a decision by the Fais Ombud not to decline to entertain a complaint.

The application was brought in terms of Section 27 (3) (c) of the Fais Act in terms of which “the Ombud may on reasonable grounds determine that it is more appropriate that the complaint be dealt [with] by a court or through any other available dispute resolution process and decline to entertain the complaint”.

(In this instance the Fais Ombud had accepted the complaint against CS Brokers).

Judge Hans Fabricius ordered earlier this year that the decision of the Fais Ombud be substituted with the following decision: “This office declines to entertain the complaint in terms of Section 27 (3) (c) in that it would be more appropriate for the complaint to be dealt with by a court or through any other dispute resolution process.”

Appeal

Tshombe said on Friday the Fais Ombud’s office has appealed this judgment and is waiting for a Supreme Court of Appeal date for the appeal to be heard.

She added that if the Fais Ombud’s office allowed this order to stand, it would destroy its mandate to provide free, quick and informal resolution to disputes and complaints.

(If a complaint is heard by a court instead of the ombud, consumers will not have a free dispute resolution process but instead face an expensive and potentially lengthy court process.)

Tshombe said the Supreme Court of Appeal usually deals with appeals quickly.

“If a hearing happens during the first quarter of next year, we will be able to resolve a whole number of cases because it will be a question of waiting for the court ruling and then we will issue determinations,” she said.

Sharemax

Many of the outstanding property syndication complaints made to the ombud’s office relate to Sharemax Investments and the Highveld Syndication schemes.

Read: Investors may receive a fraction of their original HS investments

Sharemax collapsed in 2010, after the findings of a Registrar of Banks investigation that Sharemax’s funding model contravened the Banks Act became public knowledge.

This led to new investments drying up and Sharemax being unable to make monthly payments to investors.

The Registrar of Banks laid criminal charges against Sharemax for alleged contraventions of the Banks Act in March 2012.

About 18 700 investors invested an estimated R5 billion in Sharemax’s various property syndication schemes.

Read: Advisor must repay 87-year-old farmer for Sharemax loss

Property syndication focus

Tshombe admitted the length of time it is taking for the ombud’s office to finalise the property syndication complaints it has received “is an undesirable state of affairs”.

“It is something that we are not happy with, we are not proud of,” she said.

Tshombe said this is the reason the ombud’s office has for the first time during the 2019/2020 financial year included the resolution of property syndication complaints as a strategic outcome and committed to the systematic reduction of the backlog.

She said this means it is a target the ombud’s office must attain and it must budget and spare no resources to achieve it.

“If I had my way, I’d like to have a clean slate by the end of the 2022 financial year,” said Tshombe.

She said the ombud’s office has also been hamstrung in dealing with the property syndication complaints backlog by a lack of resources.

Continuity, outside assistance needed

She admitted that the office had lost skills and “various levels of seniority with the office” with the change from one Fais Ombud to the next.

“These kind of things are never good for any organisation because you don’t then have constant leadership that is able to strategise. If we get the right appointments and capacitate the office, then we can move,” she said.

Tshombe added that the office has also not abandoned the initiative to obtain outside legal assistance to eradicate the property syndication complaints backlog.

“We are looking at retired judges to get independence and those retired judges that have some understanding of financial services and are still energetic.

“If we can only get one judge who can come in and sit with us on a six- or 12-month contract, then we know we can run with it,” she said.

Complaints resolution: the stats

The Fais Ombud on Friday released its latest annual report, which revealed the office received a total of 8 835 new complaints in the year to end-March 2020 – a reduction of 5.23% from the 9 323 received during the 2018/2019 financial year.

Fais Ombud office team resolution manager Marc Alves said a total of 5 750 complaints fell within the office’s mandate, which equates to 65% of all complaints received during the financial year.

Alves said despite the overall reduction in complaints received, the 5 750 complaints that fell within the office’s mandate exceeded the 5 589 received during the preceding financial year.

He added that in keeping with the office’s legislative mandate to resolve complaints in an expeditious manner, 81.76% of all complaints are resolved within a period of three months, 91.18% within a period of six months and 96.25% closed within nine months of receipt.

These figures exclude complaints received about investments in property syndications.

Alves added that of the 9 252 complaints resolved during the 2019/2020 financial year, 4 790 were dismissed in favour of the respondents and 2 467 referred to alternative forums.

In addition, a total of 1 850 complaints were settled or resolved in favour of the complainant, which compares favourably with the 1 871 complaints settled/resolved during the 2018/2019 financial year.

However, Alves said the total settlement value decreased from R66 668 302 during the 2018/2019 financial year to R57 263 775 during the 2019/2020 financial year.

Alves attributed this decrease largely to the reduction in the number of determinations issued to 13 from 49 in the previous year, which was driven by informal settlements resulting from conciliation processes facilitated by the office between FSPs and consumers.

During the 2019/2020 financial year a total of 159 applications for reconsideration were made to the Financial Services Tribunal.

Of the 144 matters decided upon by the tribunal by end-March, 138 were dismissed with only six being referred back to the Fais Ombud’s office for further investigation.

The vast majority of complaints came from only three provinces, with Gauteng accounting for 41.74% of all complaints received, KwaZulu-Natal 12.67% and the Western Cape 12.5%.

Read: How does the Fais Ombud work?

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