Since its establishment 17 years ago, the Financial Advisory and Intermediary Services (Fais) Ombud has helped countless consumers who have been taken advantage of by unscrupulous financial advisors.
The last year has been no different, save for the fact that the number of complaints received exceeded 10 000 for the first time since its 2016/2017 financial year. The number of complaints received increased by 19.43% to 10 552 in its 2020/21 financial year.
According to Fais Ombud Advocate Nonku Tshombe, 66% of the complaints received were within the mandate of the office, resulting in a record 6 975 complaints being referred to the case management department for investigation and 2 877 complaints referred to alternative forums, 1 389 complaints settled in favour of the complainant, and 4 245 complaints dismissed.
A total of 9 755 complaints were resolved during the 2020/2021 financial year at an overall settlement value of R49 773 803. Tshombe says on average, 84.43% of all complaints received were resolved within three months, 91.12% within six months, and 94.49% within nine months.
These figures do not include property syndication complaints, which are maintained separately.
Property syndication complaint backlog
Tshombe also provided an update on the backlog of complaints related to property syndication schemes promoted and marketed by companies such as Sharemax, Realcor and Highveld Syndications.
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During the 2019/2020 financial year, the office of the Fais Ombud committed to reducing the original number of 1 300 active property syndication complaints by a minimum of 20% annually.
By March 31 this year, these complaints had been reduced by 20.31% to 1 036.
Tshombe said her office has noted a significant increase in the number of complaints received about investments made into cryptocurrencies during the 2020/2021 financial year.
However, despite her office recognising the high-risk nature of investing in crypto assets and the concerns about the suitability of crypto assets as an asset class, it was unable to assist complainants because crypto assets are not regulated in terms of any financial sector law in South Africa.
“As a result, crypto assets are not classified as a financial product, which means the product falls outside of this office’s jurisdiction,” she said.
However, Tshombe said her office is encouraged by a Financial Sector Conduct Authority (FSCA) statement issued on June 24 indicating that it is considering declaring crypto assets a financial product.
This statement followed the publication of a paper in the same month by the Intergovernmental Fintech Working Group (IFWG) on crypto assets, which provided a framework on how these assets will be regulated in future and made 25 recommendations on how to bring crypto assets into the South African regulatory universe.
‘Interim measure’ on the horizon
Tshombe said one of these recommendations is an interim measure that crypto assets should be declared by the FSCA to be a ‘financial product’ in terms of the definition of ‘financial product’ in the Fais Act.
This declaration will empower the FSCA to regulate the advisory and intermediary component of crypto assets and for her office to investigate crypto asset complaints, she said.
Once the Conduct of Financial Institutions (CoFI) Bill has been enacted and implemented, crypto asset-related financial advice and intermediary services will be dealt with under the CoFI Act.
IFWG chair Olaotse Matshane says global daily trading values in crypto assets have increased significantly over the past few years, averaging more than $200 billion in June this year, and on some days exceeding $400 billion.
“While crypto assets’ viability as a widely used means of payment remains untested and an open question, the market has demonstrated significant resilience over the last decade,” she says.
“The use cases for crypto assets as an alternative – albeit highly speculative and risky – investment class and as a cross-border remittance instrument, appear to be gaining some traction among retail customers.”
But Tshombe warned that unrealistically high returns more often than not suggest that an investment is too good to be true, which carries the risk of losing one’s capital despite the promise of significant gains and quick returns during these trying economic times when such promises can be enticing.
She added that investments should also not be made without seeking the assistance and advice of properly licensed financial services providers.
Tshombe says one of her greatest concerns remains accessibility to the wider public.
Data collected by her office shows that the Northern Cape, Limpopo, Mpumalanga, North West and Eastern Cape submitted the fewest complaints.
“Even historically, the least number of complaints have been received from these provinces. Most areas in these provinces are rural or peri-urban and, therefore, have underdeveloped telecommunication infrastructures and limited access to the internet. Recent studies on internet access in South Africa reveal that available means to access the internet are highest in Gauteng and the Western Cape; [and] that the Western Cape and Gauteng also have the highest number of people who have access to the internet at home,” she says.
Tshombe adds that Gauteng and the Western Cape are two of the three provinces from which her office receives the most complaints.
“In comparison to the average of 17.3% of households that had access to the internet from home in metropolitan areas, in general, only 1.7% of households in rural areas and less than 1% in the North West and Limpopo had access to the internet.”