UPDATE: FAIS Ombud’s Compensation Limit Increased to R3.5 million

We'd like to keep you informed! 🚨 As of July 1, 2024, the FAIS Ombud has increased the compensation limit from R800k to an impressive R3.5M 💸. While no action is required at this stage, you may wish to discuss this change with your insurer to determine if your PI cover needs to be adjusted. This is not a regulatory requirement at this point, and your insurer will be best positioned to advise you accordingly.

In a significant development for consumers and financial service providers alike, the Office of the FAIS Ombud has updated its rules, increasing the compensation limit from R800,000 to R3.5 million. This change took place on July 1, 2024, and is a long-overdue adjustment that aligns with current market realities and inflationary pressures that have built up since the previous limit was set in 2004.

For those of us in the financial services sector, this is a game changer. Over the years, there’s been a growing recognition that financial advice, especially around complex areas like retirement planning, often involves sums that far exceed R800,000. Prior to this adjustment, complainants with losses above this threshold had to either abandon the excess or rely on the good faith of Financial Services Providers (FSPs) to voluntarily agree to extend the jurisdiction. This increase finally brings the FAIS Ombud’s compensation limits into line with the financial stakes involved in today’s industry.

One crucial aspect of the revised Ombud Council Rules is that they still emphasize the need for complainants to first attempt resolution directly with the service provider before approaching the Ombud. The six-week window for a financial service provider to address the complaint remains an important part of the process. Many disputes are, in fact, resolved during this period, saving both parties the time and stress of a formal investigation.

The move to R3.5 million was not done in isolation. The World Bank had previously recommended a review of the outdated R800,000 limit, acknowledging that it no longer adequately reflected the realities faced by consumers. Now, this new limit helps ensure that consumers who have been wronged by the advice or actions of financial providers can access fair compensation without resorting to costly litigation.

This change is timely, particularly when looking at complaints involving post-retirement transactions, such as annuities, where amounts often exceed the previous limit. Inflation, changes in the value of money, and growing consumer risk exposure in financial markets all played a role in this significant adjustment.

While there may be concerns about an increase in complaints, the FAIS Ombud’s office has shown confidence in its ability to handle this potential surge, pointing out that complaints exceeding R800,000 have already been managed successfully in the past.

This raises an important point for consumers: always check that the financial services provider you’re dealing with is registered. The FAIS Ombud will no longer handle complaints involving unregistered entities. If you fall into this category, your complaints will be referred to the Financial Services Conduct Authority (FSCA), which has the appropriate enforcement tools.

For any consumer who feels they’ve been financially prejudiced due to services provided by an FSP, the Ombud is a critical avenue for seeking redress. With the compensation limit now at R3.5 million, consumers have a far better chance of recovering losses in today’s financial landscape.

If you have any complaints or unresolved issues with a financial service provider, remember to first approach the provider directly. If the issue remains unresolved after six weeks, visit the FAIS Ombud’s website or contact their Client Care Centre to lodge your complaint.

For any assistance regarding the matters discussed above, please click HERE.