Ombudsman Charles Pillai says resources will nail those who set up con investment schemes
Financial Services ombudsman, Charles Pillai, wants more resources to be put into apprehending people who set up bogus investment schemes.
Pillai's office has witnessed a significant growth in complaints relating to financial scam investments and he has called on auditors to ensure suspected irregularities are swiftly acted on.
Scams ranging from bogus share offerings to risky offshore forex investment schemes swallowed large sums of money and impacted poorly on the image of the financial services industry.
Speaking at the launch of the 2006-2007 annual report of the office of the Ombud for Financial Services Providers, Pillai said the Global Investments case shows that investors were swindled out of about R85million.
Seven other cases involving Leaderguard Spot Forex saw investors lose an estimated R300million.
One of these cases prompted an invitation to Pillai to address Parliament's portfolio committee on finance to explain the determination.
"The committee heard that fraudulent investment schemes had to be stopped.
"This could only be done if more resources and effort were applied in preventing such schemes from entering the system and if there was effective prosecution of such white-collar crime," Pillai said.
While the Financial Advisory and Intermediary Services (Fais) ombud can pronounce on broker conduct where it involves investments in such scams, Pillai said those responsible for starting the schemes usually escaped.
In a foreword to the annual report, Finance Minister Trevor Manuel also expressed concern about the increase in bad practices by financial services providers.
Manuel said: "A challenge remains in that those not financially literate are often seen as a soft target for bogus schemes.
"Not only should the regulatory and prosecuting authorities deal harshly with vendors of such schemes, but a collective responsibility exists to promote consumer awareness," Manuel said.
In his report, Pillai said the office of the Fais ombud had become a "prominent beacon on the national financial services landscape".
Complaints and enquiries had risen by 18percent (3806 in 2005-2006 to 4484). The number of determinations grew from 11 to 15 and money returned to aggrieved consumers increased from R6,5million to R10million, according to the report.
Pillai said: "Noteworthy is the phenomenal increase in complaints that fell within the jurisdiction of the Fais ombud.
"This has increased from 666 in the 2005-2006 financial year to 1320 in the year under review, representing a 98percent increase.
"These are clear indications that the Fais ombud is recognised as a forum of choice for complainants who seek decisions based on sound legal reasoning while ensuring fairness and justice," said Pillai.
He complimented the willingness financial services providers to settle valid complaints.
"The willingness to settle - a challenge in the early stages of the office - is indicative of the impact of the jurisprudence already established by way of determinations issued as well as a greater respect for the independence and impartiality of the office of the Fais ombud."
Pillai said South Africa's growing black middle class, known as "Black Diamonds", would soon constitute significant consumers of financial services and products through changes in financial and social status.
"While this is a positive trend in our economic development, the concomitant adherence to the ideals envisaged in the Fais Act and the recent raft of consumer protection legislation, must be upheld."
Pillai said while the increased acceptance of the role of the office of the Fais ombud was appreciated, there was still a far greater road to travel in the quest for ensuring sincere commitment to consumer protection by rallying behind a common set of values that will uphold the integrity of the financial services industry.
"In my view, this can only be achieved through the establishment of a single, independent ombud scheme for the financial services industry."
Pillai said state-recognised sectoral ombudsmen would only prolong and exacerbate the confusion.
"Until there is a common independent platform for the resolution of disputes, the public will continue to be confused in what can only be described as a jurisdictional labyrinth or ombud market-place.
"The impetus to reach the goal of a simple, easily accessible, dispute resolution forum enjoying widespread trust and credibility must come from within the financial services industry. Only by doing so will the industry demonstrate commitment to the ethic of consumer protection and integrity in the financial services industry," said Pillai.