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Consumer Affairs
Thursday, February 1, 2007
Yawning chasm

There is still a yawning chasm preventing the harmonising of human rights and business ethics, says Charles Pillai, the Ombud for Financial Services Providers.  Speaking at the Business and Human Rights Conference held in Johannesburg mid-January he emphasised that business had an equal responsibility in bringing about the changes envisaged by South Africa’s new Constitution.

In recent years there has been a range intended to promote the aims envisaged by the Constitution including, in the field of finance and trade, the National Credit Act; the Consumer Protection Bill; the Competition Act; and the Financial Advisory and Intermediary Services Act; among several others.
This last was intended to address the dire paucity of information supplied to clients. “The client knew virtually nothing first-hand of the product, the service offered, the nature of the organisation offering it, or the intermediary advising the client to invest in the product.
“Thus, very often clients were unable to distinguish between good and bad products, especially if the latter ostensibly offered a high pay-off.”
He referred to greed clouding judgment. “More than anything, investments and financial products feed into the intense and selfish desire called greed.
“Unscrupulous operators have an incentive to hide as much information as possible while promising high returns. This then tends to weaken market discipline where it is most needed.”
Mr Pillai said another aspect was the ‘David and Goliath’ factor, by which he meant the barriers to successful court cases against ‘financial giants’.
“This is where the Office of the FAIS Ombud has a significant role to play. In the time we have been in business (since 30th September 2004), we have resolved or issued judgments in scores of cases. The total estimated value of monies involved to just under R15m. A number of rulings relied on the principles of constitutional interpretation.
He said the very first determination issued by the FAIS Ombud on 21st July 2005 gave real meaning to what is contained in the guiding principles behind consumer protection as set out by the United Nations that is the Right to Choose.
“In our determination, a Mrs Helena Dennis of Cape Town insisted that she wanted her own household insurance. After much haggling and being referred to various forums, she eventually lodged a complaint with us.
“After investigation, and when the bank, Nedbank in this case refused to settle, we issued a determination where we found that banks were incorrectly interpreting a section of the short term insurance act by denying ‘free choice’ to consumers when it came to household insurance.
“Based on various provisions of the FAIS Act, we ruled that that archaic provision of the short term insurance act had to give way to the FAIS Act and we held that there had to be such choice.”
Mr Pillai noted that the objective of the FAIS Act was to ensure there was consumer protection and that the integrity of the financial services industry was upheld.
This will underpin confidence in the financial markets and this would ensure, amongst others that people will feel secure in investing in the country, and that our rand will be steady and stable and that the economy will grow.
Obviously if people, especially the elderly and the poor and the vulnerable are the victims of swindles or miss selling, the State would end up having to support them. Obviously then the government has a vested interest to pursue those who flout the constitutional and legal rights of its citizens.
Instead of struggling to acquire and maintain integrity the financial services industry needs to embrace the principles enshrined in the constitution.
“Obscene profit margins should not be the motivating factor in the sale of financial products to individuals,” Mr Pillai warned. “While it cannot be denied that such industries thrive on profit, a balance has to be struck between making money and ensuring that individuals are provided with the best possible financial service suited to their needs.”
In this regard, we still have a long way to go.

Copyright © Insurance Times and Investments® Vol:20.1 1st February, 2007
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