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Financial Services
Tuesday, August 1, 2000
Well meaning

There is a proposal for a Statutory Ombudsman to oversee complaints procedures in all the financial service sectors falling under the jurisdiction of the Financial Services Board. These include short-term insurance, life assurance, pensions, retirement funds, banking, financial services, friendly societies, unit trusts and participation bonds.

Most commentators can understand the motive behind this and several other legal administration propositions, but a common theme running through them all is that they are well meaning, but doubt is expressed as to whether they are practicable.
For example, Short-Term Ombudsman, Michael Bennett believes his office, and that of the Long-Term Ombudsman, has proved their viability, and that the authorities should leave the current arrangement in place. “The public has now become confident in the operation of these offices as an independent complaints handling service,” says Mr Bennett. “And for its part, the insurance industry has similarly come to accept them as both workable and effective.”
However, Mr Bennett says that while there are a number of issues they are now being addressed by, for example, the SA Insurance Association (see accompanying story). These include:
• The existing ombudsmen need more powers;
• A separate body needs to be created to administer and finance the ombudsmen’s offices;
• In the short-term insurance sector, the ombudsman’s scope needs to be widened to include commercial and small business insurance, and his scope of operation needs to be widened to include intermediaries.

“I fear a repetition of the situation we have experienced in regard to the VAT legislation,” comments Mr Bennett. “All the rules are in place, but there is not enough staff to ensure those rules are obeyed.” He says this could happen in the case of possible changes to the way the role of ombudsmen generally is regulated.
This is to say nothing of the forthcoming bill that will regulate all financial service providers including brokers, intermediaries and investment advisers. Currently known as the Financial Advisory and Intermediary Services Bill, it is expected to be promulgated the third quarter of this year to take effect early next year, possibly from June 1 2001.
“I am also concerned as to the possible future of so-called consumer courts,” adds Mr Bennett. “Again, they are a nice idea, but are they workable? And have sufficient resources been put in place to ensure the service operates efficiently?
“I think not.” In particular he says the combination of civil and criminal procedures in one court is a problem. As in these courts both damages (in terms of a civil claim) and fines (in terms of a state prosecution) may have to be imposed in the one case. This causes procedural complications as well as difficulties in following precedent. In addition, different criteria are applied in proving guilt as between a criminal court and a civil court: in a criminal action the burden of proof required is that it must be ‘beyond a reasonable doubt’; in a civil action all is required is that it must be ‘proof on the balance of probabilities.’ Which criteria will be applied?
All the various proposals are certainly well meaning, but they could make matters worse if their administration is badly structured. By Nigel Benetton

Copyright © Insurance Times and Investments® Vol:13.7 1st August, 2000
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