Ombud slams lack of transformation
October 26, 2009
By Mzwandile Jacks
Charles Pillai, the outgoing ombud for financial services providers, on Friday launched a fierce assault on South Africa's financial services industry, saying he had seen serious transformation problems in the sector.
Pillai said that while certain opportunities in the financial services sector might have been created for political elites through black economic empowerment (BEE) transactions, not much had changed for the ordinary citizens.
He told Business Report, after the launch of his office's 2009 annual report in Pretoria, that he was an agent of change.
"There is no 'speel soos gewoonlik' (business as usual) here. We want to do it for the good of all of us.
"In the six years I have been an ombudsman, I had a grand stand view of the sector and I saw through smoke and mirrors," Pillai said.
He said the financial services industry remained largely in the hands of white males, and he was disappointed by this state of affairs.
While a few groups of black brokers had emerged recently, they were acting largely on the periphery, he said.
"I beg to be proved wrong. While political power is 100 percent black and the majority of consumers are black, this anomaly remains to be corrected," Pillai said.
He said real people had to be actively involved in the sector. South Africa boasted a "raft of empowering legislation" that advocated employment equity, skills development and participation in the financial sector.
These needed to be rigorously enforced to reflect the demographics of the nation.
It was a sad indictment on the country's regulatory and prosecutorial authorities and the financial services industry that investors had fallen prey to unfair service providers who were encouraged by the clear lack of effective enforcement of regulation.
Recently Pillai has had to investigate and report on a number of financial scams in the country. One of those was the Leaderguard spot forex scam.
Leaderguard was a Mauritian-based foreign currency trader which was placed under provisional liquidation in 2005 after trading losses allegedly amounted to about 80 percent of assets under management.
About 1 850 South African investors had invested in the Leaderguard spot forex scheme.
"In this particular case, where an estimated R380 million left the country, it saddens me that the perpetrators are still at large despite the report to the National Prosecuting Authority, Parliament and the regulator," Pillai said.
The lack of effective prosecution encouraged similar schemes.
"Currently there are major cracks in property syndications and Ponzi schemes are rife... These may flourish to the detriment of our stable financial system," Pillai said.
The office of the ombud for financial services reported a 30 percent increase in the number of complaints and enquiries in the past financial year - from 5 720 to 7 416.
Cases that resulted in a settlement by monetary compensation rose to 616 - a 27 percent increase over the previous year.
One case the office had to settle involved Nonhlanhla Kawula against African Life Assurance. Kawula, a teacher at Umzinto, KwaZulu-Natal, bought a funeral policy and a retirement annuity plan from African Life through a broker, a certain Sandile Mqadi.
After a while she discovered that in addition to the premiums of the two policies, the insurer was deducting a further R93 - for a third policy.
After investigating she realised that the life assured in the policy was that of a person she did not know and the beneficiary was Mqadi.
She approached the ombud, who held not only the broker liable, but also the insurer. The ombud ordered the insurer to pay interest and a nominal amount of R350 to compensate for transport costs and time taken to resolve the matter.
Dube Tshidi, the chief executive of the Financial Services Board, said listening to this story made him feel like crying and also jumping high with joy.
"This shows that in most cases things change after a contract has been entered into.
"We need to make sure that there is fairness in this market," he said.
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