Customers have historically lodged complaints alleging unfair contractual terms or treatment, or other practices prohibited by statute, with one or more of the relevant industry regulators, whose remits overlapped. Although we do not expect a fundamental change in the grounds likely to be relied upon by claimants when pursuing their claims, the manner in which such claims are to be advanced will change under the Financial Sector Regulation Act 9 of 2017 (FSR Act), which came into force on 1 April 2018. All financial institutions are now ultimately regulated under the FSR Act, which establishes a regulatory and supervisory framework for the industry.
The FSR Act has established the Financial Sector Conduct Authority (FSCA) and the Prudential Authority as regulatory bodies:
The Prudential Authority is required to: promote and enhance the safety and soundness of financial institutions, market infrastructures and protect financial customers, through, inter alia, cooperating with its counterparts in other jurisdictions.
The FSCA is required to: enhance and support the efficiency and integrity of financial markets, protect financial customers and assist in maintaining financial stability, through, inter alia, cooperating with its counterparts in other jurisdictions.
The FSCA has, since April 2018, replaced the prior authority, which was known as the Financial Services Board (FSB).
Although there are additional statutes that regulate the industry, the FSR Act prevails in the event of a conflict between any other act that is a ‘financial sector law’ and the FSR Act.
Additional Acts that also regulate the industry include:
- the Inspection of Financial Institutions Act 80 of 1998 and Financial Institutions (Protection of Funds) Act 28 of 2001;
- banks, mutual banks and cooperative banks are supervised by the South African Reserve Bank, under the Banks Act 94 of 1990, Mutual Banks Act 124 of 1993 and Co-operative Banks Act 40 of 2007;
- participating banks can opt to face claims up to 1 million rand before the Ombudsman for Banking Services;
- suppliers of credit above significant arm’s-length transactional thresholds (including banks) are answerable to the National Credit Regulator (NCR) and the National Consumer Tribunal, under the National Credit Act 34 of 2005;
- participating credit providers and credit bureaux can opt to face certain complaints before the Credit Ombud;
- securities exchanges and their users are supervised by the FSCA, under the Financial Markets Act 19 of 2012, read with the FSR Act;
- many suppliers of financial services are also answerable to the National Consumer Commission and the National Consumer Tribunal, under the Consumer Protection Act 68 of 2008;
- collective investment schemes are supervised by the FSCA, under the Collective Investment Schemes Control Act 45 of 2002, read with the FSR Act;
- pension funds are supervised by both the FSCA and the Pension Funds Adjudicator, under the Pension Funds Act 24 of 1956 and the FSR Act;
- insurers are supervised by the PA or the FSCA (insofar as they relate to matters within their respective objectives), under the Long-term Insurance Act 52 of 1998 or Short-term Insurance Act 53 of 1998 (Insurance Acts), read with the FSR Act, but consumers may opt to lay certain complaints before the Ombudsman for Long-term Insurance or Ombudsman for Short-term Insurance;
- financial advisers and intermediaries are supervised by the FSCA and the Ombudsman for Financial Services Providers, under the Financial Advisory and Intermediary Services Act 37 of 2002 (which requires financial services providers to be duly licensed and creates a professional code of conduct with specific enforcement measures);
- incorporated financial services providers are (like all corporations) regulated in certain respects by the Companies and Intellectual Property Commission and the Companies Tribunal, under the Companies Act 71 of 2008; and
- most financial services providers are also accountable to the Financial Intelligence Centre for certain monitoring and reporting functions to prevent money laundering and the financing of terrorism, under the Financial Intelligence Centre Act 38 of 2001 (FICA).
Less frequently (but not infrequently), customers institute court claims for the cancellation of transactions with, and the recovery of funds paid or goods pledged to, financial services providers who have breached the terms of such transactions, or who were not duly registered or authorised to enter into such transactions, either on those terms or at all.
Complaints and court claims against financial services providers often concern misrepresentation of the qualities of the financial service offered. In court claims, such misrepresentations may give rise to liability either in contract or in delict (tort). Contractual liability arises (regardless of wrongfulness or fault) from a breach of the express, implied or tacit terms of the agreement. Delictual liability arises (regardless of the terms of the agreement) from conduct that causes the claimant’s loss, in a manner that is both wrongful (ie, breaching a legally recognisable duty to the claimant) and culpable (ie, intentional or negligent).
Increasingly common, since the National Credit Act came into effect in 2006, are (successful) claims for the suspension of execution (fore-closure) on mortgaged properties and the rescission (reversal) of the underlying default judgments obtained by secured lenders, on the technical grounds that one or more mandatory pre-action procedures had not been followed (see question 15).
There have also been an increasing number of cases in which the courts have found banks to have engaged in reckless lending, in breach of their statutory duties under the National Credit Act.
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