What Is the FAIS Ombud's Jurisdictional Limit — and What Happens When Your Claim Exceeds It?

A retired educator calls a financial advice helpline. She invested her pension lump sum on the
recommendation of a financial planner. The product failed. Her quantified loss is R4.2 million.
She wants to complain to the FAIS Ombud but has been told the Ombud has a cap. "Does that mean
I can't use the Ombud?" she asks. The answer depends on a mechanism the FAIS Act and the Ombud
Council Rules create specifically for this situation — one that is almost universally unknown
outside the regulatory profession.

The FAIS Ombud's Jurisdictional Limit and the Abandonment Mechanism

The FAIS Ombud's jurisdictional monetary limit is R3,500,000, effective 1 July 2024. If your
financial loss exceeds this amount, the Ombud can still investigate your complaint — but only
if you formally abandon the excess amount in writing. If you refuse to abandon the excess, the
Ombud is required to decline the complaint. Abandonment does not extinguish the excess — the
portion above R3,500,000 may remain recoverable through the High Court.

The Legislative Framework

Section 28(2)(b) — The Ombud Council Sets the Cap by Rule

The Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS Act) does not itself
specify a rand amount for the Ombud's maximum award. Instead, Section 28(2)(b) delegates this
power to the Ombud Council by rule:

"The Board may by rule determine—
(i) the maximum monetary award for a particular kind of financial prejudice or damage;
(ii) different maximum monetary awards for different categories of complaints;"

Although Section 28(2)(b) retains the original "Board" language, the definition of "Board"
was repealed by the Financial Sector Regulation Act 9 of 2017. Rule-making power for the
Ombud is now exercised by the Ombud Council, established under Section 175 of the FSR Act.
The 2024 Rules were published by the Ombud Council, confirming that it is the current
rule-making authority.

This architecture matters. The FAIS Act creates the mechanism; the Ombud Council Rules set
the specific amount. The amount has changed once since the Ombud was established: from R800,000
(the original limit, unchanged from 2004 to 2024) to R3,500,000 (effective 1 July 2024 under
the Ombud Council Rules for the Ombud for Financial Services Providers, 2024). Any study
material, question, or article citing R800,000 as the current limit is citing the old figure.

Ombud Council Rules 2024, Rule 4(1)(e) — The Abandonment Mechanism

Where a complaint exceeds the R3,500,000 cap, the Ombud may still entertain it under one
specific condition: the complainant must formally abandon the excess amount in writing. This is
not a negotiation or a discretionary accommodation — it is the only mechanism the Rules
provide. If the complainant agrees, the Ombud investigates the complaint and may award up to
R3,500,000 in compensation. If the complainant refuses to abandon, the Ombud is required to
decline the complaint.

The two outcomes are not symmetrical. Agreeing to abandon opens the Ombud route; refusing
closes it. The Ombud has no discretion in the latter case — the decline is mandatory.

The Three Jurisdictional Gates

The monetary cap is the most discussed jurisdictional rule, but it is the third of three gates
a complaint must clear before the Ombud investigates.

Gate 1 — Internal resolution: Before the Ombud accepts any complaint, the complainant must
have attempted to resolve the matter with the FSP directly, allowing the FSP at least six weeks
to respond. This applies regardless of the size of the claim or whether the complainant has
legal representation. If the FSP has not been given this opportunity, the Ombud sends the
complaint back through its Premature Complaints Handling Process.

Gate 2 — Prescription: Section 27(3)(a) of the FAIS Act imposes a three-year prescription
period. The Ombud must decline any complaint if the act or omission it relates to occurred
more than three years before the complaint was received. Crucially, where the complainant was
unaware of the occurrence, the three-year period commences from the date the complainant became
aware — or ought reasonably to have become aware — of the act or omission, whichever occurs
first. Late-discovered misconduct is protected; delayed action by a complainant who knew or
should have known earlier is not.

Gate 3 — Monetary cap: Where the claim exceeds R3,500,000, the abandonment mechanism
applies as described above.

A complaint that fails any gate is declined. The three gates are independent — clearing two does
not waive the third.

Section 27(3)(b) — The Court Proceedings Bar

A fourth restriction applies specifically to complainants who are considering a parallel court
action. Under Section 27(3)(b):

• If the complainant has instituted court proceedings on the same matter before the Ombud
  formally receives the complaint, the Ombud must decline.

• If court proceedings are instituted while an Ombud investigation is underway, the investigation
  must stop.

The Ombud and the courts are mutually exclusive paths for the same claim. A complainant who
abandons the excess and uses the Ombud cannot simultaneously litigate the same subject matter
in court. This restriction shapes the practical decision a large-claim complainant must make.

Where Complainants and Candidates Go Wrong

Misconception 1: The cap means the Ombud is unavailable for large claims.
The cap does not exclude large claims automatically. It creates a decision point. The complainant
with a R4.2M loss can use the Ombud if they formally abandon R700,000 (the excess above the
R3.5M cap) in writing. The question is whether they choose to.

Misconception 2: Abandonment means the excess is permanently lost.
Abandonment means the complainant is waiving the right to recover the excess through the Ombud's
process. The excess is not extinguished as a legal claim. The portion of the loss above R3.5M
may remain recoverable through the High Court, separately from the Ombud proceedings. The Ombud
cannot award it; the courts can. A complainant who abandons the excess and receives a R3.5M
Ombud determination can still litigate the remaining amount in the High Court — provided the
same subject matter is not the subject of simultaneous court proceedings while the Ombud
investigation is underway.

Misconception 3: The Ombud's decline of an over-limit complaint is discretionary.
This is the RE5 examination trap. The FAIS Act gives the Ombud several discretionary powers,
including the power to decline a complaint it considers more appropriate for a court or other
dispute resolution process (Section 27(3)(c)). That power is genuinely discretionary — "may,"
not "must." The decline for refusal to abandon the excess is different in kind: it is mandatory.
When a complainant's claim exceeds R3,500,000 and the complainant refuses to abandon the excess,
the Ombud has no discretion. It must decline.

Misconception 4: The R800,000 figure is still current.
The original jurisdictional limit of R800,000 applied from the Ombud's establishment in 2004
until 30 June 2024. From 1 July 2024, the Ombud Council Rules set the limit at R3,500,000.
Study materials prepared before July 2024 cite the old figure. Any exam question or study guide
referencing R800,000 as the current limit should be read in light of the 2024 amendment.

How This Works in Practice

Scenario A: The educator with R4.2M in losses — the abandonment decision

The retired educator's R4.2M loss exceeds the R3.5M cap by R700,000. She has exhausted the
internal complaint process — the FSP did not respond satisfactorily within six weeks. She lodges
her complaint with the Ombud within the three-year prescription period.

The Ombud notifies her that her claim exceeds the jurisdictional limit by R700,000. It asks
whether she is prepared to abandon that amount in writing. She considers her options. Going
to the High Court for the full R4.2M is possible but slow and costly. Using the Ombud for
R3.5M is faster and free — and the excess may remain a High Court claim later.

She signs the written abandonment of the R700,000 excess. The Ombud formally accepts the
complaint and investigates. It determines that the advice was negligent and awards her
R3,500,000 in compensation. The determination is enforceable as a civil judgment of court.
She retains the right to pursue the R700,000 through the High Court.

Scenario B: The client who refuses to abandon — the mandatory decline

A client with R6.5M in losses refuses to abandon R3M of that amount. He insists the full claim
should be heard. The Ombud is required to decline the complaint. There is no mechanism for
the Ombud to hear the full R6.5M regardless of how cooperative the FSP might be. His only
path to full compensation is the High Court.

Scenario C: The premature complaint — the internal resolution gate

A client with a R2M loss — well within the jurisdictional cap — immediately files a formal
Ombud complaint without contacting the FSP first. The Ombud sends the complaint to the FSP
through the Premature Complaints Handling Process. The FSP has six weeks to resolve it. Only
if the FSP fails to resolve it satisfactorily within that period can the client formally lodge
the complaint with the Ombud. The size of the claim and the engagement of a lawyer do not
exempt the complainant from this requirement.

Practical Implications

For clients and their advisers

The FAIS Ombud is not closed to large claims — it is subject to a decision. A claim above
R3,500,000 creates a fork: abandon the excess and use the Ombud (faster, free, determination
enforceable as court judgment), or proceed in the High Court for the full amount (slower, costly,
no cap). The excess is not automatically forfeited by choosing the Ombud; the portion above the
cap may remain a separate High Court claim. But the Ombud and simultaneous court proceedings
on the same matter are mutually exclusive — the sequencing matters.

For FSPs and compliance officers

The 2024 rule change (R800,000 → R3,500,000) materially increases the Ombud's reach into
advice-related disputes. Complaints that would previously have required High Court litigation
— retirement advice failures, large investment losses — are now within Ombud jurisdiction.
Complaint handling processes, internal resolution responses, and client communication in the
six-week window all have greater consequences than before July 2024.

For exam candidates

The RE5 examination tests this topic through two specific traps:

First:
The mandatory/discretionary distinction. The Ombud has discretionary powers to decline
complaints in some circumstances (Section 27(3)(c)). The decline for refusal to abandon the
excess is mandatory — not discretionary. When an exam question asks "is the Ombud required or
permitted to decline," the answer turns on which jurisdictional rule applies.

Second:
The R800,000 figure. Examination questions based on pre-2024 study material may still
cite R800,000. The current figure is R3,500,000 effective 1 July 2024. Where the question bank
or examination paper states the limit, accept the stated figure — do not assume either amount
is always current.

When you see an Ombud scenario question involving a claim above the cap, the analysis runs:

1. Has the internal resolution requirement been met (6 weeks)?

2. Is the complaint within the
   three-year prescription period?

3. Does the claim exceed the cap? If yes, has the complainant
   abandoned the excess? If they have not and refuse to, the Ombud must decline — mandatory, not
   discretionary.