Conduct reform does not hinge entirely on COFI enactment
If you attended the 2025 FSCA Industry Conference hoping for clarity on when the Conduct of Financial Institutions (COFI) Bill would be tabled in Parliament, you would have left disappointed. After listening to an hour-long regulatory update panel featuring representatives from both Twin Peaks regulators, the best your writer can offer is that the Bill will be tabled in 2025, or 2026. Whatever the timeline, there are other regulatory mechanisms the authorities can use to achieve its market conduct objectives.
At the coal face of conduct regulation
Financial Sector Conduct Authority (FSCA) Deputy Commissioner, Katherine Gibson, steered the panel debate aimed at updating industry on progress at the coalface of South Africa’s evolving financial sector regulatory framework. She gauged industry sentiment early on, asking for a show of hands from those who felt some level of fatigue with the extent of financial sector lawmaking. Just about everyone in the audience obliged. “How do we balance this fatigue with the need to change the law to respond to the conduct and consumer risks that we are being confronted with?” Gibson asked.
The Deputy Commissioner noted that while law can be a burden, stifling business innovation, it is also a critical business enabler. For regulators, the challenge remains to implement regulatory frameworks that minimise disruption while optimising gains. Gibson used her opening remarks to pose three ‘live poll’ questions to the audience, which your writer will frame here, and address later on. Are FSCA laws becoming more suitable and easier to navigate? Where should the FSCA prioritise regulatory certainty? And what is your biggest concern with transitioning to the COFI framework?
Eugene du Toit, Department Head: Regulatory Frameworks, singled out the pace and volume of legislative change as a common theme in industry-regulator interactions. “The one strategic driver of this rapid regulatory change is our greater alignment to international standards,” Du Toit said.
Supporting competition, growth
Various securities exchange-related interventions are being made to improve trust in the financial sector and ensure SA’s regulatory framework remains internationally competitive. As some examples, the regulators are introducing a reporting and disclosure framework for short sales; reviewing securities financing transactions; and considering the regulation of benchmarks. National Treasury is considering changes in this space too, through a potential review of the Financial Markets Act to support growth in financial markets.
The COFI Bill was described as the main catalyst to give effect to the second phase of South Africa’s migration to Twin Peaks. “The first phase was to establish the regulators; the second phase focuses on consolidating, harmonising, and strengthening the conduct framework,” Du Toit explained. He said the COFI process was known, and that implementation would push ahead subject to parliamentary timeframes. It helps to think of the COFI Bill as consolidating and strengthening the conduct framework, versus the harmonisation process that is already underway through other regulatory mechanisms.
“Harmonisation involves avoiding regulatory arbitrage and ensuring that we are consistent in how we apply regulation across the sector,” Du Toit said. It is being achieved through the alignment of various frameworks such as the section 13B CIS conduct standard; the existing Policyholder Protection Rules Long-Term and Short-Term; the General Code of Conduct; and the Conduct Standard for Banks, to name a few. The regulatory framework expert sought some sympathy from industry at this point, saying that the COFI Bill had a huge impact on FSCA and Prudential Authority (PA) resources too.
Being subject to legal scrutiny
There was scant detail on COFI Bill timelines. According to Gibson, National Treasury is the custodian of the Bill which is currently in the final stages of review by the State Law Advisers. The Bill can only proceed to Cabinet and Parliament after state law adviser ratification.
But as mentioned earlier, the FSCA does not need the Bill to be enacted to press ahead. “The COFI Bill will be the overlay, setting the high-level principles,” Du Toit explained. “Underpinning that, we have our themed frameworks that seek to consolidate and harmonise requirements relating to specific themes like advertising disclosures, compliance, governance, and risk management.”
He then dropped something of a truth bomb, saying that while the intention was to consult on and promulgate the themed frameworks under COFI, a delay of the passing of that Act into 2026 would force the FSCA to start formal industry consultations under the Financial Sector Regulation (FSR) Act. “It is a bit of a fragmented approach because you will have standards under the FSR Act, and when COFI comes in, you will have standards there; but the outcome is the same,” Du Toit said.
Long and bumpy licensing ‘ride’
The pending licensing of financial institutions is top of mind among FAnews readers, and the FSCA will be hard-pressed to apply a consolidated, harmonised approach across the diverse institutions that will eventually fall under the COFI Act.
Diketso Mashigo, Department Head: Licensing at the FSCA, was invited to update the conference on the licensing challenge. “We have more than 12500 financial services providers (FSPs) that would need to be migrated into the COFI environment,” he said. That number excludes collective investment schemes (CIS), over the counter derivatives providers (ODPs), and pension fund administrators. Further complications arise in licensing FSPs that trade across multiple sectors, and in meeting activity-based licensing criteria.
Gibson said the FSCA was cognisant of the time it took to migrate insurance provider licences under the Insurance Act. However, lessons learned from that process and the more recent licensing of Crypto Asset Service Providers (CASPs) stood the authority in good stead. Du Toit weighed in at this point, saying the sheer scope of the COFI licensing regime was scary, and that implementation timelines would have to reflect this. According to Mashigo, success depends on proper engagement with relevant stakeholders. “We have also accepted that our processes need to be nimble to make room for adjustment,” he said.
After going back and forth on countless other regulatory complexities, the panel eventually concluded with a review of the audience’s responses to its three polls. Your writer has sliced and diced responses to the first poll to answer whether FSCA laws are (1) more suitable and (2) easier to navigate. Around 38% of respondents felt the laws were easier to navigate, while 62% said navigating new laws was challenging. On the plus side, around 70% felt that new laws were more suitable. “The navigation is a challenge that will not be resolved until we have the COFI Bill plus our underlying frameworks in place,” Du Toit conceded. And that could take years.
Regulatory uncertainty remains high
Asked in which area the FSCA should prioritise regulatory certainty, 53% of the audience responded COFI. Blockchain and emerging tech came in second, at just over one third. “This is aligned with where our attention is focused,” Gibson said, before turning to the final question. The majority (62%) in the audience singled out uncertainty and ambiguity as their biggest concern with transitioning to the COFI framework. This seemed an insane revelation given how long COFI has been percolating. But the FSCA seemed nonplussed.
“We will, in due course, be publishing the entire approach … we will publish a holistic plan or explanation of how the process will unfold,” Du Toit said. He then used his concluding remarks to urge the industry to frame their thinking in terms of the end goals of the legislation. “There will be a lot of legislative changes over the course of the next couple of years as we start bedding down the COFI Bill framework,” he said. The closing argument was that once this framework is mature, and the principles are in place, industry will benefit from far less legislative change going forward.
Writer’s thoughts:
As COFI continues its long road to enactment, financial services providers are already feeling the shift toward market conduct principles. How are you preparing your advice practice for a principles-based, conduct-first future? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
