FSCA planned refresh leaves COFI percolating

The compliance teams at South Africa’s Financial services providers (FSPs) should have fresh insights into the conduct regulator’s focus over the coming years, following the end-June 2023 publication of the 2023 Financial Sector Conduct Authority (FSCA) Three-Year Regulation Plan, covering 1 April 2023 to 31 March 2026. The FSCA says the annual refresh of the plan supports transparency surrounding the ongoing legislative review and development of the regulatory framework [while] assisting industry to prepare for upcoming publications and legislative changes. 

Fit for purpose financial regulation

“We are committed to developing and establishing a robust regulatory framework that promotes the fair treatment of financial customers and the efficiency and integrity of financial markets; [the framework] is informed by international standards while being fit for purpose considering the domestic context,” wrote the FSCA in their media release announcing the 21-page document. They also reiterated the call for affected industry stakeholders “to participate in the process of regulatory change” through “constructive stakeholder engagement”. PS, the latest publication derives from an annual review / revision of the three-year rolling plan, first published in June 2022. The authority offered the following main inputs to the latest plan: 

• The extent to which the deliverables for the period 1 April 2022 to 31 March 2023, as set out in the 2022 Regulation Plan, have been achieved.
• Whether the priorities reflected in the 2022 Regulation Plan, as well as the stipulated deliverables and timelines, are still appropriate, and making changes to deliverables and timelines, where necessary.
• Including deliverables and / or timelines in respect of existing projects running over into the 2025-26 business year.
• Whether there are new initiatives of strategic importance that should be reflected in the Regulation Plan and, if so, the inclusion of such projects together with deliverables and timelines. 

All fair, but when do we get our COFI?

The question ‘top of mind’ among FAnews readers in the financial and risk advice disciplines will be when the long-awaited Conduct of Financial Institutions (COFI) Bill will finally see the light of day. The writer wished for a simple one-line answer to the question; but his hopes were dashed as he turned to section three of the plan, which suggests that the Bill will be percolating for some time. “Work in relation to the development of a holistic, cross-sector, robust and customer-focused regulatory framework under the COFI Bill progressed well during the year under review,” the FSCA said, before reminding stakeholders that the framework comprised “three phases that are being progressed concurrently”. 

Concurrently processed or not, it is very difficult to pin down a COFI implementation date. And even when the legislation beds down, the industry will likely face lengthy implementation periods. What is clear, is that the country’s financial services professionals will have to navigate multiple phases of regulatory intervention over the coming years. And that is in addition to the many life stages in financial planning and six (or eight or more) stages of load-shedding we face. Apologies for that silliness; let us get down to today’s business of deciphering the regulatory framework roadmap. 

Phase one of COFI is labelled as the ‘overall design of the new framework’. It came as a bit of a surprise that the authority is still working off an initial overall design of a conduct framework which merely “serves as a basis to start the development of the [eventual] framework”. In other words, you are going to wait until phase three of the process plays out before the framework is locked in or, as the FSCA explains, until the evolution and refinement of the current high-level design is finalised. 

An ongoing regulatory evolution

Phase two of COFI is termed ‘harmonisation and themed frameworks’. “The development of the harmonisation frameworks progressed well [over 2022-23] and the initial frameworks, for FSCA internal purposes, have been drafted,” the FSCA said. “These frameworks are now undergoing further internal review and it is envisaged that targeted industry consultation on the draft frameworks will occur during the second half of 2023”. In other words, you can expect the draft framework documents to coincide with your year-end vacation, with same being published in the first half of 2024 for public comment. 

In keeping with the KISS approach to regulation, the authority announced that its so-called ‘harmonisation frameworks’ were morphing into ‘themed frameworks’. No jokes, dear reader, you can turn to page nine of the publication to decipher the regulatory complexity this decision unleashes. The best this writer can do is to say that compliance specialists will have to apply cross-sectoral conduct requirements regardless of what part of the financial services sector their firm operates in, before drilling down into ‘chapters’ that contain industry specific requirements. “As these frameworks are no longer focused on harmonisation only, referring to these frameworks as ‘themed frameworks’ is more appropriate,” the FSCA explained. 

And that brings us to phase three of the COFI Bill process, titled ‘transition work’. “The existing financial sector laws that will be repealed through the COFI Bill, as well as regulatory instruments that have been pended as a result of overlap with the COFI Bill transition process, have been assessed to determine which requirements, in the respective laws and draft laws, can be deleted and incorporated into the themed frameworks forming part of phase two,” the FSCA wrote. It’s a long sentence that, among other things, touches on how the remaining Retail Distribution Review (RDR) proposals and proposals emanating from other FSCA discussion and position papers might be incorporated in COFI. 

Last minute detours could make COFI hard to ‘map’

It seems industry will wait deep into 2024 before the COFI transition is fully mapped out and its impact on different sectors of the industry are fully understood. You can turn to page 20 of the 2023 FSCA Regulation Plan for a summary of deliverables and three-year timelines for a range of regulatory initiatives. In fact, there are no fewer than 37 FSCA action points applicable to cross-cutting sectors (11); financial markets (10); collective investment schemes (7); alternative investment funds (1); insurance (1); and retirement fund administration (1) and retirement funds (6). For COFI, the three-year plan shows a couple of quarters or half-year periods during which deliverables exist, with no completion date in sight. 

There are, however, some actions that should complete by the final quarter of 2023, including the Joint Standard on IT Risk Management; Amendments to Joint Standard 2 of 2020 – Margin Requirements; and a couple of Conduct Standards for investments in derivative instruments. As for insurance, that item is the eagerly awaited Joint Standard on Outsourcing by Insurers, due for completion between April and June 2024. 

Writer’s thoughts:

It is one thing to report on industry operational and regulatory developments, but quite another to determine whether the industry is happy with same. Have you had a moment to review the 2023 FSCA Three-Year Regulation Plan? If yes, was it useful? If no, why not? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.