COFI: All about the customer

There South Africa's financial sector is on the cusp of a profound transformation with the imminent arrival of the Conduct of Financial Institutions (“COFI”) Bill. This landmark legislation presents itself as the second leg of the “Twin Peaks” regulatory reform model, to stand alongside the Financial Sector Regulation Act (FSRA) that has already been implemented. COFI aims to consolidate and strengthen market conduct laws, fundamentally changing how a financial institution operates and interacts with its customers. At its heart, COFI seeks to usher in a new era of fairness, transparency, and consumer protection with the aim of creating a more customer-focused and outcome-driven regulatory approach, effectively moving away from the rules-based system currently employed in the industry.

What is COFI? 

Current market conduct regulations are fragmented across various financial sector laws, COFI will streamline this complex landscape into a single, overarching piece of legislation, providing a consolidated set of market conduct rules for all financial institutions to comply with. This means that similar financial institutions will be regulated consistently, regardless of the type of product or service offered, ensuring uniform standards across banks, insurers, financial advisors, and other financial service providers (FSPs). 

The core objectives of COFI are to significantly enhance customer protection and fair treatment in the financial sector, formalising the "Treating Customers Fairly" principles. It also seeks to foster financial inclusion by ensuring accessible and appropriate products for a wider population. Ultimately, COFI will boost trust and confidence by increasing compliance and accountability across the financial industry. 

From FAIS to COFI: The Big Shift to Market Conduct 

To understand COFI's significance and its impact on FSPs, it's important to note the main differences that will occur when COFI takes effect. Currently the Financial Advisory and Intermediary Services (FAIS) Act, which will eventually be repealed by COFI, primarily regulates the financial advisory and intermediary services provided by FSPs, with its main focus on product categories and emphasises the adoption of a rule-based and prescriptive approach. Its key principles including fit and proper provisions, conflict of interest, and customer suitability. 

COFI, on the other hand promises to represent a “big shift to the financial market conduct” with its scope extending to a wider range of financial activities and financial institutions, including those not currently regulated under FAIS. The key principles under COFI includes: enhanced customer protection, consistent data collection for industry market conduct risk analysis, a new reporting system for Financial Sector Conduct Authority (FSCA) market conduct and customer outcomes, increased FSCA oversight, industry-wide application, and a new licensing system based on the type of activities performed by a financial institution rather than institutional type, meaning, institutions will be licensed for specific activities rather than being licensed as a financial services entity as a whole.  

FSCA Regulatory Strategy for COFI: A Customer-Centric Approach 

On 6 May 2025, the FSCA published its Regulatory Strategy for 2025 - 2028, outlining its strategic direction for the next three years, with its major focus on preparing for the implementation of COFI. The Regulatory Strategy sets out the FSCA’s objective in the achievement of the desired market and customer outcomes outlined in COFI, echoing the implementation of supervisory technology to streamline licensing processes, enhancing risk-based supervision, and enabling more effective, data-driven oversight of the financial sector. This is a positive shift in the industry given the FSCA’s commitment to ensure alignment with COFI and its desired market outcomes. 

In preparing for the implementation of COFI together with the guidance provided to the FSCA under the FSRA, the FSCA furthermore outlines its outcome-based principles by shedding light on its intention to monitor financial institutions by embedding these principles into its regulatory frameworks and supervisory approaches and shifting its focusing to:

• fostering a customer-centric culture and governance, where financial institutions embed client needs into their core decision-making process;
• products and services that demonstrate suitability, appropriateness, and increased access, ensuring they are designed to meet diverse customer needs and reach a wider population;
• critical customer empowerment by clear communication, transparency, and financial empowerment, meaning customers receive understandable information throughout the product lifecycle to make informed choices;
• the demand for fair and sustainable advice and distribution models which guarantees access to professional, unconflicted guidance; emphasises the quality and performance of products and services, ensuring they reliably meet customer expectations and;
• finally, encouraging strong post-sales responsiveness and support which will enable swift and effortless resolution of queries, claims, and disputes for customers. 

FSP's Obligations: Directly Impacting Customers 

In terms of COFI, financial institutions will have clear and defined obligations when providing financial products and services to targeted and non-targeted customers, effectively mandating financial institutions to follow through on the TCF principles, by making it a regulatory requirement under COFI to comply with.

These obligations will now mandate financial institutions to ensure appropriated products and services, meaning offerings are genuinely tailored for specific target or impacted financial customers, with evidence provided to the FSCA that they move beyond generic solutions to fit individual needs. Financial institutions will further be required to maintain objectivity, providing products and services without bias to enable customers to make fully informed decisions and ensuring advice always serves the customer's best interest, free from conflicts. Additionally, they must support the delivery of appropriate financial products and instrument that reinforces suitability by aligning offerings with the customers' financial goals and risk appetites. Finally, FSPs are held accountable for product performance, ensuring that offerings reliably meet the expectations set through their information, representations, and advertising, thus upholding their promises to customers. 

COFI's Impact on Financial Advisors and Clients 

The COFI framework specifically outlines certain requirements that are applicable to financial advisors, further solidifying the customer-centric approach:

• Culture and Governance, mandates the principles that all licensed financial institutions operate with integrity, fairness to customers, and market confidence. These principles include that a financial institution must implement robust governance arrangements that foster a customer-centric culture and manage conflicts of interest effectively. Remuneration practices must be fair and not impede customer treatment or market integrity. Furthermore, institutions must maintain fit and proper key persons and comply with transformation plans. Ultimately, this chapter ensures comprehensive oversight of conduct and governance to protect customers and market stability. 

• Financial Products and Services, establishes core principles for how financial institutions must provide these offerings. It mandates that all products and services must be appropriate for targeted customers, delivered objectively, and genuinely support the delivery of appropriate financial instruments. Crucially, institutions must ensure that the performance of these products and services consistently meets customer expectations as conveyed through all communications and advertising. 

• Post-Sale Barriers and Obligations is a crucial chapter that will address principles relating to post-sale barriers and service levels. This directly tackles issues such as difficult claims processes, unresponsive customer service, or unnecessary hurdles for clients trying to access their funds or information. It aims to ensure that the support provided to clients after a sale is efficient and fair. 

Conclusion 

COFI represents a monumental shift in South Africa's financial regulatory landscape. For members, it promises a future where financial institutions, including PPS, are not just regulated, but are inherently driven by principles of fairness, transparency, and accountability when serving our members. By shifting from a rules-based to an outcomes-based approach, and by holding financial institutions accountable for objective, appropriate, and performant products and services, COFI aims to build a more trustworthy and responsive financial sector that truly serves the long-term financial goals and well-being of all South Africans. While the transition will require significant effort from the industry, the benefits for consumers are poised to be transformative.