Ethics and Compliance: From Principles to Practice

In this article, we look at how ethics has evolved in the financial services industry – and what this means for financial service providers (FSPs) today.

Over the past 30 years, South Africa has seen a steady progression in how ethics is treated in the financial sector – from being encouraged as good business practice in the 1994 King I Report to becoming a regulatory priority through laws such as the Financial Advisory and Intermediary Services (FAIS) Act, its supporting regulations and the Treating Customers Fairly (TCF) Outcomes. Now, with the proposed Conduct of Financial Institutions (COFI) Act, ethical conduct is set to become even more enforceable.

What are the basic principles of business ethics?
At its core, ethics goes beyond regulatory compliance – it’s about doing what’s right. Several principles underpin ethical business behaviour, regardless of industry:
• Honesty: Being truthful in all business dealings.
• Integrity: Acting in line with moral principles.
• Fairness: Treating all stakeholders equitably and without bias.
• Accountability: Taking responsibility for actions and their outcomes.
• Respect: Valuing the rights, dignity and contributions of others.
• Regulatory compliance: Following the laws, regulations and standards that govern the industry.

These principles should guide decision-making, stakeholder relationships and long-term strategy.

King I and FAIS: A shift from guidance to governance
Ethics gained prominence in governance discussions in the 1990s with the introduction of the King I Report, which positioned ethics as a cornerstone of good governance. While not legally binding, it introduced a new way of thinking about leadership in business – one rooted in transparency, accountability and long-term value.

This thinking gained regulatory weight with the introduction of the FAIS Act, which came into effect in 2004. The Act set clear, enforceable expectations for FSPs and their Representatives to act honestly, fairly and with due care, skill and diligence. Supporting Board Notices, such as BN80 of 2003 and BN194 of 2017, reinforced these obligations through the General Code of Conduct and Fit and Proper requirements, establishing a link between ethical behaviour and professional competence.

TCF: Raising the bar
In recent years, the introduction of the six TCF Outcomes took things a step further. Rather than focusing on rules, TCF focuses on outcomes – do clients feel they’ve been treated fairly throughout their journey with a financial product or service?

TCF requires businesses to embed fairness into their operations, communications, advice and after-sales service. While these Outcomes are not set out in legislation, regulatory bodies like the Financial Sector Conduct Authority (FSCA) increasingly expect FSPs to demonstrate how these principles are being applied in practice.

In a nutshell, the six TCF Outcomes are:
• Clients are confident they are dealing with firms where fair treatment is central to the culture.
• Products and services are designed to meet the needs of identified client groups.
• Clients are given clear information and are kept appropriately informed before, during and after the point of sale.
• Where advice is given, it is suitable and takes account of the client’s circumstances.
• Products perform as firms have led clients to expect.
• Clients do not face unreasonable post-sale barriers to switch products, switch provider, submit a claim or make a complaint.

COFI: Making ethics the law
With the COFI Act on the horizon, ethical conduct will no longer be a soft concept – it will be embedded in enforceable regulation. COFI takes what started with King I and turns it into a comprehensive, principles-based law.

The proposed Act places ethical conduct at the heart of financial sector regulation. It promotes the fair treatment of customers by requiring financial institutions to act in a way that is fair, transparent and accountable. Institutions must ensure their products meet client needs, that communication is clear and accurate, and that customers are not misled or disadvantaged.

COFI also strengthens transparency by demanding full and honest disclosure, and places greater responsibility on institutions to be accountable for the outcomes of their conduct. Fit and proper requirements are emphasised, ensuring that individuals in key positions are not only competent but also uphold high ethical standards. Moreover, FSPs will be expected to prove positive client outcomes by collecting data and reporting their findings to the regulator.

Importantly, COFI introduces measures to curb the ethical risks associated with sales-driven incentives. It encourages responsible remuneration practices that balance business objectives with fair customer outcomes. In doing so, COFI raises the bar for governance and oversight, reinforcing that acting with integrity is not optional – it’s a regulatory expectation.

Ethical conduct in the real world
While most FSPs strive to consistently apply ethical principles in their day-to-day decision-making, this is easier said than done.

In large organisations, complexity, performance pressures and siloed accountability can hinder ethical responsiveness. Smaller FSPs may lack formal systems and training but often benefit from closer client relationships and simpler structures that allow for faster ethical alignment.

Bringing ethics to life requires more than policies. It calls for a culture shaped by leadership, clear governance structures, and performance indicators that reinforce doing the right thing. Ethics should also be seen as a shared responsibility across providers, intermediaries and clients – with fairness at its core.

More than a tick-box
One of the biggest risks to any compliance programme is turning it into a checklist exercise – and this applies to ethics as well. An organisation’s leadership plays a vital role in shifting ethics from theory to practice. By modelling ethical behaviour, setting a clear tone from the top and reinforcing values through communication and action, leaders help create a culture where integrity becomes part of how business is done.

Leaders can encourage ethical behaviour by:
• Leading by example and demonstrating ethical decision-making.
• Communicating clearly about expected behaviours and values.
• Embedding ethics into strategic planning and business objectives.
• Holding themselves and others accountable for ethical conduct.
• Recognising and rewarding behaviour that aligns with the organisation’s values.

FSPs can take meaningful steps to embed ethics into their culture by:
• Making TCF part of performance reviews.
• Keeping ethics on the agenda at management meetings.
• Tracking whether client outcomes match intentions.
• Offering ongoing, role-specific ethics training.
• Encouraging open communication and protecting whistle-blowers.

Rules may set the baseline, but real change happens in everyday decisions, conversations and choices.

A better industry, built on values
The progression from early governance frameworks like King I to the forthcoming COFI Act illustrates the increasing regulatory commitment to embedding ethics into everyday business conduct.

While much has been achieved, the emphasis now is on turning principles into consistent practice. As we prepare for when COFI becomes law, FSPs have an opportunity to lead with integrity and demonstrate that ethics is not just about staying on the right side of regulation – but about building a future-ready, client-centred financial sector.