Our COFI is running late…
Desiree Reddy
The Conduct of Financial Institutions (CoFI) Bill is intended to “reshape the future conduct regulatory framework by consolidating the conduct financial sector laws into a single overarching piece of conduct legislation.” ~ Financial Sector Conduct Authority (FSCA)
The COFI Bill is still in the drafting and consultation process, and has not yet been enacted. The first draft of the bill was published for public comment in December 2018. Following substantive industry feedback, a second draft of the Bill was published for public comment in September 2020. A third draft may be forthcoming, though the timing remains uncertain.
A brief re-cap
The COFI Bill, or the Bill, is a proposed law that aims to reshape the regulation of the financial sector in South Africa. The Bill is intended to complement and operationalise the Financial Sector Regulation Act, 2017, as part of the Twin Peaks regulatory reform, and focuses on addressing inappropriate market conduct practices. The COFI Bill applies to ‘financial institutions’, which are defined to include banks, insurers, asset managers, brokers, financial advisors, administrators, pension funds, collective investment schemes, hedge funds, private equity funds, custodians, brokers, and credit rating agencies. A wide range of licensable activities are provided for, including, the provision of a financial product, distribution, financial advice, discretionary investment management, administration, fiduciary or custodian services, payment services, debt collection services, financial market activities and corporate advisory services. It is intended that the COFI Bill will repeal existing sector specific financial service laws, replacing the same with new licensing requirements in terms of the COFI framework.
The COFI Bill requires financial institutions to comply with various market conduct principles, which include providing clear information, fair promotion of financial products and services, appropriate product design, and suitable advice. COFI also imposes ongoing licensing requirements, which include: the appointment of qualified and competent individuals who meet the prescribed fit and proper standards, adherence to governance standards, maintaining sufficient financial resources and operating capital, reporting and record-keeping. To ensure that customer assets are protected, the Bill requires that financial institutions segregate customer assets, and deal with such assets in accordance with the provisions of the Bill and in adherence to the customer’s instruction.
While the Bill has been welcomed by some as a necessary and comprehensive reform of the financial sector conduct regulation, it has also faced some criticisms. One of the primary concerns is that the current framework, while it may not be perfect, is functioning adequately and has not displayed any major systemic failures or shortcomings that warrant a complete overhaul, the associated costs, or the potential industry disruption.
Current status
In its 2024 Regulation Plan, the FSCA noted that it continues to support National Treasury in developing and finalising the COFI Bill for submission to Parliament. The focus for 2024, is on to how best to transition all instruments under existing sectoral laws to the COFI Bill, with the intention of starting engagements with the COFI Bill Transition Working Group (an FSCA established, industry reference group) during the course of 2025.
The Bill represents a monumental legislative initiative with profound implications for the financial sector and its customers. Many of the FSCA’s current conduct regulatory framework projects have some dependency on the promulgation of the COFI Bill, making it crucial that the legislation is passed promptly. However, it is equally important to ensure that an appropriate implementation approach, that takes into account the harmonisation of existing laws and the development of conduct standards, is adopted. It is likely that the Bill will undergo further refinement and consultation before it becomes law, and that the FSCA will provide guidance and support for the transition to the new conduct regulatory framework. For now though, we wait.
