LEGAL NOTE JULY 2025: THE CONDUCT OF FINANCIAL INSTITUTIONS BILL UPDATE

THE CONDUCT OF FINANCIAL INSTITUTIONS BILL

At a high level, The Conduct of Financial Institutions Bill (known as COFI) is an umbrella piece of legislation governing financial institutions, to replace existing industry-specific conduct regulation, where there are many gaps and many overlaps. COFI will streamline and harmonise the legal landscape that financial institutions operate in, by providing a single, holistic legal framework for market conduct regulation in South Africa that is consistently applied to all financial institutions. COFI’s focus is regulating the general market conduct of financial institutions and the fair treatment of customers.

In 2018 the Twin Peaks regulatory model was formalised by the Financial Sector Regulation (FSR) Act, to strengthen financial sector regulation and oversight. The Twin Peaks regulatory reform was a direct response to the weakness of the financial services regulatory system revealed by the 2008 global financial crisis, such as inappropriate market conduct and the systemic risks of large insurers.

The FSR Act established the Financial Sector Conduct Authority (FSCA) and the Prudential Authority (PA) as the primary regulators, with the former focusing on market conduct and the latter responsible for prudential regulation. As one of the final steps in the Twin Peaks reform process, the COFI bill was drafted in conjunction with the FSR Act and was published for comment in December 2018

Principles underpinning the COFI bill

•        Activity-based approach: There are currently 13 different financial sector laws that regulate and supervise financial institutions. These laws are specific to each institutional definition, for example, retirement funds, financial services providers, etc. The new legal framework under COFI will shift away from this sectoral approach and will focus on the activities being performed instead. In other words, the law will cover the activity, rather than the type of institution. 

•        Principle-based approach: COFI moves away from a rules-based approach to compliance (tick box exercise) and sees the industry and regulator shifting towards making sure that their actions and processes are geared towards desired outcomes (or the spirit of the law). Financial institutions will thus need to support and uphold principles rather than simply follow rules – and regulators will have wider latitude to supervise the spirit, and letter, of the rules.

•        Outcomes-focused approach: Regulators will test institutions on the delivery of the outcomes, but the institutions can decide what processes and actions are required to meet the outcomes.

•        Risk-based approach: The new framework enables the regulator to identify and address areas that pose higher risks to customers and financial stability. This approach supports transformation and financial inclusion while ensuring compliance with relevant codes like the B-BBEE Code.

Objectives of COFI

•        Regulate how financial institutions treat their customers, aligning with the Treating Customers Fairly principles.

•        Consolidate the existing range of laws applicable to the financial sector.

•        Promote:

O trust and confidence in the financial sector

O innovation

O competition

O financial inclusion

O financial literacy

O transformation

O governance

O support fair and efficient financial markets

COFI and transformation

Under COFI, financial institutions will have to comply with the Financial Sector Code. Institutions will have to design, publish and implement a transformation policy, and then report on how they are meeting the set targets.

Fair treatment of customers

A core objective is to ensure that financial institutions prioritise the fair treatment of customers. This includes designing products and services that meet the needs of identified customer groups and providing clear, understandable information to customers.

Licensing

Currently, the licensing of financial institutions is done on an institutional basis, for example, as a bank or an insurer, etc. The bill proposes a comprehensive licensing schedule for all regulated entities and envisages that a financial institution carrying out one or more identified activities will have to be authorised for each activity. A licence will be granted on three levels: activity being performed, product involved and targeted customer.

The proposed licensing requirements emphasise the importance of robust governance structures within financial institutions, including the appointment and debarment of representatives.

COFI and retirement funds

It has been proposed that initially retirement funds will have to be licensed under both the Pension Funds Act (PFA) and COFI to ensure consistency in the way customers are treated. Over time, conduct requirements will however be shifted from the PFA to COFI.

Retirement fund administrators and other service providers currently regulated under the PFA will, in future, only be licensed and authorised under COFI. There will be a transitional period to ensure alignment between the provisions of the PFA and COFI.

Boards of management of retirement funds will remain responsible and accountable for compliance with all applicable legislation as part of their wider fiduciary duties. Given this important function, boards will have to comply with certain fit and proper requirements to be prescribed by the FSCA under COFI, which will be issued as conduct standards.

A trustee who is elected by the employees, the participating employer or the fund’s sponsor will not be required to be licensed under COFI. Professional or independent trustees will however have to be licensed and will also be subject to fit and proper requirements as part of their wider regulatory obligations.

Retirement funds can also expect enhanced supervision. The FSCA will adopt a more proactive and intrusive supervisory approach, which may include desktop reviews and on-site visits for high-impact funds. This could lead to more rigorous oversight and enforcement of compliance standards.

Overall, COFI will require trustees to be more proactive in ensuring that their governance practices, decision-making processes and operational systems align with COFI’s objectives of fairness, transparency, and customer protection.

When will COFI be published?

In their latest 3-year regulation plan, the FSCA confirmed that the development of a “holistic, cross sector, robust, and customer-focused regulatory framework” under COFI remains a top priority. The COFI bill is a critical development that will shape the future conduct framework, and many of the FSCA’s current conduct regulatory framework projects have some dependency on its promulgation. Given the significant changes by COFI, it is expected that the FSCA will follow a phased approach to its implementation:

     Phase 1: The initial high-level design of the new regulatory framework, which will inform the development of the underlying regulatory frameworks.

     Phase 2: Targeted consultation on the themed frameworks.

     Phase 3: Transition the regulatory instruments under the existing sectoral laws into COFI.

To date, no firm dates have been provided. However, there was a Cofi Bill update in the budget speech delivered on 12 March 2025, where National Treasury indicated that the final draft of the Conduct of Financial Institutions (COFI) Bill awaits certification from the office of the Chief State Law Adviser, whereafter it will be submitted to cabinet for approval to be tabled in parliament. It was confirmed then that the FSCA was preparing for the COFI Bill’s implementation, as is explained in more detail in its 2025 three-year regulation plan.

In a recent meeting between the IRFA and the FSCA on 19 June 2025, the following feedback was provided:

•        The Bill has progressed as the state law advisors feedback and certification has been provided.

•        The State law advisors have flagged some issues which are being addressed by National Treasury.

•        The Bill will be ready for submission to cabinet before the end of the year. 

•        There will be no further public consultation by National Treasury – this will be done through parliament.

No firm dates have been provided. In the interim, the FSCA will regulate financial institutions using conduct standards as they presently do.