Lizl Budhram | Head | Advice | Personal Finance | Old Mutual | mail me |
The soon-to-be-enacted Conduct of Financial Institutions (COFI) Bill is the next step in South Africa’s outcomes-based, principles-led market conduct regulation. Once effective, the Act will consolidate conduct-related provisions from multiple financial services sector laws into a single framework.
COFI pulls the main conduct duties into one legislative structure. It gives the Financial Sector Conduct Authority (FSCA) clear powers to set cross-sector conduct standards and respond to poor customer outcomes.
A shift from product category to activity-based licensing
Advice businesses have spent two decades embedding Treating Customers Fairly (TCF) under the Financial Advisory and Intermediary Services (FAIS) Act. As a result, they should have little trouble adapting to the new legislation and to the wider COFI market conduct rules.
All financial services providers (FSPs) will be re-licensed under COFI. The biggest change is a shift from product category to activity-based licensing. Under FAIS, licences were granted by broad product categories. Under COFI, authorisations will map to specific activities listed in Schedule 1 of the Bill. These include the provision of financial advice.
A transition process will apply. Existing licences will continue until mapped to the new activities. The FSCA will set timeframes once the Act commences.
For advice practices, the COFI Bill changes are best treated as a strategic reset. Start by mapping the services you provide to the new activity-based categories. Then, use the exercise to clarify where your practice adds value. This process is also an opportunity to review potential conflicts, simplify operations, and update governance policies to reflect how you serve customers.
Your leadership team must also demonstrate that decisions consistently support fair outcomes in customer interactions. That is the expectation under COFI market conduct rules.
The COFI Bill will embed requirements for product design and distribution. Product provider partners must ensure products are suitable for their target markets. They must also monitor distribution to prevent poor customer outcomes.
Functional areas identified by COFI
As a firm involved in distribution, you must know your target market in detail. You must also understand the main risks of every product you recommend. In addition, you should show how your advice aligns with the product’s design and intended customer. Expect closer scrutiny from product providers.
Do not be surprised if the COFI Bill does not show the expected level of operational detail. Instead, COFI identifies functional areas such as complaints handling, disclosure, distribution and remuneration.
The FSCA will expand on specific requirements through Conduct Standards issued under its powers in the Financial Sector Regulation (FSR) Act. Familiar frameworks like TCF will gain enforceable rules. In some areas, where adverse impact occurs, more prescriptive obligations may follow. These too will fall under COFI market conduct rules.
The bill will set strict requirements for advertising and disclosure. Information provided to customers must be accurate, balanced, comprehensive, and fair. The risk for financial advice practices is over-reliance on product partners to meet this standard. Take time to ensure that any product packs you send out meet plain-language requirements and avoid misleading promises.
As with the FAIS Act, the new legislation requires that your advice rests on adequate and appropriate information about the customer’s circumstances and objectives. In practice, you must continue to define the scope of advice, disclose charges and fees, and document product and service recommendations. You must also warn customers when information is incomplete or when they choose a different course.
Complaints handling and redress
COFI addresses unreasonable post-sale barriers, sets service-level expectations, and frames ongoing duties. Complaints handling and redress will also receive focus. The regulator will emphasise root-cause analysis and fair, timely resolution rather than complaint counts alone.
The FSCA has indicated that elements of the Retail Distribution Review (RDR) will embed through conduct standards under COFI rather than in the Bill itself. This means unresolved proposals on adviser categorisation and remuneration remain up for debate. Advice practices that are transparent about who they represent and how they are paid should be ahead of the curve.
The good news is that the COFI Bill will not take effect overnight. The FSCA has already signaled a multi-year transition plan with staggered implementation. Therefore, advisers should not wait until the Act becomes law. Start aligning with the new legislation today. Map your activities, tighten your documentation and record-keeping, be transparent about remuneration, and meet transformation targets.
