Second Draft of the COFI Bill published
Conduct of Financial Institutions
The Conduct of Financial Institutions Bill (COFI) intends to regulate how the financial services industry treats its customers and was first published by the Minister of Finance in December 2018. During October 2020, however, the National Treasury published the second draft of the COFI bill. The bill follows the Financial Sector Regulation Act (FSR) which came into effect during 2018 to establish the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA) as regulators in the financial services sector.
The COFI Bill is part of the Twin Peaks reform process currently in progress and aims to provide a consolidated regulatory framework for the conduct of financial institutions in South Africa. This will further give legislative effect to the market conduct policy approach which includes the implementation of the Treating Customer Fairly principles.
The COFI Bill differs from current financial sector laws in the following aspects:
It is principle-based rather than rule-based;
Supervision will be focused on various outcomes;
It is an activity-based regulation;
It is risk-based and proportionate.
After receiving numerous comments on the first draft of the Bill certain changes have been made to the Bill which led to the publishing of a Second Bill. The key changes include the following:
Application of the COFI Bill in relation to existing legislation: Several proposals are made to amend legislation so that it may appropriately collaborate with the COFI framework.
Approach to conduct standards: The clauses enabling provisions for making conduct standards have been removed. The COFI Bill now contains provisions allowing the FSCA to set conduct standards on the range of matters provided for in the FSR Act.
A refined approach to licensing: An organisation will be required to be licenced in terms of the COFI Bill but the provisions for licencing will be those in the FSR Act.
The focus on transformation: The requirement for financial institutions to have transformation policies includes the requirement to align these policies with the achievement of tangible targets.
Approach to medical schemes sector: The revised draft of the Bill removes all reference to medical schemes until the work of this task team has been concluded.
Alignment to financial markets review: New activities proposed to be regulated through the FMA review are included in the licensing schedule of the COFI Bill.
Application to the non-retail market: Corporate advisory services have been included as a licensed activity with the aim of including the activities undertaken by institutions such as investments banks, for instance, the arrangement of debt and equity issues and advisory services. A new license activity (called ‘lending’) has been added to capture the provision of non-retail credit, i.e. lending agreements that are not regulated in terms of the National Credit Act.
Please see the following documentation for further information: