The new licensing framework introduced by the COFI Bill

Financial institutions licenses are currently issued on an institutional base for instance licenses are instance issued for banks, insurers, and Financial Service Providers to name a few.

The new licensing framework will be based on the activities the financial institution performs. The activities currently listed in the COFI Bill are:

1. Providing a financial product or financial instrument

2. Distributing Financial Products ( for instance sales and execution)

3. Financial Advice

4. Managing and Administering Investments (i.e Discretionary investment management)

5. Benefits Administration (i.e Medical scheme administration)

6. Professional Fiduciary or Custodian Service

7. Payment Service

8. Financial Markets Activities(i.e trading, making a market or clearing services

9. Providing benchmarks and related services (i.e providing an index)

10. Service related to buying or selling of foreign exchange

11. Credit Rating Service

12. Debt collection service

The new licensing approach is called a three-tier licensing approach:

A financial institution will receive a single license from the FSCA to be authorised to perform one or more activities.  The licensing conditions will specify the products and targeted customers to which the activities will apply. If the licensee wants to add or remove an activity it shall require a change in the primary license, but variations to the products or customers will only require a variation in the licensing conditions.

The reason why the licensing framework is being changed from institutionally-based to activity -based licensing is due to the fact that the institutional-based approach:

• Lacks regulation of business conduct;

• Creates gaps and opportunities to structure an organisation to fall outside the scope of regulation; and

• Technology is bringing in a new type of service provider which does not fall in the current licensing approach.

  
  

The transition from an institutional-based approach to activity-based approach will not happen overnight.  The COFI Bill allows for a transitional period of 2 years after the COFI Bill came into effect. During the transitional period, existing licenses will be converted.  All activities financial institutions currently perform will be mapped to the new framework where after a new license will be granted. Up until the time the new license is granted the financial institution will be allowed to continue operating under the existing license.