The Conduct of Financial Institutions Bill (COFI) intends to regulate how the financial services industry treats its customers. The Bill was published by the Minister of Finance in December 2018 and was open for public comment until 1 April 2019.
COFI Bill and the reform process
The COFI Bill is part of the Twin Peaks reform process underway in South Africa. The new Twin Peaks model of regulation was formalised when the Financial Sector Regulation (FSR) Act was signed into law in early 2018. As a result, two new financial sector regulators – the Prudential Authority and FSCA – were established in April 2018. The COFI Bill is the next phase of legislative reform, aimed at strengthening the regulation of the financial sector in relation to customer treatment and general market conduct.
The FSR Act gives customers and financial institutions an indication of what to expect of financial sector regulators, while the COFI Bill outlines what customers and industry players can expect of financial institutions. The aim of the Bill is to streamline the legal framework for regulating the conduct of financial institutions and to give legislative effect to the market conduct policy approach, including the implementation of the Treating Customers Fairly (TCF) principles.
The Bill and the FSCA’s approach
In the latest FSCA Bulletin, Leanne Jackson, legal advisor of the FSCA sheds some more light on the COFI Bill and the FSCA’s new approach. According to Jackson, the Bill should be read in conjunction with the FSCA’s regulatory strategy to give it more context. According to this strategy, the regulatory and supervisory approach of the conduct regulator seeks to achieve the following:
- Adopting a set of guiding principles, including (among others) being pre-emptive, proactive, risk-based, proportional, intensive, intrusive, transparent, and outcomes-focused;
- Embedding TCF outcomes in regulatory and supervisory frameworks;
- Developing conduct standards that combine principles and rules in a way best designed to achieve the desired fair outcomes for customers – not relying only on rules and ‘box ticking’;
- Moving the FSCA’s organisation design from an ‘industry silo’ structure to an activity-based structure (with cross-cutting licensing, supervisory and enforcement functions);
- Building capacity for the FSCA’s new functions, which include overseeing banks, payment service providers, aspects of credit, and financial conglomerates; and
- Using the new FSR Act toolkit to strengthen regulatory, supervisory and enforcement processes – including customer redress.
This approach will be used to drive the FSCA’s dedicated focus on the following strategic priorities:
- Building the new organisation – new structures, new functions and new skills; An inclusive and transformed financial sector, with a focus on the FSCA’s role in supporting and monitoring the effectiveness of industry commitments to their transformation goals under the Financial Sector Code;
- A robust regulatory framework that supports TCF and works towards the overarching conduct framework under the COFI Bill;
- Informed financial customers through a consumer education mandate (the FSCA now has the power to set standards for industry education initiatives);
- Strengthening the efficiency and integrity of financial markets, with comprehensive financial markets reviews already in progress; and
- Adopting a coordinated approach towards financial sector technology advances (FinTech) by collaborating with the Prudential Authority, SARB, other regulators and the FinTech sector to understand new ways of doing business and disruptive technologies.
“The COFI Bill, as a holistic, comprehensive and consistent legal framework for market conduct regulation of all financial institutions, which supports innovation and transformation, will empower the FSCA to promote improved financial sector conduct and fairer outcomes for more financially resilient South Africans”, Jackson concludes.
The COFI Bill will probably be tabled in Parliament towards the end of the year. Based on various media reports most financial services providers welcome the Bill, although a few mixed reactions were shared by journalists. Or as the Daily Maverick reports: “The proof of the pudding will be in the ability of the regulator to carry out its mandate with competency and its proficiency in measuring outcomes for evidence of inclusionary progress.”
Click here to download the FSCA’s Bulletin.