Every major regulatory reform in South Africa’s financial services industry seems to bring with it predictions that independent financial advisers will struggle to survive. Billy Seyffert (pictured), the chief operating officer of Moonstone Compliance, says the Conduct of Financial Institutions (COFI) Bill is no exception.
Opening his presentation at Moonstone’s Regulatory Update Webinar yesterday, Seyffert said uncertainty around regulatory change has repeatedly been exploited to suggest that compliance costs will become unmanageable and that advisers will be forced into franchise or tied-agent models. He said similar claims surfaced when the Financial Advisory and Intermediary Services Act was introduced, after the 2008 Fit and Proper requirements, and again following the 2017 Fit and Proper Determination – and “it’s running rife again” with COFI.
Rather than dwelling on speculation, Seyffert addressed the practical question advisers continue to ask: what will COFI change in the way they run their businesses and deal with clients? Instead of attempting to unpack every aspect of the draft Bill, he used what he termed “continuous disclosure” as a way of illustrating the broader shift from rules- and process-based regulation to an outcomes-based conduct framework. Drawing on the wording and structure of the Bill, he argued that the concept provides a practical lens through which to understand COFI’s emerging conduct philosophy.
Seyffert emphasised that his presentation was based on the publicly available 2020 version of the COFI Bill because the latest Cabinet-approved draft has not yet been released for public comment. The industry has also not yet seen the proposed conduct standards, which are expected to give practical effect to many of the Bill’s provisions, and implementation timelines remain uncertain.
However, he said the policy objectives underpinning the Bill had remained largely consistent over time, making it possible to understand the direction of the proposed conduct framework before the legislation is finalised.
At the same time, he said several features of the future framework appear effectively settled, including:
- An activity- and sub-activity-based licensing framework, “with one licence which authorizes you to perform certain activities and certain sub-activities”.
- The FSCA must issue licences to current licence-holders, meaning existing licence holders would go through a conversion process rather than a fresh application.
- A framework for representatives is expected to remain, although juristic representatives may not be authorised to perform all sub-activities.
- The FAIS “key individual” will be replaced by a broader “key person” concept that includes “any head of control function” and members of an FSP’s governing body.
- Governance, risk, and compliance will “form a big part of the framework”, with a definite focus on outcomes supported by conduct standards.
- Familiar requirements such as operational ability, financial soundness, fit and proper requirements, and the segregation of client funds will continue in some form.
- A risk-based approach will be combined with proportionality, so that higher-risk business models attract more scrutiny.
From providing information to promoting understanding
Although “continuous disclosure” is not a defined concept in the Bill, Seyffert used the phrase as a practical illustration of COFI’s broader conduct philosophy and the shift in regulatory thinking.
Referring to the draft Bill’s disclosure provisions, Seyffert said one of its most significant themes is the emphasis on whether disclosure supports customer understanding.
He contrasted this with the current compliance environment, where the focus is often on whether prescribed information has been provided. Under the conduct framework envisaged by COFI, he said, the more important question becomes whether disclosure has enabled the customer to understand the financial product or service.
The focus therefore shifts from asking, “Did you disclose?” to asking, “Was the disclosure effective?”
Seyffert said this represents a shift from measuring activities to measuring effectiveness. Rather than simply asking whether required disclosures were made, firms may increasingly need to demonstrate that their communication achieved its intended purpose.
Seyffert said the shift is consistent with findings from behavioural economics, which have highlighted the limits of disclosure-based regulation. More information does not necessarily lead to better understanding: customers may not read disclosures, may not understand or remember them, or may be overwhelmed by the volume of information. He described this as a “disclosure paradox” – as products become more complex, more disclosure can lead to longer documents and lower comprehension. The challenge, he said, is not always insufficient information, but ineffective information.
He also argued that disclosure should increasingly be viewed in the context of the advice process. As he put it, “your disclosure envelops your advice”: the explanation of relevant facts should help customers to understand why a recommendation is appropriate for their circumstances, what the product does, and what it does not do.
Beyond the point of sale
Seyffert said continuous disclosure also illustrates a broader move away from treating disclosure as a once-off event.
Historically, disclosure obligations have tended to arise at specific points, such as onboarding a client, providing advice, or concluding a transaction. Referring to the Bill’s requirement for disclosure before, during, and after the conclusion of a contract, Seyffert said COFI points towards communication that continues throughout the life cycle of the customer relationship.
He said this reflects the reality that customers’ circumstances, objectives, and risk profiles change over time, while products, costs, and risks may also evolve. Information provided only at the outset of a relationship may therefore become less effective as those circumstances change.
The point, he suggested, is not communication for its own sake, but communication that remains relevant, timely, and capable of supporting informed decisions.
Rather than viewing disclosure as a once-off compliance exercise, Seyffert said the concept illustrates a model of ongoing customer communication intended to support informed decision-making throughout the relationship.
For Seyffert, the importance of continuous disclosure lies less in the phrase itself than in what it reveals about the future conduct framework. In his view, the future conduct framework appears to place greater emphasis on customer outcomes, customer understanding, ongoing accountability, governance effectiveness, and evidence that communication has achieved its purpose, rather than merely proving prescribed information was delivered.
He encouraged advisers to focus less on speculation about COFI’s final form and more on understanding the emerging conduct framework that the Bill seeks to establish.
