FSCA’s three-year regulatory strategy anchored in COFI roll-out

Preparing for and implementing the Conduct of Financial Institutions (COFI) Bill will be a significant focus of the Financial Sector Conduct Authority over the next three years. This much is clear from the Authority’s “Regulatory Strategy 2025 to 2028” document, released this week.

As FSCA Commissioner Unathi Kamlana said in the document, “A major focus will be preparing for the implementation of the Conduct of Financial Institutions Bill. This involves developing a regulatory framework that is robust yet streamlined, refining our licensing and supervisory approaches to remain adaptive to industry changes and aligning them with the principles of the COFI Bill.

“As part of this, we are also preparing to regulate new activities that will fall within our jurisdiction under the COFI Bill. These efforts will further build on the work done to date to ensure more consistent and predictable delivery of desired outcomes for all financial customers across the financial sector.”

The FSCA’s 2025-2028 strategy articulates five strategic objectives, several of which directly relate to the implementation of COFI:

• Improve industry practices to achieve fair outcomes for financial customers.
• Act against misconduct and support confidence and integrity in the financial sector.
• Promote the development of an innovative, inclusive, and sustainable financial sector.
• Empower households and small businesses to be financially resilient.
• Accelerate the transformation of the FSCA into a socially responsible, efficient, and responsive conduct regulator.

COFI will be integral to achieving these objectives, particularly in harmonising regulatory frameworks, enhancing supervisory capabilities, and fostering a customer-centric financial sector.

The strategy says the implementation of the COFI Bill “will bring significant changes to how market conduct is regulated in South Africa”.

Developing a harmonised regulatory framework

The FSCA aims to transition existing conduct-focused financial sector laws into a holistic regulatory framework under COFI. This involves harmonising and rationalising current frameworks to ensure consistent outcomes for financial customers. This approach seeks to move away from a fragmented, sectoral model toward a principles-based, outcomes-focused framework that mitigates regulatory arbitrage and ensures fairness across the sector.

To achieve this, the FSCA will focus on:

• Consolidating and rationalising regulations. The FSCA plans to streamline the conduct regulatory framework to address common themes, such as culture and governance, through initiatives such as Joint Standards with the Prudential Authority (PA).
• Ensuring flexibility and proportionality. The framework will be designed to be flexible, allowing for proportional application of laws based on the scale, size, and complexity of financial institutions.
• Addressing emerging risks. The FSCA will ensure the COFI framework addresses sector-specific gaps and emerging risks, such as those posed by technological advancements and sustainability considerations.

The FSCA acknowledges potential delays in the COFI Bill’s finalisation. To mitigate this, it has initiated an incremental roadmap to bring additional financial services, such as payment services, debt collection, and credit provision, under its regulatory purview in the interim.

Refining licensing and supervisory approaches

COFI will introduce a new licensing schedule for all entities regulated by the FSCA, aligning with the Financial Sector Regulation Act but subject to potential changes upon the Bill’s finalisation.

The FSCA plans to refine its licensing and supervisory approaches to adapt to industry changes and ensure alignment with COFI’s principles.

The FSCA will leverage its supervisory technology (suptech) platform, the Integrated Regulatory Solution (IRS), to modernise licensing processes.

The FSCA will embed a harmonised risk assessment methodology across sectoral areas, including financial conglomerates and groups. This will involve refining conduct of business risk returns and other supervisory data collection mechanisms to support evidence-based supervision.

The FSCA is preparing to regulate new activities under its jurisdiction as envisaged by COFI, such as payment services and debt collection.

Collaboration and co-ordination

The strategy recognises the importance of collaboration with other regulators and stakeholders to ensure a seamless transition to the COFI framework. This includes working closely with the PA, the South African Reserve Bank, National Treasury, and the Council for Medical Schemes.

The FSCA and PA have established a joint working group to manage the transition of prudential regulation for retirement funds, collective investment schemes, and friendly societies to the PA by 31 March 2026, and medical schemes by 31 March 2027.

The FSCA will work to delineate roles among regulators with overlapping mandates to minimize duplication and ease compliance burdens.

The FSCA will engage with industry stakeholders through workshops, consultations, and reference groups to support the development of the COFI framework.

Transformation and financial inclusion

COFI is expected to empower the FSCA to take a more active role in promoting transformation and financial inclusion. The strategy outlines plans to enhance internal readiness for this role, including upskilling supervisory teams on the Financial Sector Code and refining supervisory methodologies. The FSCA will also strengthen relationships with stakeholders such as the Financial Sector Transformation Council, the Employment Equity Commission, and the B-BBEE Commission to drive transformation efforts.

Additionally, the FSCA will monitor access, usage, and quality of financial products to deepen financial inclusion, particularly for low-income households and small businesses.

Leveraging the IRS

The IRS is a cornerstone of the FSCA’s strategy to enhance regulatory and supervisory capabilities. The platform will streamline processes, improve data collection and analysis, and enable timely, informed decision-making.

The IRS is central to the FSCA’s efforts to refine and streamline licensing processes, particularly in preparation for COFI. This modernisation is critical for aligning licensing with the COFI Bill’s proposed new schedule for regulated entities, ensuring efficiency and compliance across sectors.

The FSCA plans to use the IRS to facilitate transparent and efficient engagement with financial institutions and other stakeholders.

Anti-money laundering compliance

The strategy notes the FSCA increased its anti-money laundering and counter terrorism financing (AML/CFT) supervisory capacity by 257%, from seven to 25 staff between 2022 and 2024, contributing to South Africa’s progress in addressing the Financial Action Task Force’s action items.

The strategy commits to advancing the FSCA’s risk-based supervisory framework for conduct and money laundering/terror financing risks, by deploying a mix of returns, thematic and desk-based reviews, mystery shopping, and self-assessments to detect and mitigate AML/CFT risks in regulated firms.

As South Africa moves towards removal from the grey list, the FSCA pledges to build on the progress already made to strengthen its supervisory and enforcement capacity and approaches to combating AML/CFT risks in preparation for the next round of FATF assessments.

CASP supervision

According to the strategy document, 256 crypto asset service providers (CASPs) had been licensed by January this year.

The FSCA says the licensing of CASPs means they are now subject “to robust regulatory oversight, requiring them to adhere to fit-and-proper requirements, implement robust risk management protocols, and comply with disclosure obligations”.

An important focus for the upcoming period will be the refinement and implementation of an approach for supervising CASPs. “This will include identification and roll-out of opportunities for enhanced guidance and implementation support to newly licensed entities.”

Two-pot charges

The strategy says the FSCA will continue its work in addressing concerns around the high transaction fees associated with accessing the savings component under the two-pot retirement system.

In September last year, the FSCA issued an Information Request to all retirement fund administrators and self-administered funds requiring them to submit data on fees and charges that applied to the two-pot retirement system.

The Authority will use the information received to identify trends, anomalies, and areas of concern. “Insights gained from this process will inform future regulatory and supervisory interventions to ensure that fee structures are transparent, reasonable, and do not erode the value of member benefits,” the strategy says.

Click here to download the Regulatory Strategy 2025 to 2028.