The Conduct of Financial Institutions Bill represents a landmark transformation of South Africa’s retirement fund regulatory landscape, introducing comprehensive reforms that will fundamentally reshape how retirement funds operate and are supervised.
The most significant change involves the application of COFI to retirement funds, shifting from traditional registration to a rigorous licensing system. Financial institutions that provide financial products or services are subject to COFI, establishing universal coverage across the retirement sector. This includes public sector retirement funds to which the state, national, or provincial public entities, or municipalities contribute.
This shift represents a fundamental transformation to a conduct- and activity-focused, as well as a prudentially regulated framework, that prioritises member protection, governance excellence, and operational transparency. COFI provides for a three-year licensing or re-licensing transitional period from the date of promulgation.
Enhanced governance and oversight
COFI introduces stringent governance standards that will significantly impact retirement fund operations. It establishes principles relating to culture and governance for financial institutions and defines the obligations of governing bodies, requiring boards to meet enhanced fitness and propriety standards.
Fit and proper requirements are incorporated into COFI for natural persons and significant owners of financial institutions. Requirements for natural persons include honesty and integrity, good standing, and competence encompassing relevant experience, qualifications, and knowledge of financial products and sector laws.
The legislation also mandates democratic governance through member representation while introducing comprehensive accountability mechanisms for fund leadership.
Given the delays in the promulgation of COFI, the Financial Sector Conduct Authority has, in terms of section 13B(1) of the Pension Funds Act, prescribed conditions with which pension fund benefit administrators must comply, including fit and proper requirements.
Commercial sponsor framework
COFI introduces specific provisions for commercial sponsors. A “commercial sponsor” refers to a licensed financial institution that establishes a retirement fund, with the intention that the financial institution, or another financial institution within the same financial group, will provide financial products or financial services to the retirement fund.
Importantly, a commercial sponsor is not required to be licensed in terms of COFI. However, the FSCA may prescribe conduct standards regulating and imposing requirements on commercial sponsors of commercially sponsored funds.
Comprehensive member protection
COFI prioritises member protection through various mechanisms. It addresses principles relating to post-sale barriers and post-sale obligations, including limiting unreasonable barriers that could prevent members from switching financial products or services. COFI also aims to promote the fair treatment and protection of financial customers by financial institutions.
Critically for retirement funds, where a financial institution provides services to a retirement fund or similar member-based entity, or to another financial customer acting on behalf of retail financial customers, all retail customer requirements apply equally to the members of that retirement fund.
Operational and administrative changes
COFI establishes detailed operational standards, including principles for persons dealing with trust property or assets of financial institutions; requirements for operating capital and operational ability; provisions addressing the conduct of business outside licensed activities; and requirements for transfers, fundamental transactions, or changes of institutional form.
Enhanced reporting requirements are central to the new framework. Financial institutions must provide information for supervisory purposes and make public disclosures. COFI requires institutions to maintain accounting records, prepare financial statements, and obtain audited or independently reviewed annual financial statements.
Innovation and transformation
COFI promotes sector transformation and innovation. It supports the development and investment in sustainable technologies, processes and practices, while driving transformation of the financial sector. Transformation of the financial sector refers to transformation as envisaged by the Financial Sector Code for Broad-based Black Economic Empowerment.
We anticipate the promulgation of COFI during 2026.
The object of COFI is to establish a consolidated, comprehensive, and consistent regulatory framework for the conduct of financial institutions, significantly transforming pension fund regulation.
The shift from registration to licensing, enhanced governance requirements, and comprehensive member protection provisions demonstrate a commitment to modernising retirement fund oversight while maintaining operational flexibility. These reforms align South Africa’s retirement fund regulatory framework with international best practices, ensuring stronger member protection and improved sector governance for the benefit of all retirement fund members.
This article was written by Lenee Green and Nicolette van Vuuren, who are partners at Webber Wentzel.
Disclaimer: The views expressed in this article are those of the writers and are not necessarily shared by Moonstone Information Refinery or its sister companies. The information in this article is a general guide and should not be used as a substitute for professional legal advice.
