The Financial Sector Conduct Authority is preparing a contingency plan if the Conduct of Financial Institutions (COFI) Bill faces further delays in 2025. The regulator’s backup strategy includes formal consultations and the phased introduction of its subordinate legislative framework.
This was among updates shared at the FSCA’s 2025 annual Industry Conference last week regarding the long-awaited Bill.
The final draft of the COFI Bill is with the Office of the Chief State Law Adviser for certification. Once cleared, it will be submitted to the Cabinet for approval to be tabled in Parliament.
In his opening remarks, FSCA commissioner Unathi Kamlana confirmed that National Treasury has indicated the Bill will reach Cabinet “soon” this year. He added that the FSCA has been actively preparing for the transition and urged the broader financial sector to do the same.
“COFI Bill has taken a bit of a while to get to where it is, but COFI Bill is the reality of how the financial sector in South Africa will be regulated, certainly from a conduct perspective, so it is not going away,” Kamlana said.
The Bill was initially expected to be tabled before the 2024 national elections, but attention shifted to finalising the two-pot retirement system, which came into effect on 1 September 2024.
The COFI Bill is designed to overhaul the regulatory framework, moving it towards a more outcome-driven and principles-based model. Unlike traditional rule-based approaches, COFI emphasises flexibility and accountability, ensuring financial institutions prioritise customer fairness alongside regulatory compliance.
Kamlana highlighted the FSCA’s ongoing efforts to engage with stakeholders, develop new supervisory frameworks, and build internal capacity to facilitate a smooth transition to this new regulatory regime.
“However, readiness is not just the responsibility of the FSCA – it is an industry-wide imperative,” he cautioned. “Financial institutions must proactively align their business models, governance structures, and compliance strategies with COFI principles and expectations.”
Legal implications
The Bill will streamline and harmonise the regulatory landscape by creating a single, consistent legal framework applicable to all financial institutions.
Once enacted, COFI will repeal several key financial sector laws, including the Long-term Insurance Act, the Financial Institutions (Protection of Funds) Act, and the Financial Advisory and Intermediary Services (FAIS) Act. It will also introduce amendments to the Financial Sector Regulation Act (FSRA), the Insurance Act, and the Pension Funds Act.
Institutions will be required to obtain new licences within three years of COFI’s effective date or by a date yet to be determined. Notably, retirement funds will need to be licensed under COFI for the activity of “providing retirement fund benefits”.
A significant shift is that public sector funds will fall under the FSCA’s oversight for the first time and will also need to secure COFI licences.
COFI may also have implications for fund governance. The initial draft introduced the licensing of “professional fiduciary” services, including “professional pension fund trustee” and “independent pension fund trustee” services. It remains unclear, however, whether the latest draft still requires trustees themselves to be licensed.
Additionally, fund sponsors will have to comply with minimum requirements, signalling a more rigorous regulatory approach under the COFI regime.
Impact on the FSCA
During a panel discussion on “Evolving conduct law for an evolving financial sector – optimising gains, minimising disruptions”, Eugene du Toit (pictured), the head of the FSCA’s regulatory frameworks department, outlined the next steps.
Du Toit revisited the introduction of the Twin Peaks model, which came into effect with the FSRA on 1 April 2018. The model created two regulators: the Prudential Authority (PA) within the South African Reserve Bank, responsible for financial stability, and the FSCA, tasked with market conduct, customer protection, and promoting fairness.
“So Twin Peaks was always positioned as, one, looking at prudential regulations, but having this, more robust focus on conduct regulation,” said Du Toit. “And it was always going to be a phased-in approach, whereas the first phase is establishing the regulators. The second phase is then focusing on consolidating, harmonising, and strengthening the conduct framework.”
He said the key driver of this next phase is COFI. “The COFI Bill gives effect to the consolidation part of law, so it will consolidate everything into the single framework.”
COFI also aims to address regulatory harmonisation across sectors. “And that’s really the focus of harmonisation, to avoid this regulatory arbitrage and ensure that we’re consistent in how we apply it across the sector. The COFI will be the catalyst for that, but from the harmonisation part, [it] has already happened to a large extent.”
Du Toit pointed to several FSCA-issued regulations as examples. “If you look at many of the laws that FSCA publishes – section 13B conduct standard, the CIS standard, the existing PPRs, the General Code of Conduct, the Conduct Standard for Banks – you will see great alignment in many common themes across all of those frameworks.”
“So, it’s not harmonisation through consolidation, but it’s harmonisation through alignment across the various frameworks,” he added.
Du Toit said that although much attention is on COFI’s impact on financial institutions, it will significantly affect the FSCA as well.
“One, we need to transform the underlying framework that will underpin COFI. Two, from a licensing perspective, we need to approach it in a sort of harmonised, consolidated manner. How do you ensure that you are consistent in how you license all of these institutions coming within our net?”
He noted that COFI will introduce a wider range of activities, requiring both the FSCA and industry players to shift to a more principles- and outcomes-based regulatory mindset. “And we need to rethink how we approach supervision and enforcement.”
Du Toit said the FSCA will also need to review its internal structure to meet the demands of the expanded regulatory framework.
Plan B – what will happen if COFI is not ready
The FSCA is preparing alternative measures if COFI faces further delays, Du Toit told delegates.
“We have been working on a plan B. If we talk about consolidation, the COFI Bill is the most ideal place to do that, because it does consolidate everything into one law. However, if you consider the way in which we have been able to harmonise up to date, we do see other options.”
The FSCA’s strategy is to develop a layered framework, with COFI intended to serve as the overarching legislation. Beneath that, the FSCA will focus on specific conduct-related themes across the financial sector.
“The approach is that the COFI will be the overlay, so it will set high-level principles. Underpinning that would be our themed framework. That’s identifying key conduct themes and then trying to consolidate and harmonise requirements relating to very specific themes. We’re talking governance, risk management, compliance, advertising, disclosure – all of the things that are of relevance across the sector, regardless of what sub-sector you work in,” Du Toit explained.
Informal consultations on the FSCA’s “fit and proper” themed framework have already begun, with plans to consult on several additional frameworks throughout 2025. However, the formal roll-out of these frameworks is closely tied to the progress of the COFI Bill.
“The promulgation of those frameworks and formal consultation even is dependent on the COFI Bill, because the intention is to issue it under the COFI Bill to stick with this consolidated framework theme,” said du Toit.
If the COFI Bill makes sufficient headway, the FSCA may hold off on formal consultations until the Bill is enacted. But if delays persist, the Authority is prepared to push ahead independently.
“If the Bill is delayed, and at the beginning of next year we see no, it’s going to take too long, and we want to push consolidation, what will probably happen is we’ll start formally consulting on these frameworks through the FSR Act,” he said.
Although this approach could result in some fragmentation – with standards split between the FSRA and COFI once the latter is enacted – Du Toit believes the overall objectives will still be met.
“The outcome of having one set of laws, regardless under which Act it’s issued, we’re achieving what we’re trying to achieve,” he said.
Licensing – mammoth task ahead
The FSCA’s licensing department is preparing for what it calls a “mammoth task” as the implementation of the COFI Bill draws closer, according to Diketso Mashigo, the head of the FSCA’s licensing department.
Mashigo said the first wave of work will focus on migrating the approximately 12 500 licensed financial services providers into the new COFI framework.
“We are not looking at other sectors. We’re not looking at ODPs. We’re not looking at CISs, we’re not looking at pension fund administrators.”
Mashigo explained that the licensing of new activities under COFI, as well as the conversion of existing licences, will keep the FSCA “busy for a long time”.
He noted that many FSPs are licensed across multiple sectors, adding to the complexity of the project.
“Once we start bringing in new activities under COFI and we add all these other sectors that I referred to, that 12 500 becomes significantly higher than what we are looking at now.”
The FSCA has already started preparing for the migration.
“The most obvious [step] is mapping activities on the current framework to the COFI framework, so that work is still ongoing,” he said.
Mashigo added that the FSCA is also reviewing its licensing application forms and requirements and re-organising its team to manage the increased workload.
“We need to also be structured correctly and optimally to face this mammoth task,” he said.
He cautioned that although some licensing conversions may be straightforward, “for many of the institutions that we have currently, that’s probably not going to be the case”.
“We need to plough through those business models and business plans, make sure that people are migrated correctly, licensed correctly under there. It is a huge project,” Mashigo said.
Du Toit said the most daunting aspect of the COFI transition is its sheer scale.
“To put it in perspective, if you look at the Prudential Authority process, I think you had two or three years to transfer the licences of around 200 insurers. And the leap from the Long- and Short-term Insurance Act categories to the Insurance Act categories was relatively simple to navigate. Now we’re talking about 12 500 FSPs,” he said.
He said what’s worse is the conversion.
“The current ‘intermediary services’ category is not a like-for-like with where COFI is going. It won’t exist anymore. Instead, you have various activities, and it will be difficult creating the links to the new activities – and you have to do that for 12 500 institutions.”
Du Toit noted that National Treasury has been asked to include a safeguard in the legislation.
“We specifically asked Treasury for a fail-safe. If we don’t achieve the timeline, the minister can extend it, and we can also incrementally do the transition.”
Katherine Gibson, the FSCA’s Deputy Commissioner, said that careful planning will be crucial. “It will be very important with COFI implementation how the FSCA staggers that transition,” she said.
She explained that the FSCA will develop a phased approach for migrating activities. “And what we have also provided for is basically a plan which we will consult on. We’ll consult even on the plan to say, well, these are the activities that we’re going to be prioritising, and we’re going to be going in this order, and these are the timelines. So even from our side and the industry side, we’ll be able to try and get that phasing in.”
FSCA urges industry participation
Du Toit urged delegates to focus on the long-term benefits of the COFI framework, despite the inevitable legislative changes ahead.
“The complaint is always the amount of legislative changes. It’s a fact that there will be a lot of legislative changes over the course of the next couple of years as we start bedding down this COFI framework,” he said.
He encouraged delegates to keep the end goal in mind, which is to deliver benefits from both the FSCA’s perspective and the industry’s perspective. “And eventually, then to get to a stage where the framework is mature, we have the principles in place, and there is way, way less legislative change from that point forward.”
Du Toit said that for the FSCA, the development of the framework is also an exploration process. “And you need to strike that balance between principles, but not over principles, and also dealing with rules to some extent. And it’s a challenge for us to get that right.”
He highlighted the importance of industry involvement in shaping the framework. “We are going to be developing this in conjunction with industry,” he said, noting the FSCA has set up informal stakeholder forums that will be followed by formal consultations. He underscored that the key to success will be the industry’s contributions to help get the balance right.
“So that would be my plea – is to really participate in this process to ensure we end up with something that works both ways,” he said.
So much Government / Regulatory speak! Could someone please tell us where this leaves financial advisers / planners? Will we have to reapply for our licenses, will there be hoops it will be difficult to jump through, and is it going to cost us yet more money?!!