COFI Explained
Understand the Conduct of Financial Institutions framework and what it means for financial services providers.
What is the COFI Bill?
The Conduct of Financial Institutions (COFI) Act is proposed legislation that will introduce a new approach to regulating market conduct in South Africa’s financial sector.
It represents one of the most significant reforms to financial services regulation in recent years and will affect how many financial institutions are licensed, governed and supervised. Various types of financial institutions are regulated under different laws. COFI aims to bring these requirements together under a single legislative framework for market conduct, creating a more consistent approach to regulating the financial sector while promoting the fair treatment of customers.
Why is COFI being implemented?
South Africa’s current regulatory framework has developed over many years, resulting in different conduct rules across the financial sector.
COFI aims to bring these requirements together under a single framework, making it easier to apply consistent conduct standards across the industry.
It also introduces a new approach to regulation by focusing on the financial activities an organisation performs, rather than the type of institution it is. The overall goal is to create a more consistent regulatory framework, improve customer outcomes and build greater confidence in the financial sector.
Who does COFI apply to?
The COFI Bill is expected to apply broadly across South Africa’s financial sector. An organisation may fall within its scope if it:
- Provides a financial product
- Provides a financial service
- Acts as an intermediary between customers and financial institutions
- Performs another regulated financial activity
Whether an organisation is affected will ultimately depend on the financial activities it performs.
A few examples of institutions that will fall within the ambit of COFI are:
- Financial Services Providers (FSPs)
- Insurers
- Banks
- Investment managers, including alternative investment managers
- Collective investment schemes
- Retirement funds and retirement fund administrators
- Crypto Asset Service Providers (CASPs)
- Payment service providers
This is not an exhaustive list. Financial institutions should assess their activities against the COFI Bill to determine which licensing and conduct requirements apply. These requirements will vary according to the financial activities each organisation performs.
What are the key features of COFI?
The COFI Bill is expected to introduce several important changes:
- Fair customer outcomes: Financial institutions will need to put customer outcomes at the centre of their business and be able to show that customers are being treated fairly.
- Activity-based licensing: Licensing will be linked to the financial activities an organisation performs.
- Outcomes- and principles-based regulation: Institutions will be expected to achieve appropriate conduct outcomes, not simply follow detailed rules.
- Stronger governance and accountability: Governing bodies and senior management will have clear responsibilities for oversight, compliance and organisational conduct.
More consistent requirements: Conduct obligations that currently sit across several laws are intended to be consolidated into a more coherent framework.
When will COFI come into effect?
The COFI Bill has not yet come into effect.
It is still progressing through the legislative process. Once enacted, implementation is expected to take place in phases, supported by additional regulations and conduct standards. This phased approach is intended to give financial institutions time to transition to the new framework.
How will COFI impact financial institutions and their customers?
For financial institutions, COFI will introduce a more consistent conduct framework and a new licensing model based on the financial activities they perform. It will also place greater emphasis on governance, accountability and demonstrating fair customer outcomes through appropriate monitoring and data.
For customers, the aim is to create a more consistent experience across the financial sector, with greater transparency, stronger protections and a sharper focus on fair outcomes.