Licensing

One of the biggest changes proposed under the Conduct of Financial Institutions (COFI) Act is the introduction of a new activity-based licensing framework for financial institutions.

Instead of licensing organisations primarily according to their institution type or existing licence category, the proposed COFI licensing framework will license organisations based on the financial activities they perform.

This means two businesses with the same licence today may not necessarily have the same licensing requirements under COFI.

What is activity-based licensing?

Activity-based licensing means licensing requirements are linked to the financial activities a business performs.

Rather than focusing on what type of financial institution an organisation is, COFI focuses on what it actually does. This is intended to create a more consistent approach to regulating market conduct across the financial sector.

How does activity-based licensing work?

Consider two Category I Financial Services Providers (FSPs) that both hold a FAIS licence for Short-Term Insurance Personal Lines.

• Firm A provides advice by assessing clients’ needs and recommending suitable insurance products. Under the proposed COFI framework, its primary activity may align with Financial Advice.
• Firm B facilitates the sale and placement of insurance products but does not provide advice. Under the proposed framework, its primary activity may align with Distribution: Sales and Execution.

Although both firms currently hold the same FAIS licence, they perform different activities. Under COFI, those activities may result in different licensing requirements.

This illustrates one of the key principles of COFI licensing: organisations performing different financial activities may require different licences, even if they currently hold the same FAIS licence.

What will happen to existing FAIS licences?

The final COFI licensing framework has not yet been implemented.

Current indications suggest that the transition will take place in phases rather than through an immediate relicensing process. Existing FAIS licences are therefore expected to remain valid during the transition while financial institutions move to the new framework over time. The final transition arrangements will depend on the legislation, supporting regulations and conduct standards.

Why does activity-based licensing matter?

The move to activity-based licensing is one of the most significant changes proposed under COFI. Rather than relying primarily on existing licence categories, the future licensing framework is expected to focus on the financial activities an organisation performs.

This means businesses with similar licences today may not necessarily have the same licensing requirements under COFI.

The extent of any changes will depend on the final COFI licensing framework, supporting regulations and conduct standards.

Key takeaway

Under the proposed COFI licensing framework, licensing will be based on the financial activities an organisation performs rather than its existing licence category.