Blue Chip Issue 96

BLUECHIPPRACTICE

BLUECHIPPRACTICE MANAGEMENT | ComplianceIt’s time for COFIThe Conduct of Financial Institutions Bill, expected to be tabled in parliament early in 2026 and promulgatedsoon thereafter, introduces a fundamentally different approach to legislation – one that brings inevitabledisruption. Blue Chip speaks to Trusted Advisors founder, Anton Swanepoel, and FPI CEO, Lelané Bezuidenhout.Anton, what is your professional background relating to theConduct of Financial Institutions (COFI) Bill?Anton Swanepoel [AS]: I have been deeply involved with marketconduct legislation since the introduction of the FAIS Act in2004. I have served on the Financial Intermediaries AssociationRegulatory Committee and the Association for Savings andInvestment SA (ASISA) COFI Workgroup that provided input to theFinancial Sector Conduct Authority (FSCA) and National Treasuryafter the Bill was published for public comment in 2018. I currentlyserve as a member of the COFI Bill Transition Working Groupunder the auspices of the FSCA’s Market Conduct Committee andI am a member of the Sub-Working Group that focuses on riskmanagement and compliance.What is COFI?AS: The COFI Bill is a major piece of legislation aimed atconsolidating financial market conduct regulation. It is a keypart of the Twin Peaks regulatory reforms, intended to replacemultiple laws, such as the Financial Advisory and IntermediaryServices (FAIS) Act, the Long-term and Short-term InsuranceActs, the Pension Funds Act and the Collective InvestmentSchemes Control Act, with a unified, principles‐basedframework. This Act will be regulated by the FSCA.What is COFI’s objective?AS: To establish a single, comprehensive regulatory frameworkfor the market conduct of financial institutions in South Africa,with the aim of improving how these institutions treat theircustomers, manage risks and contribute to the integrity andstability of the financial system.What are the salient features of COFI?• COFI offers a single, consistent market conduct regulatoryframework for all financial institutions – not only FSPs.• It promotes trust and confidence in the financial services sector.• COFI emphasises governance, culture and accountability.• It promotes innovation and sustainable competition.• The legislation is principles-based and outcomes-focused.• Regulatory requirements are based on the financial activitiesan institution performs, not only the type of licence it holds.• It allows for tailored, risk-proportionate regulation, especiallyfor smaller entities.• It focuses on transformation and inclusion.How does COFI offer a strategic opportunity?AS: For forward-thinking financial institutions, this marks aunique strategic moment: a chance to reimagine your vision,revitalise your value proposition, embrace disruptive innovation,reset competitive advantages and optimise your technologicalinfrastructure. Those willing to invest in proactive strategicplanning and willing to adapt will be best positioned to lead inthe evolving regulatory landscape.What will change?• Licensing• Key definitions• Accountability• The focus on outcomes-based and risk-based regulationWhat will not change?• The need for good leadership22 www.bluechipdigital.co.za

PRACTICE MANAGEMENT | ComplianceBLUECHIP• The operational framework of FSPs• The fundamentals of professional client engagement• The fundamentals of prudent business management• The significance of contractual relationships between thevarious stakeholders in the financial services industryHow is the Financial Sector Regulation (FSR) Act different tothe COFI Bill and why should they be read together?Lelané Bezuidenhout [LB]: This is a loaded question thatcould easily fill a book, never mind a 100‐word answer. TheFSR Act, also known as the “Twin Peaks” legislation, came intoeffect in 2018. It established the Prudential Authority and theFSCA, creating the framework for regulating the prudential andmarket conduct of financial institutions. The COFI Bill buildson this framework. While the FSR Act creates the regulatoryarchitecture, COFI provides the detailed conduct rules,covering governance, advice, product design, advertising,transformation and post-sale processes. They should be readtogether because the FSR Act sets out the “who” and “how”of regulation, while COFI operationalises the “what” of fair andethical financial sector conduct.How, in your opinion, will COFI impact the sector?LB: The South African financial planning profession has beenoperating in a Treat Customers Fairly (TCF) world for over 45years. Where these principles have been aspirational, theywill now be codified into law. This means the principle-basedbest practice members lived by is now a statutory obligationwith clear regulatory consequences for non-compliance.COFI therefore affirms ethical and client-centric practices forFPI members rather than radically changing them. The FPIcontinues in its advocacy efforts to encourage the FSCA todeem professional members of the FPI as qualified in most,if not all, competency standards. It was done before, whenphase II of the Regulatory Examinations was supposed to comeinto effect; FPI members were exempt from writing phase IIregulatory examinations.circumstances. COFI extends this focus beyond individualadvice to include institutional conduct across the full productand service lifecycle.The TCF framework sets out six key outcomes that underpinfair client treatment and the suitability of advice:• Clients are confident when they deal with firms where fairtreatment is central to the culture.• Products and services are designed to meet the needs ofidentified target markets.• Clients receive clear, fair and not misleading informationbefore, during and after the sale.• Advice is suitable and takes the client’s circumstances andobjectives into account.• Products perform as firms led clients to expect, and service isof an acceptable standard.• Clients do not face unreasonable post-sale barriers whenchanging products, switching providers, submitting claimsor lodging complaints.Under the FAIS Code of Conduct, these outcomes translateinto a duty to act honestly, fairly and with due skill, care anddiligence when providing advice. The FSR Act reinforcesthese outcomes by mandating client protection and marketintegrity, while the COFI Bill goes further by codifying TCFprinciples into law, requiring financial institutions to embedthem into governance, product oversight, advertising,advice processes and post-sale conduct.In short, suitability of advice is not only about matchingproducts to client needs; it is about ensuring fair treatmentWhat is the importance of placing the client’s interest first?LB: Placing the client’s interest first is at the very core ofwhat we do as professionals. It’s more than compliance; it’sabout doing what’s right even when no-one is watching. Itmeans stripping away anything that could cloud yourjudgement – such as sales targets, commission or personalgain – and focusing entirely on what best serves your client.When we put the client first, we build trust, act with integrityand truly live up to the promise of our profession.The suitability of advice is a key component of the desiredTCF outcomes. What are these outcomes?LB: Suitability of advice has been part of our profession forsome time through the FPI Code of Ethics and the FAISGeneral Code of Conduct (Chapter 7, Section 8), which focuson providing advice appropriate to a client’s needs andLelané Bezuidenhout, CEO, Financial Planning Instituteof Southern Africa, and Anton Swanepoel, founder,Trusted Advisorswww.bluechipdigital.co.za23