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By Guy Holwill, Chief Executive, Fairbairn Consult and Anton Naude, Senior Legal Advisor, Old Mutual

This is the first in a series of three articles about the Conduct of Financial Institutions (CoFI) Bill.  In this article, we will explain what CoFI is, how it is different to existing legislation and the expected timelines for implementation.   In the second article, we will discuss who will be impacted by the Bill and how they will be impacted.  The third article will provide practical things that those impacted will need to change to comply.

At the outset it is important to understand that CoFI has been designed to change our industry – so we should expect it to have far-reaching consequences.  It will repeal many financial sector laws such as the Long & Short-term Insurance Acts,

Financial Institution (Protection of Funds) Act, Financial Advisory and Intermediary Services (FAIS) Act, Credit Ratings Services Act and the Friendly Societies Act.

CoFI gives the FSCA the opportunity to completely redesign the regulatory framework in a manner that avoids the current complexity and fragmentation.  It is a conduct policy framework that drives consistent outcomes across the financial sector, while giving legislative effect to the market conduct policy approach – e.g. it will make Treating Customers Fairly (TCF) legally binding.

The end goal is to have one overarching piece of legislation, which will be the CoFI Act with its subordinate legislation (regulations to the Act) governing the whole financial sector.  This is a huge piece of work, with significant input from many stakeholders.  It has been proposed that the Bill be tabled to parliament in the latter part of 2022 and that the various regulations that will govern the industry, including the conduct standards, will be finalised between 2023 and 2025.

Under CoFI, all Financial Service Providers (FSPs) will become Financial Institutions.  It sets the requirements that each financial institution must meet and the specific outcomes that they must deliver.  It does not rigidly prescribe instructions to be followed but rather puts principles in place to which financial institutions must conform.  How you get there is often left up to you, which is why it is referred to as outcomes-based legislation rather than being rules-based.  This creates a very different legislative landscape when compared to previous rules-based pieces of legislation, as can be seen in this example relating to corporate culture:

“s30(1) A financial institution must at all times conduct its business in a manner that prioritises fair outcomes for financial customers, so that there is confidence that their fair treatment is central to the corporate culture of the financial institution.”

It is more flexible than the current legislation and will provide better tools for the regulator to support emerging new financial institutions.  It also gives legal effect to transformation and inclusion requirements in support of targets agreed through the Financial Sector Transformation Council and specified in the Financial Sector Code.

It is important to note that, while CoFI talks about supporting emerging new financial institutions it is likely to have similar stringent requirements for businesses of all sizes.  This is because the legislation is designed to protect customers – and it doesn’t make sense to give customers less protection if they work with a smaller business.

From a customer perspective, CoFI will promote financial inclusion, while ensuring their fair treatment and protection.  On the flip side, it will promote trust and confidence in the provision of financial products and services and ensure transformation of the financial sector.

This sounds fine and well, but the way that CoFI will “ensure fair treatment” and “promote trust and confidence” is through increasing compliance and governance.  At the same time, it will require financial institutions to have robust systems and processes (operational processes) and, of course, it will require them to be adequately capitalized (operational capital).  This is relatively easy in big companies, but it is going to be considerably more difficult for small brokerages that do not have the skills and resources.  Just have a look at this paragraph in the section dealing with operational capital:

“s80(3) A financial institution must have sound, effective and comprehensive strategies, processes and systems to assess and maintain, on an ongoing basis, the amounts, types and distribution of financial resources that it considers adequate to cover the nature and level of the risks to which it is exposed, or is likely to be exposed in the future.”



CoFI is the most significant legislative change to our industry since FAIS in 2004.  We should not complain that it is changing everything, because that is exactly what it aims to achieve.

It is going to meaningfully increase the requirements for compliance and governance.  As a result, it is almost certain that small firms of Independent Financial Advisers are going to consolidate into fewer, but bigger, firms.  But more about this in the next article.

Guy Holwill is the Chief Executive of Fairbairn Consult.  He is a qualified Civil Engineer and Chartered Accountant and has worked in financial services for more than two decades.  Guy is passionate about creating business models that thrive in the changing worlds of regulation and customer experience.

Anton Naude is a senior legal advisor at Old Mutual with 20 years of experience in the financial services industry. He has a B. Com (LLB)with an Honours in Economics and is a qualified CFP. He focuses on the potential impact of impending legislation on business.

Fairbairn Consult is a firm of Registered Financial Advisers. We are a licensed FSP and a member of the Old Mutual Group.