How the COFI Bill will transform financial advice practices in South Africa

The soon-to-be-enacted Conduct of Financial Institutions (COFI) Bill is the next step in South Africa’s outcomes-based, principles-led market conduct regulation. Once it becomes effective, the Act will consolidate conduct-related provisions from across multiple financial services sector laws into a single framework.

COFI pulls the main conduct duties into one legislative structure, giving the Financial Sector Conduct Authority (FSCA) clear powers to set cross-sector conduct standards and respond to poor customer outcomes. Advice businesses that have spent two decades embedding Treating Customers Fairly (TCF) under the Financial Advisory and Intermediary Services (FAIS) Act should have little trouble adapting to the new legislation.

All financial services providers (FSPs) will be re-licensed under COFI, with the biggest change being a shift from product category to activity-based licensing. Under FAIS, licences were granted by broad product categories; under COFI, authorisations will map to specific activities listed in Schedule 1 of the Bill, including the provision of financial advice. A transition process is envisaged, and existing licences will continue to apply until they are mapped to the new activities – timeframes will be set once the Act commences.

For advice practices, the COFI Bill changes are best treated as a strategic reset. Start by mapping the services you actually provide to the new activity-based categories and use the exercise to clarify where your practice adds value. This is also an opportunity to review potential conflicts, simplify operations, and ensure that governance policies reflect how you serve customers. Remember, your leadership team must be able to demonstrate that your decisions consistently support fair outcomes in customer interactions.

The COFI Bill will embed requirements for product design and distribution. Product provider partners must ensure products are suitable for their target markets, as well as monitor distribution to prevent poor customer outcomes. As a firm involved in distribution, you will have to know your target market in detail, understand the main risks of every product you recommend, and show how your advice aligns with the product’s design and intended customer. You can also expect closer scrutiny from product providers.

You should not be surprised if you don’t see the expected level of operational detail in the COFI Bill. COFI identifies functional areas such as complaints handling, disclosure, distribution, and remuneration, with the FSCA expanding on specific requirements through Conduct Standards issued under its powers in the Financial Sector Regulation (FSR) Act. Familiar frameworks like TCF will be backed by enforceable rules, with the potential for more prescriptive obligations in areas where adverse impact occurs.

The Bill will also set strict requirements for advertising and disclosure. Information provided to customers will need to be accurate, balanced, comprehensive, and fair. The risk to financial advice practices is that they may depend too heavily on product partners to address this requirement. You should take time to ensure that any product packs you send out meet the plain-language standard and are free of misleading promises.

As with the FAIS Act, the new legislation will also require that your advice is based on adequate and appropriate information about your customer’s circumstances and objectives. In practice, you will need to continue to define the scope of advice, disclose charges, document product and service recommendations, and warn your customers where information is incomplete or where a different course is chosen.

COFI further addresses unreasonable post-sale barriers, sets service-level expectations, and frames ongoing duties. Complaints handling and redress are also likely to receive focus. Expect the regulator to focus on root-cause analysis and fair, timely resolution, rather than complaint counts alone.

The FSCA has also indicated that elements of the Retail Distribution Review (RDR) will be embedded through conduct standards under COFI, rather than in the Bill itself. This means that unresolved proposals on adviser categorisation and remuneration are still up for debate. Advice practices that are transparent about who they represent and how they are paid should be ahead of the curve.

The good news is that the COFI Bill will not be implemented overnight. The FSCA has already signaled a multi-year transition plan with staggered implementation. Our advice to advisers is not to delay until the Act becomes law. You should start aligning with the new legislation today by mapping your activities, tightening your documentation and record-keeping, being transparent about remuneration, and getting in front of transformation targets.

* Budhram is the head of advice at Old Mutual Personal Finance.

PERSONAL FINANCE