Discover how the proposed COFI Bill could revolutionise transparency in South Africa's financial sector, requiring institutions to publish their audited financial statements and enhancing consumer protection.
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South Africa’s financial sector is heading for one of its biggest transparency shake-ups in years.
Under the proposed Conduct of Financial Institutions Bill (COFI), which has recently been referred to Parliament, certain financial institutions may soon be required to publish their audited financial statements for public scrutiny. A move regulators say will strengthen consumer protection and accountability.
COFI seeks to ensure that financial customers are placed in a position to make informed decisions and that financial institutions are open and accountable.
This is reflected at both the product level and at an institutional level. At the product level, financial institutions will need to ensure that fees, terms, risks and benefits of financial products are transparent and understandable.
At an institutional level, new transparency obligations will be implemented, including in respect of financial statements.
COFI requires that institutions prepare audited annual financial statements and submit those statements to the Financial Services Conduct Authority.
One of the more notable and vociferously debated features of COFI is the requirement that certain financial institutions must make those statements publicly available within a prescribed period after the end of their financial year.
This is a shift from existing frameworks, where financial reporting obligations are typically directed at regulators, shareholders and specific stakeholders - but not typically the general public.
The requirement reflects an intention to enhance market-wide transparency, enabling customers, counterparties and other stakeholders to better assess the financial position and conduct of financial institutions.
From a regulatory perspective, the publication requirement appears to be grounded in three key objectives: enhanced accountability, improved comparability and consumer empowerment.
Notwithstanding these objectives, the requirement has attracted meaningful criticism from industry participants and legal commentators.
The first of these concerns is the lack of clarity. It is not entirely clear to which institutions the publication requirement applies.
COFI states that the publication requirement applies broadly to "financial institutions" required to prepare annual financial statements in terms of COFI or applicable conduct standards. The detail (i.e. who must be audited) is not exhaustively set out. Rather, it is expected to be specified in conduct standards, or determined by reference to other applicable legislation (such as the Companies Act).
Based on the current drafting and regulatory intent, the two following categories are likely to be ccovered: licensed financial institutions carrying on regulated activities at scale, including insurers, Collective Investment Scheme managers, discretionary investment managers, large Financial Service Providers and retirement fund administrators as well as certain credit providers / payment providers (depending on classification) and any other regulated entity where audit requirements are imposed owing to other applicable legislation.
That being said, this is mere conjecture.
Another critique is that annual financial statements will have limited utility for consumers. They are unlikely to be meaningful or accessible to most retail customers. Audited annual financial statements are technical documents, rendering it questionable whether their publication materially advances consumer protection in practice.
Finally, there are concerns around confidentiality and competitiveness. Financial institutions, particularly those that are not publicly listed, have understandably raised concerns about the commercial sensitivity of their financial information. Requiring the public disclosure of detailed financial statements may expose proprietary or commercially sensitive information, place firms at a competitive disadvantage and deter market entry, particularly for smaller or niche providers. Against the backdrop of the limited utility for consumers (and high utility for competitors), this, critics have said, seems intrinsically unfair.
The requirement to publish annual financial statements highlights a broader tension within COFI: the need to balance enhanced transparency and consumer protection against practical, proportionate regulation. While the objective of improving transparency is widely supported, stakeholders have emphasised that disclosure measures should be targeted, meaningful and proportionate to the risks being addressed.
If implemented in its current form, financial institutions will be required to review their financial reporting and audit processes, consider the public positioning of their financial information and implement processes to ensure timely publication within prescribed deadlines.
Institutions should also assess whether any group-level or subsidiary structures may be affected, particularly where entities have not historically been subject to public disclosure requirements.
When Cabinet referred the Bill to Parliament, it said in a statement that it “will ensure fair customer treatment, enhance transformation, and promote stability” in the sector. While some of the detail will still need to be worked out, ultimately, COFI signals a shift towards a regulatory regime in which it is not only what financial institutions do that counts, but how they behave while doing it.
*Hilah Laskov is a Director at Werksmans Attorneys.
Hilah Laskov is a Director at Werksmans Attorneys.
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