| COFI brings additional compliance responsibilities Teixeira noted that the licensing requirements will significantly impact operations, “Under the new system, there will be a bigger focus on what activities they do. So, regardless of what the financial institution identifies as, for example, a bank, an FSP, or a product provider, if they carry out more than one identified activity – which many financial institutions do – they only need one licence, but they will have to obtain authorisation for each activity and add it to their licence.” Dippenaar elaborated on whether additional compliance responsibilities will be introduced by the expanded licensing scope. “While the new framework may initially bring with it additional compliance responsibilities, such as providing the Financial Sector Conduct Authority (FSCA) with the assurance of the financial institution’s governance, expertise and capacity in terms of these specific activities, it aims to streamline requirements for FSPs, product providers, and some other financial services participants. It seeks to simplify the regulatory landscape, ensuring that businesses are clear about the regulations they need to follow to be compliant with conduct standards, avoiding confusion and multiple sets of rules.” Increased red tape Concerns have been raised about the potential for increased red tape with the licensing framework. Teixeira stated, “Concerns were raised that without careful assessment and deliberation among all stakeholders of the impact of the proposed framework, the new approach to market conduct would only be a ‘FAIS plus’ approach, combining the principles-based application of the FAIS Act with the more prescriptive application in other legislation. There is a fear that these principles will serve simply as a ‘catchall’ for the regulators.” This concern is echoed in the Explanatory Policy Paper accompanying the COFI Bill. COFI amplifies and extends the principles of market conduct regulation introduced by FAIS. However, it is much more than that – it is a comprehensive overhaul of South Africa’s financial sector regulation, designed to streamline oversight, promote fairness, and foster trust in financial institutions. Its broader scope and systemic impact make it a transformative piece of legislation, not just an enhanced version of FAIS. For financial institutions, the benefits anticipated are reduced regulatory duplication, enhanced customer trust, and better market conduct which can outweigh the perceived increase in red tape. The impact and implications The impact of the licensing framework will vary between smaller and larger financial institutions. Dippenaar explained, “COFI requires licensed financial institutions to have governance arrangements proportionate to the nature, size, scale, and complexity of its conduct risks or business model and activities. The Bill also emphasises proportionality in consequential changes to the Financial Sector Regulation Act. From an intention perspective, the principle-based model should allow smaller entities to do what is required to maintain good client outcomes, as opposed to having to comply with the same ‘rules’ at the same level that applies to larger corporations.” On another note, Teixeira discussed the implications of COFI’s licensing changes for financial innovation and technology adoption. “The focus on consumer outcomes allows financial institutions to quickly identify consumer needs and market gaps and will likely increase competitiveness because innovation can happen faster. However, the ability to better identify issues, needs, and market gaps is largely dependent on the ability to gather and inspect relevant data. Technology and tools (even at a lower and simple level) will help FSPs and other participants to have a view of the data, but if the same data is very manual and needs to be produced by primarily manual interventions, this will take more time away from other activities in the business – like production.” Preparing and adapting To prepare for and adapt to the licensing requirements under COFI, Dippenaar advised financial institutions to begin early analysis. “The final licensing application form is not yet available, but the second draft of the COFI Bill includes a list and definitions of licensing activities. |
Red tape or reform?
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