South African consumers are expected to benefit from stronger protection, clearer communication and fairer treatment once the long-awaited Conduct of Financial Institutions (Cofi) Bill comes into force.
The legislation, which forms part of government’s Twin Peaks regulatory reforms, aims to bring all financial institutions under a single conduct framework.
Under the new system, oversight will be divided between:
- The Financial Sector Conduct Authority (FSCA), which will monitor market conduct and consumer treatment; and
- The South African Reserve Bank’s Prudential Authority, which will focus on financial stability.
Webber Wentzel partner Nicolette van Vuuren says the bill will prioritise member protection by addressing unreasonable barriers that could prevent them from switching financial products or services.
“For pension fund members in particular, there will be stricter requirements on funds to communicate any issues with contributions,” Van Vuuren notes.
She adds that there should also be greater financial stability in retirement funds thanks to the Prudential Authority’s oversight.
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‘Rogue employers’
The FSCA has for the past two years published the names of so-called rogue employers who collect retirement fund contributions from their employees but fail to pay them over to the actual fund.
At the end of September, the regulator again released a list of employers that had failed to transfer employees’ pension fund contributions to the appropriate funds.
At that point, businesses owed nearly R7.3 billion in unpaid pension contributions collectively.
In the Pension Funds Adjudicator’s latest annual report, employers’ continued failure to comply with Section 13A of the act, which requires them to pay pension contributions to the fund, is noted as a persistent concern and the main reason for complaints lodged at its office.
The adjudicator expressed concern over the persistent recurrence of these issues and the high volume of related complaints, urging stakeholders to take action to correct what it describes as a deeply troubling consequence of poor fund governance.
In some cases, the adjudicator noted, substantial retirement fund contributions – dating back as far as 2002 – have become prescribed.
Under Cofi, employers that participate in a retirement fund are defined as a “supervised entity”, says Van Vuuren.
“Although the legislation does not directly have oversight of employers, the regulators will be able to issue conduct standards and directives, investigate matters, and even remove directors – particularly in cases where employers default on contributions.”
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Registration becomes licensing
The Cofi Bill replaces several existing laws, including the Financial Advisory and Intermediary Services (Fais) Act, the Short-Term and Long-Term Insurance acts, and large parts of the Pension Funds Act.
Once enacted, it will consolidate these into a single piece of legislation that governs how financial institutions treat customers, manage conflicts of interest, and report to regulators.
A key change will be the shift from registration to licensing, meaning that every financial institution – from pension funds to insurers and asset managers – will need to apply for a new licence under Cofi.
Each licence will cover the institution’s “main activity” and a “subactivity”, similar to the Fais Act with its various categories of licences, Van Vuuren notes.
“At the moment, all you do is submit your rules to the FSCA and you’re approved. Whereas under Cofi, every financial institution is going to have to go through the same process of licensing.”
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Cost and complexity
Van Vuuren estimates that the administrative and financial costs of compliance will be substantial, given that the new legislation introduces multiple levels of licensing and reporting.
Even public sector funds, such as the Government Employees Pension Fund, will fall under the new framework and will have to align with Cofi.
The bill also introduces stringent governance and ethical standards, requiring trustees, principal officers, and executives to demonstrate honesty, integrity and competence, Van Vuuren notes.
ALSO READ: Three cases where the Pension Funds Adjudicator cracked the whip
Timelines and delays
Although National Treasury originally set early 2026 for Cofi’s promulgation, industry experts now believe implementation may take longer.
The bill is currently with the state legal advisors and must go through the cabinet and parliamentary process before being signed into law.
Van Vuuren expects the licensing process to be extensive.
“It requires much more than just funds submitting their rules to the FSCA, like with the two-pot system. It’s a huge shift, and we may see a delay before Cofi comes into effect, because a lot still needs to happen.”
She believes regulators may start issuing conduct standards to the industry in the meantime, even before the legislation is enacted, which will compel institutions to comply. “Similarly to what we’ve seen with administrators.”
This could result in the three-year transitional period being shortened because the industry would already be largely compliant.
This article was republished from Moneyweb. Read the original here.
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