In July 2022, the Financial Sector Conduct Authority (FSCA) released its regulation plan for the next three years (2022-2025). Most significant was the delay of the enactment of the conduct of financial institutions bill (COFI) which was previously anticipated to become effective in 2022. COFI is the primary market conduct legislation of the FSCA and is set to repeal several key financial services pieces of legislation. It has already been through two different drafts and public comment processes since December 2018. However, it seems that due to some gaps identified by public comment, a third draft of COFI is likely to be released for further public review and comment.
These gaps include, inter alia, addressing whether the regulation of collective investment schemes and their management companies forms part of COFI or whether the Collective Investment Schemes Control Act, 2002 (CISCA) remains in force. There is also industry debate about whether juristic (as opposed to natural person) representatives shall be allowed for any category or activity of license. In addition, the potential market conducts regulatory universe has been expanded to include, amongst others, corporate financial advisors, providers of loans to non-retail consumers (that are excluded from the maximum threshold requirements of the National Credit Act, 2005), financial advice or general administration of retail credit, debt collection services and alternative investment funds. The FSCA needs to ensure that the underlying financial services rules and regulations adequately provide for these entities new to the FSCA’s market conduct regulation to support their compliance.
The FSCA has not provided any indication of when the expected third draft of COFI would be available for public comment but the earliest estimate is now 2023. In the interim, we can expect some amendments of other financial services legislation to work towards bringing COFI closer to being enacted. The FSCA has indicated that crypto assets will soon be officially declared as “financial products” in terms of the Financial Advisory and Intermediary Services Act, 2002 (FAIS) and that the general code of conduct for financial services providers under FAIS will be amended. In addition, enhanced regulations for collective investment schemes will be implemented and a regulatory framework for alternative investment funds will be developed.
The delay of COFI’s enactment is a necessary step required by the FSCA in respect of its sweeping regulatory changes introduced by the twin peaks regulatory regime. It will ensure that there are underlying conduct standards, directives and rules in place to support and smoother transition to the new regime.