Understanding the Conduct of Financial Institutions Bill: A new era for financial regulation

The long-awaited Conduct of Financial Institutions (COFI) Bill – which is set to strengthen regulatory power over financial institutions – aims to bring digital money into its ambit.

The new law, which has been in the works for more than a decade, will finally be “submitted to Cabinet shortly for approval for tabling in Parliament,” the Financial Conduct Authority (FSCA) said in response to written questions.

However, over the past 10 years, FinTech has dramatically transformed financial services, moving from a disruptive force to a mainstream innovation. And it has advanced faster than the law – with technology set to always be at least one step ahead of regulations.

FSCA Commissioner Unathi Kamlana is on record as saying that “as the financial sector continues to evolve, so too must the regulatory framework that governs it. Improving industry practices is essential to ensuring that financial institutions consistently deliver fair customer outcomes, regardless of the models or channels used to provide financial products and services.”

In stating this, Kamlana was speaking specifically about the COFI Bill. “The COFI Bill represents a legislative response to these challenges, aiming to transform the regulatory landscape into one that is more outcome-focused and principles-based,” he said.

Kamlana also said that the rise of FinTech, digital banking, artificial intelligence, digital assets, and decentralised finance are reshaping how financial services are delivered and accessed”. He noted that these advancements offer opportunities for growth and inclusion, but also pose challenges, such as cybersecurity threats, algorithmic biases, unethical AI-driven decisions, fraud and even financial exclusion, that regulators and industry leaders must address.

In response to questions, the FSCA added that the Bill “adopts a principle-based approach. In other words, it contains high-level principles that financial institutions must adhere to, to ensure the desired outcomes in the financial sector”.

The story of the Bill is, in itself, a long and complex one. In 2013, the draft of the Financial Sector Regulation Bill was published for consultation, followed by the release of a discussion document outlining the draft market conduct framework used for stakeholder engagement.

The Financial Sector Regulation Bill is closely related to COFI as they are both key components of South Africa's financial sector reform alongside the so-called “Twin Peaks” legislation, which resulted in oversight of the financial sector being handled by two entities and not just one and was introduced in 2017. The FSCA was created in 2018 as a result of “Twin Peaks”.

As the FSCA explained on its website: “The COFI Bill is a critical development that will shape the future conduct framework and many of the FSCA's current conduct regulatory framework projects have some dependency on the promulgation of the COFI Bill.”

The Bill was approved by Cabinet for publication for public comment towards the end of December 2018 and published for public comment from a few days after that through to the start of April the following year.

The FSCA explained that the next draft of the Bill was finalised and published on September 29, 2020, for a second round of public comments until the end of October that year.

“The Bill was revised to address comprehensive comments received from the public as well as from the State Law Advisers and resubmitted to the Office of the Chief State Law Advisers in December 2024. Once tabled in Parliament, the Bill will [be] published for public comment again by Parliament,” it said.

The FSCA is not the only entity concerned with regulating the digital realm when it comes to financial services. In 2016, a FinTech Working Group was developed under the auspices of several regulators, including the South African Reserve Bank and FSCA, to “work together as South African financial sector regulators to demystify the regulatory landscape, provide a space for safe experimentation and actively advance innovation”.

It hasn’t published any news since 2022 though, when it said its regulatory sandbox is open for applications.

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