The South African National Treasury has published the second draft of the Conduct of Financial Institutions Bill for public comment
On 29 September 2020, National Treasury published the long-awaited second draft of the Conduct of Financial Institutions Bill [B – 2020] for public comment ("Second Draft COFI Bill"), together with a response document explaining significant changes made to the initial Conduct of Financial Institutions Bill [B – 2018] which was first released for public comment on 11 December 2018 ("Initial Draft"). (Click here to view our newsflash on the initial draft COFI Bill dated 12 December 2018)
The Second Draft COFI Bill is a culmination of the submissions received from various stakeholders during the comment period to the Initial Draft and includes changes to ensure technical accuracy of provisions.
Some significant changes made in the Second Draft COFI Bill include:
- Application of the COFI Bill in relation to other legislation – comments to the Initial Draft identified potential inconsistencies with existing laws. The Second Draft COFI Bill has proposed consequential amendments to various financial sector laws to minimise regulatory inconsistencies, and the current draft proposes the repeal of various financial sector laws, including, (i) the Long-term and Short-term Insurance Acts; (ii) the Financial Advisory and Intermediary Services Act (save for part I of Chapter VI providing for the Ombud for financial services providers, and definitions in section 1(1)); (iii) the Credit Ratings Services Act; and (iv) the Friendly Societies Act.
- Refined approach to conduct standards – to avoid duplication and to ensure a principle based approach, the original provisions contained in the Initial Draft for making conduct standards have been removed from the Second Draft COFI Bill. It is proposed that the existing provisions empowering the Financial Sector Conduct Authority to set conduct standards on a range of matters in the Financial Sector Regulation Act, 2017 ("FSR Act") are sufficient but will, through consequential amendments, be expanded.
- Refined approach to licensing provisions – the extensive licencing provisions in the Initial Draft have been significantly shortened in the Second Draft COFI Bill. It is proposed that the provisions for licensing are already dealt with in the FSR Act, which provisions will be extended through consequential amendments to allow for licensing in terms of the Second Draft COFI Bill.
- Amendments to schedules – in the Initial Draft the various schedules had not been fully completed. The schedules have now been finalised and are included in the Second Draft COFI Bill for comment, including:
- Schedule 1 (Activities requiring licensing): this schedule has been further considered and refined;
- Schedule 2 (Institutional form schedule): the institutional form requirements for licensed entities are now delineated.
- Schedule 3 (Activities of representatives): Schedule 3 sets out the activities which may be performed by a representative and the institutional requirements for such representative. The effect of Schedule 3 is that where a person provides a Schedule 1 activity for or on behalf of a financial institution and that activity does not appear on Schedule 3 or the person does not meet the institutional requirements set out in that Schedule, it will have to obtain a license under the said Bill to perform that activity.
- Strengthening transformation in the financial sector - the original requirement for financial institutions to have transformation policies has now been refined to require such policies to closely align with the achievement of tangible targets informed by the targets in the Financial Sector Code. In addition, the Second Draft COFI Bill also allows the FSCA to issue directives in relation to transformation plans and clarifies that the FSCA may use its supervisory and enforcement powers to ensure that a financial institution’s governance frameworks (including in relation to transformation) are adequate and adhered to.
- Strengthening the delineations between retail financial customers versus all financial customers - a holistic review has been undertaken to ensure that the necessary delineations of provisions applicable only to retail customers are clear, and that the FSCA is also able to use conduct standards to further tailor the regulatory framework for different categories of financial customers.
Comments on the Second Draft COFI Bill must be submitted before 30 October 2020 to the below mentioned email address: [email protected]
A copy of the Second Draft COFI Bill can be accessed here
A copy of the response document can be accessed here
A copy of National Treasury's media statement can be accessed here
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