Page 85 - Profiles's Unit Trusts & Collective Investments - September 2024

Legislation and Guidelines

The FSR Act also establishes the Financial System Council of Regulators which will coordinate
the activities of the two new authorities and other regulatory bodies (such as the National Credit
Regulator, the Council for Medical Schemes, the Competition Commission and the National
Consumer Commission).
This coordination will improve regulatory cooperation, previously shared, and that which
continues to be shared, by the SARB, FSCA, the National Credit Regulator and the Council for
Medical Schemes. The proposed Council is a response to criticism that these bodies often work
separately and do not pay sufficient attention to the activities and objectives of their regulatory
counterparts.
As part of ongoing implementation, financial institutions will be divided into two categories
depending on whether they carry out “mono-regulated” or “dual-regulated” activities. The latter –
those institutions that represent greater risk to both consumers and the broader financial system –
will have to be licensed by both the prudential and market conduct authorities in order to operate.
These include banks, long-term insurers, short-term insurers, securities exchanges and the
national payment system. Businesses that will only be regulated by the market conduct authority
include asset managers, retirement funds, collective investment schemes, financial advisers, and
rating agencies.
To ensure a smooth transition, the FSRA is being implemented in two phases. The first phase
of implementing the FSR Act was establishing the two authorities. During the second phase the
new authorities published regulatory strategies setting out the changes required to existing
legislation, regulation and board notices.
The FSR Act empowers both the FSCA and the Prudential Authority to publish conduct
standards, to issue regulatory instruments and to take administrative actions. Both authorities
have embarked on publishing new standards and work is ongoing.
The Conduct of Financial Institutions (COFI) Bill
Legislation regulating the conduct of financial institutions will be consolidated in a single piece of
legislation. At the end of 2018, a draft Conduct of Financial Institutions Bill (COFI) was published and
following comments the second draft of the COFI bill was published at the end of September 2020.
The FSCA is working on amending the bill and transitioning existing legislation into the next
draft of the bill which is expected to be published late 2024 or early 2025.
It is envisaged that the FAIS Act will be replaced by the Conduct of Financial Institutions
(COFI) Act.
Part of the Twin Peaks initiative is the intention to move away from institutionally-based
regulation to a more activity-driven regulatory environment. Although the FSR Act is now law, the
shift from the current sectoral licensing model to a more centralised, activity-based licensing
model is still in progress.
As noted in the explanatory policy paper that accompanied the first draft, COFI represents “a
shift away from the traditional prescriptive approach to financial sector legislation and regulation –
which has typically led to a tick-box approach to compliance – toward an outcomes-focused
approach supported by principles-based legislation, regulation and supervision”.
The licensing function under COFI will be a significant shift from the current system. Financial
institutions in SA are granted licences on an institutional basis, an approach that is too broad to
effectively regulate conduct across disparate activities.
COFI provides that financial institutions will be authorised separately for each activity.
Institutions that carry out multiple activities – as many financial institutions do – will still obtain a
single FSCA licence, but with multiple activity authorisations.
Under the second draft of the COFI bill, the framework for licensing will be established under the
FSR Act rather than under the COFI legislation itself (although some licences will be issued under the
COFI legislation). This will allow authorities to better control licensing across all aspects of the
evolving Twin Peaks legislative and regulatory framework. A new license category of corporate
advisory services has also been added under the second draft.

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