Page 85 - Profile's Unit Trusts & Collective Investments - September 2025

Legislation and guidelines Chapter 5

The Prudential Authority is responsible for overseeing the soundness of financial institutions,
particularly banks and insurers.
The FSCA is responsible for protecting consumers of financial services and improving the conduct
of service providers in the financial markets. This authority is also responsible for effective financial
education of consumers.
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.
The first phase of implementing the FSR Act was establishing the two authorities. During the
second phase the new authorities are publishing regulatory strategies setting out the changes
required to existing legislation, regulation and board notices.
The Prudential Authority is expected to take over some supervisory functions related to collective
investment schemes from the FSCA in March 2026.
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 (COFI) Bill 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 in 2026.
It is envisaged that the FAIS Act will be replaced by the 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.

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