After being approved by Cabinet earlier this year, the Conduct of Financial Institutions (COFI) Bill is well on its way to becoming law. But what will happen to the Financial Advisory and Intermediary Services (FAIS) Act when that happens? We look at what lives on in COFI – and the key departures, including areas such as activity-based licensing – and how Financial Services Providers (FSPs) can prepare.
With Cabinet approving the COFI Bill’s submission to Parliament, regulatory reform is clearly gaining momentum. As part of South Africa’s broader Twin Peaks reform journey, COFI aims to consolidate market conduct regulation into a single, outcomes-based framework. And while timelines are still evolving, it is clear that COFI is moving closer to implementation.
For Financial Services Providers (FSPs), this raises an important question – what happens to the FAIS Act, which has been a central pillar of market conduct regulation for financial advice since 2004?
COFI represents a significant shift and will repeal FAIS. However, many of the FAIS Act’s core principles and requirements will live on in COFI – including Fit and Proper standards, key elements of the advice process, disclosure obligations and the overarching requirement to act honestly, fairly and with due skill, care and diligence.
Understanding how FAIS translates into COFI in practice – and where expectations are being raised – is key to preparing effectively for the transition.
FAIS will be repealed – but its principles remain
Legally speaking, COFI will repeal and replace the FAIS Act entirely, along with certain other sector-specific legislation, for example the Long- and Short-term Insurance Acts. However, certain foundational elements of FAIS will be incorporated into COFI. Core principles – such as acting honestly, fairly and with due skill, care and diligence – will continue to apply under COFI.
More importantly, COFI formalises and strengthens concepts that were previously embedded in FAIS. Treating Customers Fairly (TCF), introduced by the regulator as a supervisory framework and reflected in the FAIS General Code of Conduct, has long been expected of FSPs in practice. Under COFI, these outcomes are expected to be codified in Conduct Standards and given direct legal force.
Subordinate FAIS requirements – such as the General Code of Conduct and Fit and Proper requirements – are expected to transition into COFI through new Conduct Standards rather than being discarded, although the exact detail will depend on how these standards are finalised.
In effect, FAIS does not run alongside COFI – it is absorbed into it, with its core principles and approach continuing to shape the new framework. In many ways, the DNA of FAIS lives on in COFI.
From proving process to proving outcomes
The most important change is not what is retained, but how it is applied.
Under FAIS, compliance has largely been demonstrated by following prescribed processes and maintaining the required documentation. COFI shifts the focus to whether those processes deliver fair outcomes for customers.
This means that:
- having the correct documents will no longer be enough
- the quality of decisions will matter more than the volume of documentation
- client outcomes will need to be evidenced, monitored and, where necessary, improved
This is a fundamental shift from “Did you follow the process?” to “Did the client achieve a fair and expected outcome as a result of the process you followed?”
What COFI is trying to change in the FAIS environment
FAIS has been effective in creating compliant businesses. However, compliance with process has not always translated into consistently fair outcomes.
COFI is designed to close this gap by changing the behaviour of FSPs – from meeting regulatory requirements to designing business models, advice processes and services that consistently deliver value to clients.
In practical terms, this requires a shift:
- from templates to client-specific thinking
- from compliance checks to outcome testing
- from avoiding breaches to delivering value
This is not simply a compliance change – it is a shift in how decisions are made across the business.
What stays the same
While the regulatory approach changes, much of the FAIS framework remains relevant.
FSPs can expect continuity in:
- Fit and Proper requirements, including competence, honesty and CPD.
- the advice process, including needs analysis, risk profiling and record of advice – but they’ll need to demonstrate the quality of outcomes and suitability of the advice.
- disclosure obligations, which remain central to client engagement.
The difference is that these elements must now demonstrate outcome quality and ongoing suitability – not just procedural compliance.
Key changes FSPs should prioritise
Beyond the outcomes-based shift, several structural changes will affect how FAIS principles are applied:
- Activity-based licensing – Licensing will be linked to the actual activities performed, requiring FSPs to clearly map what they do.
- Stronger governance and accountability – Responsibility for conduct risk is expected to sit more squarely with board and senior management, rather than being seen mainly as a compliance or Key Individual function.
- Greater focus on product suitability – FSPs must demonstrate that products meet client needs, are aligned with TCF and remain appropriate over time.
The transition in practice
COFI is expected to be implemented in a phased manner, with some temporary overlap between existing FAIS requirements and new Conduct Standards during the transition. This means FSPs are unlikely to be required to make all changes overnight.
While there are no confirmed implementation dates, the transition is expected to be sequenced rather than disruptive, allowing FSPs time to adapt, although timelines remain subject to legislative and regulatory developments.
Where gaps may still emerge
FSPs that already have strong FAIS and TCF practices in place are likely to be further along in their COFI journey than they may realise. Many of the core principles – such as client-centric advice, appropriate disclosure and sound processes – remain directly relevant.
However, COFI raises the standard from demonstrating process to evidencing outcomes. As a result, even well-run businesses may identify areas that require refinement.
Common gaps to look out for include:
- governance and oversight structures that may need to be strengthened at board or senior management level.
- business models that are not clearly aligned to actual activities for licensing purposes
- customer relationship management (CRM) systems that cannot effectively capture and evidence client outcomes
- limited product due diligence or insufficient documentation of suitability
These are not necessarily failures of FAIS compliance, but areas where FSPs may need to enhance their frameworks to meet COFI’s more outcomes-focused expectations.
Getting ready for COFI
FSPs do not need to wait for final Conduct Standards to start preparing. Practical steps include:
- mapping business activities against licensing requirements
- strengthening governance and management oversight
- improving data collection and reporting capabilities
- enhancing product due diligence and suitability assessments
What this means in practice for FSPs
The transition from FAIS to COFI is less about replacing one framework with another and more about building on what already exists.
For many FSPs, particularly those that have embedded TCF principles into their advice processes and business practices, the foundations for COFI are already in place. COFI should therefore not be seen as a complete reset, but as an evolution that formalises and strengthens what good businesses are already doing – albeit with a higher standard of evidence, accountability and oversight.
At the same time, COFI introduces a higher standard of accountability. It requires FSPs to move beyond demonstrating that processes were followed, to clearly evidencing that those processes result in fair, appropriate and sustainable outcomes for clients.
FSPs that begin refining their governance, strengthening their data capabilities and sharpening their approach to product suitability will not only be better prepared for COFI, but will also be better positioned to deliver consistent value to their clients in an increasingly outcomes-focused regulatory environment.
Need help preparing for COFI?
Understanding your current level of COFI readiness is a good place to start. Masthead can assist financial institutions with a COFI gap analysis to identify areas of strength, highlight potential gaps and help prioritise the steps needed to prepare for the transition.
Get in touch with us or contact the regional office closest to you to find out how we can help your business assess its COFI readiness.
For more insights on COFI and the Omni-Risk Return (Omni-RR) and its implications for financial institutions, visit our Decoding COFI article archive.