Cofi Bill: SA financial sector about to be relicensed from scratch

South Africa’s financial sector is on the cusp of its most significant regulatory transformation in decades.

The Conduct of Financial Institutions (Cofi) Bill, eight years in the making, is finally moving through parliament, and when it lands, thousands of banks, insurers, retirement funds and financial services providers will need to be relicensed.

It is going to be a major undertaking, and it is not too soon to start preparing.

The Cofi Bill aims to improve customer outcomes, transparency and inclusion. It introduces a unified market conduct licensing regime, replacing the fragmented system of industry-specific authorisations with a single licence issued by the Financial Sector Conduct Authority (FSCA).

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This licence is activity-based, marking a fundamental shift from the current model, where financial institutions are licensed according to their institutional form (for example, as banks or insurers).

In other words, under Cofi, it is not what you are, but what you do that counts.

Under the new bill, licensing will be aligned to the specific activities performed by an institution. A single financial institution may hold one FSCA licence with multiple activity authorisations, reflecting the reality that many firms operate across different product lines and services.

The framework adopts a three-tiered approach to licensing:

1. The financial activity being performed;
2. The financial product(s) to which that activity relates; and
3. The category of customer to whom the product or service is provided.

This structure is intended to enable more granular and risk-based regulation, but it will also require firms to carefully analyse how their business models are categorised under Cofi.

Transition to the new regime

Financial institutions currently licensed under existing sectoral laws will transition into the Cofi regime through a mapping process, in which their existing permissions are aligned to the new activity-based framework.

This transition is expected to take place over a staggered period. This approach is broadly consistent with the implementation of the Insurance Act, 2017.

New entrants, however, will be required to apply directly under the Cofi framework once it comes into force.

Despite the conceptual clarity of the activity-based model, there are some practical concerns. The transition to Cofi will involve a large-scale relicensing exercise, potentially affecting thousands of institutions.

This raises concerns about regulatory capacity, implementation timelines and the operational burden on firms required to reassess and map their activities.

Dual licensing under Twin Peaks

In line with the Twin Peaks regulatory model, under which institutions are subject to both market conduct and prudential regulation, certain institutions will still require authorisation from both the FSCA and the Prudential Authority (PA), depending on the nature of their activities.

Outsourcing

Cofi recognises that financial institutions frequently outsource certain activities and adopts a differentiated approach.

This means that in some cases, outsourced service providers may be required to hold their own licences, while in others, the licensed financial institution will remain fully responsible for the outsourced activity, even where the service provider is not licensed.

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The FSCA will be able to set conduct standards for outsourced activities and take enforcement action against service providers where appropriate. This reflects a broader regulatory focus on functional accountability rather than formal legal structure.

There is however ongoing uncertainty regarding the treatment of juristic representatives.

The activity-based framework appears, in some contexts (notably, discretionary investment management), to require entities currently operating as juristic representatives to obtain their own licences. However, the position is less clear in relation to other activities, such as the provision of financial advice.

This lack of clarity has significant implications for business models across the financial services sector and will require further guidance in the legislative process.

Practical implications

What is clear is that the Cofi Bill will require a fundamental reassessment of licensing across the financial sector. Both currently regulated and previously unregulated entities may fall within scope.

In anticipation of the bill’s implementation, financial institutions should begin mapping their activities against the proposed licensing categories and assessing whether any group entities or service providers may require separate licences.

They will also need to start reviewing governance and operational structures to align with an activity-based regulatory framework.

Institutions that use the bill as an opportunity to audit and streamline their operating models will be better positioned, not just for regulatory approval, but for long-term competitiveness in a more transparent, conduct-focused market.

Hilah Laskov is a director at Werksmans Attorneys.