What's Happening?

COFI is coming. Are you ready?



The entire financial services industry is holding its breath for the promulgation of the COFI Act. When promulgated, the Conduct of Financial Institutions (COFI) Bill will become the COFI Act, and it will replace the FAIS Act together with many other pieces of financial services legislation. At the time of drafting this article, National Treasury intends to submit the Bill to Parliament in the first half of 2023, which will have far reaching implications on FSPs. 

Difficult timing

Unfortunately, given all the challenges that we face in South Africa, the timing of yet another change in legislation is not ideal. It appears that we are busy recovering from COVID, which has left many businesses destitute, and the ones that remain in business are crippled due to load shedding. The ripple-effect of COVID and load shedding from an economic point of view still remains to be seen. The ongoing political chaos is well documented. Fraud, corruption, general lawlessness, and growing cyber-crime add further insult to injury which exacerbates the impact on the South African economy.

Not only are advisers and intermediaries impacted by these factors on a daily basis – many of their clients have been impacted by it as well, which impacts their ability to pay their insurance premiums and continue with their investments. 

The capacity of financial services providers has already been stretched beyond the limit, and profitability is under continuous pressure. After facing a perfect storm for many years, advisers and intermediaries are now facing the implementation of COFI.

Since the implementation of the Financial Intelligence Centre Act in 2001, the FAIS Act in 2004, Retail Distribution Review (still ongoing) and the more recent implementation of the Protection of Personal Information Act, providers certainly have had their fair share of regulatory changes and challenges over the years. With the advent of COFI, it is going to take a special effort by financial services providers and their representatives to transition from FAIS to COFI effectively. Fortunately, implementation of the legislation will take place in various stages over the next few years.


The increased volumes and complexity of legislation creates every opportunity for COFI to predominantly become a compliance conversation. Some FSPs are business driven in a compliant way, which is good for business, and some are compliance driven, which usually leads to poor adviser and poor client experiences. 

In my journey as a practice management and compliance consultant, over the years I have seen countless businesses that have been crippled by a compliance-driven approach and with COFI it has the potential to get even worse due to the volumes and complexity of the legislation. 

In the past, many key individuals have fully outsourced compliance to the compliance officer(s) in their business. Others have taken extreme ownership of their FSPs and have used compliance officers very effectively in providing solutions to the business. However, they have retained the ownership of the business by interrogating and stress-testing these compliance solutions by making sure that the proposed solutions are practical and can be integrated into the business processes effectively.

The importance of leadership and perspective

Whilst it is understandable that, given all the factors that contribute to the current levels of frustration, many, if not most, providers may initially react very negatively to the implementation of COFI, it is going to be extremely important for key individuals and representatives to gain a fundamentally sound perspective. Under these difficult circumstances, the difference between two equally gifted advisers will be their level of leadership and when it comes to change management, the following principle, summed in this quote by author John C. Maxwell, may be helpful:

“The difference between leaders and followers is perspective.”

One of the key characteristics of a leader is a person who takes extreme ownership of leading a business into change. According to Max De Pree, one of the great American business leaders of the 20th Century, a leader’s first responsibility is to define reality. In an attempt to do so, and to maintain perspective, I think it is important to highlight the following:

Regardless of the reality of market conditions and changes in legislation looming, the following building blocks of FSPs in the first and second columns of the illustration below have remained unchanged for decades. The client engagement process – or sales process, as some stakeholders call it – has remained unchanged from long before FAIS, during FAIS and it will remain the same under COFI and beyond. Business strategies and tactics have changed over the years, but the fundamental building blocks have remained consistent. The same is true for the building blocks in the middle column.

Source: The fundamentals of practice management for representatives by Anton Swanepoel

Why is this relevant?

If the fundamental building blocks in FSPs have remained the same over the years, it means that we may be able to map ad hoc regulatory changes according to the constant building blocks in the business. Then we do not have to restructure the business as a result of changes in legislation. 

This illustration of constant building blocks in FSPs helps to create order in the “chaos”. Business owners and key individuals can use this framework to establish a sound and timeless foundation for the business going forward and when legislation changes, all that needs to be done is to identify the building block(s) that may be affected and investigate to what extent changes will be required. 

If this framework is used in the business for purposes of planning and change management, COFI will be a business discussion and not a compliance discussion. The management of leading FSPs will read COFI from a business perspective before considering compliance solutions. They will seek first to understand the essence of legislation by following the Pareto principle (seeking the 20% of legislation that has an 80% impact on the business). 

An informed response to COFI, after processing the key facts and gaining perspective will be far more valuable and constructive than any quick, emotional compliance reactions without the benefit of a sound, timeless foundation for the business. 

Responding to COFI: Calling all Key Individuals!

I believe that COFI will force everyone back to the proverbial drawing board. The illustration above will provide a helpful point of reference for FSPs as it provides an executive summary of all the key building blocks of your business that are necessary to be successful – under any laws. COFI will force Key Individuals to take a step back and re-evaluate current business philosophies, the business culture, and processes. Unfortunately, it is not simply going to be business as usual. My advice: 

  1. Prepare to succeed under COFI.
  2. Do not make assumptions about this legislation. Seek perspective.
  3. COFI is a principle-based and rules-based piece of legislation. Start by identifying the 20% of principles that will have an 80% impact in your business.
  4. Reset the foundation of your client engagement process and rejuvenate your record(s) of advice in view of the key principles contained in COFI, all the FAIS Ombud determinations and the Financial Services Tribunal decisions over the years that offer valuable lessons to all FSPs.
  5. If you are an investment adviser, be sure to review your risk profiling methodology. One of the six TCF outcomes which is embedded in COFI is very deliberate focus on suitability. Contrary to popular belief, risk profiling is not a compliance issue, it is a suitability issue.