The South African financial sector is on the cusp of a profound transformation, with the Conduct of Financial Institutions (COFI) Bill poised to redefine the regulatory landscape for all financial institutions, including retirement funds. The Institute of Retirement Funds Africa (IRFA) is supportive of this. This article provides an overview of the COFI Bill and its implications for the retirement fund industry, in anticipation of the final legislation.
The COFI Bill is a cornerstone of South Africa’s “Twin Peaks” model of financial sector regulation, which separates prudential and market conduct oversight. COFI will establish a single, comprehensive legal framework for market conduct, replacing a patchwork of existing laws. This new regime is principles based, activity-based, risk based, and outcomes focused, representing a significant shift from the current rules-based approach.
At its core, COFI seeks to entrench the principles of Treating Customers Fairly (TCF), ensuring that the interests of financial customers, including retirement fund members come first.
For the retirement fund industry, COFI introduces several fundamental changes. Perhaps the most significant is the transition from a registration model to a licensing model. Under COFI, retirement funds will require a conduct licence to operate. The Pension Funds Act will be renamed the Retirement Funds Act (RFA) to reflect this new paradigm. Furthermore, public sector funds (GEPF potentially excluded) will be brought under the regulatory ambit of the FSCA, ensuring a consistent standard of oversight across the entire retirement sector.
COFI also aims to bolster governance and accountability within the industry. The Bill empowers the FSCA to set higher standards for the “fit and proper” requirements of board members and to establish conduct standards for governance, remuneration, and transformation. A significant and welcomed development is the classification of employers as “supervised entities.” This will empower the FSCA to address the long-standing issue of contribution non-payment more effectively, providing greater protection for members’ benefits.
The transition to the COFI framework will be a phased process. The FSCA has established a COFI Transition Working Group, in which industry bodies like the IRFA are actively participating, to ensure a smooth and collaborative implementation. This engagement allows for practical insights from subject matter experts to be incorporated into the new regulatory frameworks before they are finalised. The FSCA is also taking a pragmatic approach by using its existing powers under the Financial Sector Regulation Act (FSR Act) to advance key initiatives in preparation for COFI’s full implementation, releasing new standards in manageable “chunks”.
As an industry, we have learned valuable lessons from past regulatory reforms, such as the implementation of the “Two-Pot” retirement system. The key takeaway is the importance of proactive and collaborative engagement with regulators to simplify processes and ensure effective, member-centric outcomes. The IRFA is encouraged by the FSCA’s inclusive approach and is committed to working with all stakeholders to navigate the transition to COFI successfully.
While the final details of the COFI Bill are still being refined, the direction of travel is clear. The retirement fund industry must embrace this new era of conduct regulation and proactively align its business models, governance structures, and compliance strategies with COFI’s principles. This is not merely a compliance exercise; it is an opportunity to build greater trust with members, enhance the resilience of our retirement system, and ultimately, deliver better outcomes for all South Africans.
The IRFA will continue to play a pivotal role in this process, providing our members with the necessary information, guidance, and support as we move towards the implementation of the COFI. We are confident that by working together, we can build a stronger, more transparent, and more customer-focused retirement industry for the future.