New legislation is regularly put in place to assist both consumers and financial institutions in coming together for fair and orderly business.
Most recently, the proposed Conduct of Financial Institutions (COFI) bill aims to assist with exactly this. We have a look at what this bill will do, and how it will affect you as a consumer.
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What is the COFI bill?
Derrick Kaufmann, co-regional managing director for Africa and head of corporate, mergers and acquisitions at Andersen in South Africa, says that the COFI bill is a proposed framework for regulating the conduct of financial institutions in the financial sector.
“The bill will legislate a minimum set of standards that financial institutions will need to adhere to when dealing with customers. In doing so, COFI seeks to strengthen customer protection in the financial services sector,” says Kaufmann.
“Up until now, these standards have been regulated under various pieces of legislation. The COFI bill seeks to bring all of the conduct provisions in existing financial sector laws under a single piece of legislation,” he explains.
Kaufmann points out that when customers are treated unfairly, their trust in the financial services sector is impacted adversely and the integrity of the entire sector is undermined.
“In order to address this issue, the COFI bill contains principles that are referred to as the ‘Treating Customers Fairly’ principles, or ‘TCF’ principles,” says Kaufmann.
He adds that, broadly speaking, the TCF principles set out the overarching conduct standards that financial institutions need to achieve when dealing with customers.
Will it assist with fair treatment?
Kaufmann says that the Financial Sector Conduct Authority’s (FSCA) mandate includes enhancing and supporting the efficiency and integrity of financial markets, in addition to its mandate of protecting customers and ensuring their fair treatment.
“COFI will create a foundation for the implementation of the TCF principles and ensure that the principles are legally binding and enforced in respect of all financial institutions,” says Kaufmann.
“The real determinant, however, of whether COFI is successful will be the manner in which its terms and the TCF principles are implemented and enforced by the FSCA,” he explains.
What does this mean for the average consumer?
According to Jackie Drotsky, regulatory compliance manager at Momentum Consult, customers can rest assured that COFI will streamline existing laws applicable to the financial sector.
“It will support fair and efficient financial markets, promote innovation, competition, financial inclusion, and transformation as well as improve complaints resolution,” says Drotsky.
“The effect of this is that financial institutions will have to focus on a fair outcome for customers in all their day-to-day business activities. Once COFI is in place, financial institutions will no longer be allowed to ask a customer to waive their rights in terms of the new legislation,” she explains.
“Instead, they will have to provide the customer with accurate information about a product or service before, during, and after the sale; and they will have to meet standards about inducements to customers to buy their products,” she adds.
Drotsky says that this will be achieved by moving away from a rules-based approach, where requirements are laid down in set rules, to an outcomes-based solution.
“For example, in the event of a complaint, the financial institution will have to prove that the customer was treated fairly from beginning to end. Fairness will also have to be evident in the decision regarding the complaint,” says Drotsky.
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