Page 89 - Profile's Unit Trusts and Collective Investments 2021 issue 2

Legislation and Guidelines

to improve the conduct of service providers in the
financial markets. This authority will also be responsible FSPs, FSPRs and KIs
for effective financial education of consumers. Under the FAIS Act, FSPs
The Financial Sector Regulation Act also envisages (Financial Services Providers)
the creation of a Council of Financial Regulators which must comply with many rules.
will coordinate the activities of the two new authorities What is an FSP? FAIS uses the term to cover
and other regulatory bodies (such as the National both individuals and large organisations – an
Credit Regulator, the Council for Medical Schemes, the FSP can be an independent financial advisor
Competition Commission, and the National Consumer (IFA) who works alone or a company that
Commission). This coordination will improve employs hundreds of people.
regulatory cooperation, currently shared by the SARB, Different requirements and levels of registration
FSCA and the National Credit Regulator. The proposed apply in each case. Where the FSP is an
Council is partly a response to criticism that these organisation, an FSPR is a representative who
bodies often work separately and do not pay sufficient deals with clients and a KI (Key Individual) is a
with
person
“oversight”
or
management
attention to the activities and objectives of their responsibilities. An IFA who flies solo is an
regulatory counterparts.
independent FSP who must also comply with KI
As part of ongoing implementation, financial requirements.
institutions will be divided into two categories depending Most brokers and agents in the field are FSPRs.
on whether they carry out “mono-regulated” or Exempted from FAIS regulations are people
“dual-regulated” activities. The latter – those institutions doing clerical and administrative work for an
that represent greater risk to both consumers and the FSP, provided they don’t give advice and only do
broader financial system – will have to be licensed by both work which “does not lead a client to a specific
the prudential and market conduct authorities in order to transaction.”
operate. These include banks, long-term insurers,
short-term insurers, securities exchanges and the national
payment system. Businesses that will only be regulated by the market conduct authority include asset
managers, retirement funds, collective investment schemes, financial advisers, and rating agencies.
To ensure a smooth transition, the Financial Sector Regulation Act is being implemented in two
phases. The first phase, already well underway, involves the establishment of the Financial Sector
Conduct Authority (FSCA), which has replaced the FSB. During the second phase the new authorities
will publish regulatory strategies setting out the changes required to existing rules and board notices.
This may involve changes to other pieces of legislation. The publication of the draft Conduct of
Financial Institutions Bill (COFI) at the end of 2018 was a further step towards implementing the
“twin peaks” model. The second draft of the COFI bill was published at the end of September 2020.

FAIS and COFI
As part of the new Twin Peaks regulatory regime, the FAIS Act will in due course be replaced by
the Conduct of Financial Institutions (COFI) Act. The first draft of the COFI bill was released in
December 2018 and was open for comment until 1 April 2019. The second draft of the bill was
published at the end of September 2020 along with a response document detailing changes made
as a result of comments received.
The Conduct Standard for Banks, released by the FSCA on 3 July 2020, is seen as a precursor of
the conduct-related principles that will be contained in COFI.
A key objective of COFI is to give legislative muscle to the TCF principles (see page 98), which are not
currently enforceable. COFI will, amongst other things, ensure that the TCF principles are legally binding.
This section deals firstly with the changes that are proposed under COFI, and secondly, with
FAIS as it currently exists.
The latest changes in the second draft of the COFI bill, which was released in September 2020,
include:
How COFI will be applied in relation to existing legislation
The approach to conduct standards
A redesigned approach to licensing
More detail around transformation (BEE and EE) and enforcement

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Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts