COFI vs. FAIS: The evolution of financial regulation in South Africa

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The regulatory landscape is undergoing a significant transformation, which means financial advisers face increasing complexity. The introduction of the Conduct of Financial Institutions (COFI) Bill marks a shift from the existing Financial Advisory and Intermediary Services (FAIS) Act towards a more integrated, outcomes-based regulatory framework.

COFI is often described as “FAIS on steroids,” but what does that actually mean for financial advisers? Understanding the differences between these frameworks – and what COFI means for your practice – is crucial to staying compliant and competitive in the evolving financial services industry.

From FAIS to COFI: a broader regulatory scope

FAIS has been the foundation of financial advisory regulation for two decades, requiring that financial service providers (FSPs) operate with integrity, transparency, and client-centricity. FAIS primarily governs FSPs, key individuals, and representatives, setting clear rules around licensing, conduct, treating customers fairly, and disclosure.

COFI, however, takes a broader approach. Instead of regulating only FSPs, it introduces a unified market conduct standard for all financial institutions. This means that banks, insurers, asset managers, retirement funds, and intermediaries will all operate under a single, harmonised regulatory framework. For advisers, this creates a more level playing field but also demands a more integrated risk management and compliance approach.

The shift to principles-based regulation

One of the most significant changes COFI brings is a move towards principles-based regulation. FAIS was largely rules-based, meaning advisers had to follow specific, predefined requirements to remain compliant. While this provided clarity, it also led to a “tick-box” compliance culture, where meeting technical requirements sometimes overshadowed the actual spirit of client protection.

COFI, in contrast, focuses on outcomes rather than rigid rules. The emphasis is on demonstrating that your business actively delivers fair client outcomes, rather than just proving compliance through documentation. This means advisers will need to embed ethical decision-making and client-centricity into their practice at a deeper level.

Key implications for financial advisers

1. Increased compliance and reporting responsibilities

COFI will require advisers to demonstrate how they ensure positive client outcomes. This means more structured reporting, internal governance, and a proactive approach to compliance rather than a reactive one.

2. Greater accountability and risk management

Under FAIS, compliance was often seen as a matter of following set procedures. Under COFI, firms must take ownership of their conduct and actively mitigate risks. This places a higher responsibility on key individuals and business owners.

3. Client-centric business models will become essential

FAIS already emphasised treating clients fairly, but COFI embeds this even further. The regulator will look at whether your advice process, suitability of advice, disclosures, fee structures, and business practices genuinely serve clients’ best interests.

4. Integration with other regulations

COFI aligns with South Africa’s Twin Peaks regulatory model, which separates prudential oversight (managed by the Prudential Authority) from market conduct (managed by the Financial Sector Conduct Authority). Advisers will need to understand how COFI interacts with other legislation, such as the Protection of Personal Information Act (POPIA) and Anti-Money Laundering regulations.

Preparing for the COFI era

With COFI’s implementation on the horizon, financial advisers should take proactive steps to ensure their practices are future-proof:

• Review your business model: Are you prioritising client outcomes over compliance checklists?
• Strengthen compliance frameworks: Start integrating COFI-aligned principles into your policies and procedures.
• Enhance client engagement strategies: Transparency and communication will be more critical than ever.
• Invest in training and development: Ensure that your team understands the implications of COFI and how to apply COFI’s requirements in their daily practice.

The transition from FAIS to COFI is not just a regulatory change – it’s a fundamental shift in how financial institutions operate in South Africa. While it introduces more responsibilities, it also presents an opportunity for financial advisers to build more robust, client-centric businesses.

The benefits of building your financial practice within an accredited advice network – such as Graviton – become clearer, knowing that they provide the effective and efficient operational frameworks for you to build your advice journey on.

Are you ready for the change?