COFI: What Brokers Need to Know and Why It Matters

COFI: What Brokers Need to Know and Why It Matters
The Conduct of Financial Institutions (COFI) Bill is one of the most significant regulatory changes facing the financial services industry. While many brokers may view COFI as "just another compliance requirement", it is much more than that. COFI fundamentally changes how financial institutions will be regulated by placing customer outcomes at the centre of every business decision.
The key message is simple: under COFI, it will no longer be enough to demonstrate that regulatory boxes have been ticked. Brokers will need to show, through evidence and measurable outcomes, that customers are being treated fairly throughout their entire journey.

What is COFI?
COFI aims to consolidate and strengthen market conduct regulation in South Africa's financial sector. It aligns with the principles of Treating Customers Fairly (TCF) and the Twin Peaks regulatory model by promoting ethical conduct, transparency, accountability, and customer-centric business practices.
Cofi is designed to support a conduct –focused regulatory framework that places greater emphasis on fair customer outcomes rather than compliance with minimum regulatory requirements alone.

Treating Customers Fairly Becomes Law
Many brokers are already familiar with TCF. Under COFI, the principles underpinning TCF are expected to be more explicitly embedded within legislation and regulatory requirements, strengthening the ability of regulators to supervise and enforce fair customer outcomes. This means  that financial institutions, including brokers will need to demonstrate that:
•    Customers receive suitable advice.
•    Products meet customer needs.
•    Communication is clear, fair, and not misleading.
•    Complaints are handled appropriately.
•    Customers receive ongoing value throughout the product lifecycle.
•    From Selling Products to Meeting Customer Needs.

One of the biggest shifts under COFI is the move away from product-focused sales toward customer-focused outcomes. In practice, this means brokers must ensure that every recommendation is based on a thorough needs analysis and that products are suitable for the customer's circumstances, objectives, and risk profile. Product sales targets alone will not be sufficient justification for recommendations. 

Brokers should be able to demonstrate that suitability was considered before advice was provided and that the customer's interests remained the primary consideration throughout the process. A brokerage may comply with disclosure requirements on paper, but if customers consistently complain that they did not understand policy changes or product features, This may indicate that fair customer outcomes are not being achieved and could warrant further review and corrective action.Under COFI, the effectiveness of communication matters as much as the communication itself. Data will become a key compliance tool as COFI introduces a stronger emphasis on monitoring and reporting conduct-related data.

Indicators commonly associated with assessing customer outcomes may include:Complaints trends.
Policy cancellations.
Claims handling outcomes.
Customer demographics.
Types and volumes of transactions.
Customer service outcomes.

For example, if an insurer or broker experiences unusually high cancellation rates on a particular product, this may indicate that customers do not fully understand the product or that the product is not meeting their needs. financial institutions may then be required to perform root-cause analyses and implement corrective measures.

Greater Accountability for Leadership
Compliance was historically often viewed as the responsibility of the compliance department. COFI changes this approach. Under COFI, responsibility for customer outcomes extends throughout the organisation and is explicitly linked to governance and leadership. Boards, executives, key persons, and management will all play a role in ensuring customers are treated fairly. Compliance functions will still provide oversight and monitoring, but business leaders will be expected to take ownership of conduct risk and customer outcomes including the identification, assessment, management and monitoring of risks that could result in poor customer outcomes.

A Significant Change: Activity-Based licensing 
A key feature of the proposed COFI framework is the move towards activity-based licensing. Rather than regulating institutions primarily according to their entity type or licence category, the proposed framework would authorise institutions according to the specific activities they perform.

Examples of these activities may include:
•    Providing financial products.
•    Product distribution.
•    Financial advice.
•    Product administration.
•    Payment services.
•    Debt collection services.

This approach is intended to create consistency across the financial sector by ensuring that similar activities are subject to similar conduct requirements, regardless of the type of institution performing them . Importantly, the implementation of COFI is expected to involve a transition from the current licensing framework to a new licensing model. Existing financial institutions will not automatically operate under the new framework and will be required to relicense. Transitional arrangements and a relicensing process will form part of the implementation approach allowing existing licence holders to migrate to the new activity-based structure.

While the final details of the transition process will only become clear once the legislation and supporting regulatory framework are finalised, brokers should begin considering which regulated activities they perform and whether their governance, systems, controls, and documentation adequately support those activities. 

What Should Brokers Do Now? The COFI Bill is awaiting formal introduction into the parliamentary process as the next step to becoming the primary conduct legislation in South Africa.  Although COFI has not yet come into force and the legislative process is still ongoing, brokers can take practical steps now to prepare:

1. Strengthen Needs Analysis Processes
Ensure every recommendation can be clearly linked to a customer's needs and objectives. Maintain comprehensive records supporting advice provided.
2. Review Customer Communications
Assess policy documents, disclosures, marketing material, and customer correspondence to ensure they are clear and easy to understand.
3. Monitor Customer Outcomes
Look beyond compliance checklists. Monitor complaints, cancellations, claims disputes, and customer feedback to identify potential conduct risks.
4. Focus on Documentation
Under COFI, businesses will need to evidence fair outcomes. Good record-keeping will therefore be essential.
5. Promote a Customer-Centric Culture
Every employee should understand that customer outcomes are everyone's responsibility, not only that of the compliance team.

Conclusion
COFI represents a fundamental shift from a rules-based compliance environment to an outcomes-based regulatory framework. For brokers, success will no longer be measured solely by whether regulations were followed, but by whether customers received fair treatment and positive outcomes
Those who embrace transparency, suitability, fair advice, effective communication, and strong customer outcomes will be well positioned for the future regulatory landscape. COFI is ultimately not just about compliance. It is about building trust, strengthening client relationships, and delivering genuine value to customers.

Disclaimer
This article is intended for general information purposes only and reflects the proposed COFI framework as currently published. The legislation has not yet been enacted and the final requirements may change during the legislative process. The COFI Bill has not yet commenced, and the timing and final content of the legislation remain subject to the completion of the legislative process.