Anyone for another Cuppa CoFI?

A top-line view of the new draft legislation.

What's in this CoFI?

CoFI is the Conduct of Financial Institutions Bill. Public comment on the Bill closed in April 2019 and it is expected to be legislated later this year. We asked Adél Walker, Head of Legal and Claims at Compass Insure to give us a brief heads-up on the impact of the proposed Bill, as relevant to the specialist insurance eco-system of insurer, UMA and broker.

"First things first," she says! "Having worked in the specialist insurance sector for over a decade, my sense is that overall CoFI is a useful and accessible piece of legislation. It is easy-to-understand and practical. In many ways, it streamlines the market conduct framework for financial institutions, making it easier for the insurance sector to implement.

But don't be fooled – CoFI is expansive and should positively impact the way in which the insurance value chain conducts its business. It is a hefty piece of legislation that, among other things, will attempt to address the gaps in the transformation agenda for the financial services sector.

However, at its core, is the intention to protect customers, and in particular, vulnerable customers."

Structural Regulatory Reform

This outlines the intent of the Bill, as extracted from National Treasury's Explanatory Policy Paper, which accompanied the release of the draft Conduct of Financial Institutions Bill.

The beauty of CoFI is that it is principle-based. It is not about ticking boxes to comply with legislation. It is structured to honour the spirit of the Bill, which is the fair play principle.

It expects us, as a financial services organisation, to set standards in culture, governance, product development, sales and services which honours a simple concept - doing business in a way that treats customers the same way in which we would like to be treated.

So, as a practical example: we may need to show that the post-sales process is made simple and does not force the customer to jump through hoops to make a claim or lay a complaint, etc.

In other words, can the entity demonstrate that fair play, protection of the customer and access to financial services products is fully integrated into business practice at all levels of the business?

Six [TCF] Outcomes of CoFI

CoFI and the 6 outcomes

Why is CoFI (as it is currently tabled) useful?

The CoFI Act is expected to support the TCF fairness outcomes approach. It will comprise a number of chapters designed to ensure financial institutions deliver TCF outcomes for their customers throughout the financial product lifecycle.

It will empower the FSCA to make conduct standards to reinforce this objective.

Whist TCF-aligned provisions of the COFI Bill are expected to be largely principles-based, more explicit conduct standards will be developed to underpin the delivery of the six TCF outcomes.

The Art of Proportionality?

Although the CoFI Bill entrenches requirements for fair treatment of all financial customers, including in the wholesale space, it will impose proportionally more rigorous TCF-aligned customer protection obligations for retail customers.

A proportional approach ensures that outcomes-focus is appropriately applied to different levels of risk arising from different types of activities being supervised.

Proportionality is important to create a more level playing field for institutions of different sizes that bring different risks to customers and the financial sector.

For the first time, many smaller businesses will be required to comply with CoFi – so a number of structures will be created within the FSCA to support transformation and small businesses. This is likely to include the Financial Inclusion Research unit and an Inclusive Business Model Support unit within the Regulatory Policy Division.

Indicates intended scope of CoFI

Scope of CoFI

But this cuppa is still half-full? That's because...

  It is still a draft Bill and will be revised following the industry input and consultation which was received.
  Activities and Sub-Categories of Activities requiring Licensing to be finalised
  Activities of Representatives need to be fleshed out.

We will continue to update you as CoFI is drafted into law and its conduct frameworks further developed.


About The Author:
Adél Walker: Head of Legal & Claims at Compass Insure

Adél Walker is Head of Legal & Claims at Compass Insure. She was also appointed Compliance Officer in 2013. As an admitted advocate, with over 10 years of experience in the insurance sector, she is truly the voice of the law within Compass Insure and its eco-system! Her depth of knowledge on regulatory and other legal issues that impact the specialist insurance sector offers unerring guidance in a complex business environment. In her spare time, Adél also enjoys reading literature, theatre and the fine arts.