ROAD MAP APRIL 2010: Treating customers fairly: A discussion paper prepared for the FSB FEBRUARY 2011: NT released ‘A safer financial sector to serve South Africa better’ commonly known as the “Red Book”, which wide-ranging sets out proposals to reform the financial regulatory system in SA FEBRUARY 2013: The Red Book was followed by the policy document, ‘Implementing a Twin Peaks model of Financial Regulation in SA (2013)’ (the roadmap), which provided more detailed proposals on implementing the reform of the financial regulatory system DECEMBER 2013: FSB TCF Baseline study findings published DECEMBER 2014: National Treasury releases ‘Treating Customers Fairly in the Financial Sector: A Draft Market Conduct Policy Framework in South Africa’ 21 AUGUST 2017: The Financial Sector Regulation Bill signed into law, which is now the Financial Sector Regulation (FSR) Act 9 of 2017 11 DECEMBER 2018: National Treasury publishes the draft Conduct of Financial Institutions Bill for public comment, together with an explanatory policy paper

FINANCIAL SECTOR REGULATIONS ACT (01/04/18) Regulatory instruments COFI Bill FAIS FMA PFA PPR RDR CISCA STIA LTIA TCF Financial Institution Facing FSCA Governance Issue product Sales & distribution Advice Disclosures Post sales Outsourcing Claims & complaints Regulatory Architecture Regulator Facing PA PA SARB Act Insurance Act Banks Act PRUDENTIAL MARKET & BUSINESS CONDUCT Regulatory instruments Standards Guidance Notes Interpretation Notes Inspection investigations Administrative Action Directives Enforceable undertakings Debarment Supervisory tools Supervisory tools

Market Conduct in current Financial Sector Law   Transactional banking Retail/SMME credit Insurance Investments Pension Funds Governance Banks Act NCA LTI/STIA CISCA PFA FAIS Issuing Products LTIA Sales & Distribution LTIA/STIA Advise Disclosure** LTI/ STIA Post sale - service Outsourcing and 3rd management Banks Act (limited to general governance controls) Claims and complaints NCA(Tribunal) FSOS(indirect -voluntary scheme) F S O S(indirect - voluntary scheme) F S O S*(collective investment schemes) NT Treating Customers Fairly in the Financial Sector: A Draft Market Conduct Policy Framework in South Africa’ (2014)

FINANCIAL SECTOR REGULATIONS ACT (01/04/18) Regulatory instruments COFI Bill FAIS FMA PFA PPR RDR CISCA STIA LTIA TCF Financial Institution Facing FSCA Governance Issue product Sales & distribution Advice Disclosures Post sales Outsourcing Claims & complaints Regulatory Architecture Regulator Facing PA PA SARB Act Insurance Act Banks Act PRUDENTIAL MARKET & BUSINESS CONDUCT Regulatory instruments Standards Guidance Notes Interpretation Notes Inspection investigations Administrative Action Directives Enforceable undertakings Debarment Supervisory tools Supervisory tools

What is COFI all about? Market conduct regulation aims to prevent, and manage when prevention is not successful, the dangers that arise from a financial institution conducting its business in the way that are unfair to customers or undermines the integrity of financial markets and confidence in the financial system. Represents the holistic legal framework for market conduct regulation in South Africa that is consistently applied to all financial institutions. Replaces conduct provisions in financial sector laws It is broader than the TCF outcomes - entrenches principles in law Primarily regulated entity-facing – setting the requirements that financial institutions under the jurisdiction of the FSCA must meet and the outcomes they are expected to deliver. Gives customers and industry players an indication of what is expected of financial institutions. Object of Act - promote trust and confidence in the financial sector

Risk based & proportionate What is COFI all about? New legal framework Streamlines the legal landscape for conduct regulation in the financial sector and gives legislative effect to the market conduct policy approach. Will strengthen customer protection by putting in place a single comprehensive market conduct law in the financial sector, resulting in the consistent application of consumer protection principles across the sector. Gives more flexibility and better tools to the regulator to support emerging new financial institutions. Gives legal effect to transformation and inclusion requirements in support of targets agreed through the Financial Sector Transformation Council and specified in the Financial Sector Code. Support competition and innovation Activity-based Principles-based Outcomes focused Risk based & proportionate

Structure of COFI Bill When interpreting and applying must give effect to objectives of COFI Must read in conjunction with FSR Act, the FSR Act is an overlay on existing financial sector laws, as well NB definitions – Financial Customer, Financial Institution, Financial Product, Financial Service, Governing Body No longer ‘tick box’ approach - the FSCA will focus on monitoring the demonstrable achievement of outcomes in the financial sector Binding principles which reflect outcomes that must be met. Specific parts contain clauses ‘setting out the purpose of the chapter to provide clarity on intended purpose of the legal provisions’ Chapter 3 Culture and Governance Purpose of Chapter 29. The purpose of this Chapter and any conduct standards prescribed under this Chapter is to set out governance requirements for financial institutions, so that financial customers can be confident that they are dealing with firms and persons where the fair treatment of customers is central to the corporate culture, and in particular, to— improve confidence in the financial sector by promoting governance that supports the fair treatment of financial customers; promote the supply of financial products and financial services that are appropriate for targeted financial customers; and enhance transparency and improved market conduct in the sector

Structure of COFI Bill LICENSING (read with Schedule 2) Chapter 1 INTERPRETATION, OBJECTS AND APPLICATION Objectives include protecting and promoting the fair treatment of customers, as well as promoting transformation, financial inclusion and innovation in the sector. It explains how the Bill will apply to financial groups and conglomerates and pension funds Chapter 2 LICENSING (read with Schedule 2) New licensing framework for FI Will replace the numerous different registrations and authorisations in the financial sector with a single market conduct licence from the FSCA, which can have different authorisation categories, depending on the financial activities carried out by the financial institution Follow a ‘phased process’ for conversion of existing registrations Provide financial product or instrument Distribute financial product Financial advice Managing and administering investments Benefit administration Professional Fiduciary or Custodian Service Payment Service Financial Market Activities Providing benchmarks and related services Services related to buying and selling foreign exchange Credit Rating Service Debt collection service

Structure of COFI Bill CULTURE AND GOVERNANCE FINANCIAL PRODUCTS Chapter 3 CULTURE AND GOVERNANCE Appropriate governance frameworks and that decision-makers are directly and personally held accountable for weak governance and abusive practices by the FI Fit and proper requirements Operational and governance requirements Mandatory policies Chapter 4 FINANCIAL PRODUCTS Clear processes and procedures regarding the design of financial products marketed and sold, including that the needs of financial customers are identified and are targeted accordingly Senior management is required to sign off on new products Standards to be issued eg: charging structures, on-going product monitoring Chapter 5 FINANCIAL SERVICES Consider the needs, circumstances and expectations of targeted financial customers, when providing financial services. Allows for specific conduct standards to be set on financial services for matters such as investment administration, services provided to another financial institution, payment services, and benchmark determination

Structure of COFI Bill Chapter 6 PROMOTION, MARKETING AND DISCLOSURE Clear, complete and accurate information on financial product or service across its lifecycle FI required to have documented processes and procures in place for signing off promotional and marketing materials by a person of appropriate seniority More consistent disclosures across the financial sector Standards specifying details on things like Key Information Documents, white labelling, and plain and simple language requirements, inducements and competitions, endorsements, direct marketing, negative marketing Chapter 7 DISTRIBUTION, ADVICE AND DISCRETIONARY INVESTMENT MANAGEMENT FI must ensure that their distribution models are appropriate to ensure the delivery of appropriate products and services and, where applicable, provide access to suitable advice. Conduct standards, including on matters such as product aggregation and comparison services, investment platform administration, referrals and lead generators, and remuneration arrangements Chapter 8 POST-SALE BARRIERS AND OBLIGATIONS Consistent approaches and practices within FI once a customer has purchased a product or entered into a contract with a FI – do not face unreasonable post sale barriers when changing, switching, submit claim or complaint Includes requirements for claims handling processes and complaints management processes, interactions with the relevant financial sector ombud, and requirements for how the information generated through complaints are used within an organisation

Structure of COFI Bill REPORTING Chapter 9 SAFEGUARDING ASSETS AND OPERATIONAL REQUIREMENTS Deals with institutions that invest, hold, keep in safe custody, control or administer funds of a financial institution, or any trust property – have appropriate safeguards in place Only applies to financial FI not regulated in terms of another Act, to ensure no overlap with prudential requirements. FI to have operational capital to perform their required functions Chapter 10 REPORTING Annual disclosures to the regulator The regulator the ability to request information from a FI Appointment of Auditor to be approved by FSCA Conduct standards on reporting, public disclosures, accounting and auditing Chapter 11 REMEDIAL ACTIONS FOR FINANCIAL CUSTOMERS FSR Act sets out the primary supervisory powers and tools available to the FSCA This chapter provides greater detail on specific remedial actions - allowing the FSCA to direct a financial institution to provide appropriate redress to financial customers if they have been found to contravene a requirement of the Act or acting without the best interest of the customer in mind

Structure of COFI Bill GENERAL PROVISIONS Final Provisions Schedules Chapter 12 GENERAL PROVISIONS Sets out the application of COFI in relation to other laws, the process for making conduct standards, for recognising equivalence with foreign jurisdictions and vice versa, and details the process for applications and notifications to the regulator. Offences and the reporting of contraventions (person is not licensed R15million or 10years imprisonment or both) A FI may not in connection with a financial product or a financial service engage in conduct that is, in all the circumstances, unconscionable. Chapter 13 Final Provisions Deals with savings of existing provisions in terms of specific laws, and transitional arrangements, to ensure the smooth implementation of the COFI Bill once enacted. The Bill provides for all regulatory instruments (subordinate legislation) made under financial sector law to remain effective despite the repeal of the primary Act Schedules Laws amended (including Acts repealed such as FAIS, LTI Act, STI Act, CISCA, Financial Institutions (Protection of Funds Act) Categories and subcategories of activities requiring licensing Institutional Form Transitional arrangements in respect of licensing Activities of representatives

COFI Bill & Retirement Funds State-owned pension funds / Public sector pension funds There should be same member protection as those regulated through the PFA COFI definition of pension fund includes public sector funds Insert definition ‘public sector pension fund’ in Pension Funds Act, 1956 NT Explanatory Policy Paper:

COFI Bill & Retirement Funds Retirement Fund Benefit Administrators Currently regulated under the PFA (s13B & BN 24 of 2002) In future be licensed and authorised under the COFI only as a FI with activity = benefit administration service in respect of pension benefit Table 5: Benefit Administration Authorised Activity: Benefit Administration (and Sub activities) Financial product category Notes / discussions Main Product Category Product Sub-categories Benefit Administration service: Pension fund benefit administration Pension benefit

COFI Bill & Retirement Funds RETIREMENT FUNDS (PENSION FUNDS) Pension fund organisation is a financial institution in terms of FSR Act Providing a financial product is an activity that a FI is required to be licensed for This activity includes the activity of a pension fund providing pension benefits to its members ‘benefit’ is defined in PFA as in relation to a fund, means any amount payable to a member or beneficiary in terms of the rules of that fund Accordingly, a retirement fund will be subject to COFI and be required to be licensed in terms COFI: Authorised activity: providing a financial product Main product category: pension benefit Product sub-categories: Benefits provided by RA Fund, Pension Preservation Fund, Beneficiary Fund, Commercial Umbrella Fund, occupational fund, etc Annexure 4: Table 1: providing a Financial Product or Instrument

COFI Bill & Retirement Funds RETIREMENT FUNDS (PENSION FUNDS) Licensed under both the PFA and COFI The registration of a retirement fund will continue in terms of the PFA. COFI will impose high-level, binding principles in respect of retirement funds that will be applicable in addition to the various requirements contained in the PFA. Conduct requirements will be migrated from the PFA to the COFI Act. Various provisions of the PFA will be retained to provide for the separate legal status of the fund and to set prudential requirements NT Explanatory Policy Paper:

COFI Bill & Retirement Funds RETIREMENT FUNDS (PENSION FUNDS) Trustees/board of management Board of management is the governing body referred to in COFI and FSR Act The COFI Bill introduces as an activity 'professional fiduciary', with ' Professional pension fund trustee service' and Independent pension fund trustee service' as subcategories, who will be licensed under COFI and subject to fit and proper requirements as part of their wider regulatory obligations. Member elected trustees will not be required to be licensed and the focus will be on continual skills development through training The board/trustees are accountable for compliance with COFI: Board must have procedures in place to comply with requirements of COFI and identify non compliance Boards have to inform the FSCA without delay if it has “materially” failed to comply with COFI

COFI Bill & Retirement Funds Sponsor Persons who intend establishing funds (sponsors e.g. employer, trade union, financial institution) will have to meet minimum requirements – to ensure fund compliance with licensing requirements before license is issued to fund. Sponsors not separately licensed. Authority may prescribe conduct standards regulating and imposing requirements on sponsors of pension funds. Chapter 4: Financial Products Part 2 Clause 51(3): (3) Standards that may be prescribed in terms of subsection (1) and (2) may include standards aimed at ensuring that, where financial products are provided to pension funds, or similar member-based entities, where appropriate – Protections afforded to financial customers by this Chapter also apply in relation to the members of pension funds (or entities): and Obligation imposed by this Chapter on financial institutions that provide products are also imposed on sponsors of pension funds.

COFI Bill & Retirement Funds Service providers to retirement funds May be FI or ‘service provider’ or ‘supervised entity’ (not a licensed FI) financial advice investment management asset consulting actuarial and auditing services Valuation In future certain service providers currently licensed under PFA will be licensed and authorised under the COFI only Authorised Activity: Financial advice Financial product category Main Product Category Product Sub-categories Financial Advice Pension benefit RA fund or Preservation fund Umbrella and occupational funds (includes all other types of funds listed under the Issuing a financial product activity in relation to issuing of pension benefits (see table 1) Annexure 4: Table 3: Financial Advice

Closing thoughts NT Explanatory Policy Paper

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