COFI Bill Update Chantal Manson Liberty Group July 2019

AGENDA UPDATE FOR RETIREMENT FUND INDUSTRY 1 Approach to licensing Independent/Professional Trustees 2 Sponsors and Employers 3 Who is ultimately accountable to the members of the fund under COFI? 4 Transformation 5 Regulatory uncertainty 6 Next steps

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

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 Principle based Outcomes focused Risk based & proportionate

Approach to licensing Independent/Professional Trustee It is inappropriate that any members of boards of funds should be licensed – this would be similar to requiring members of boards of companies to be licensed Possible unintended consequences could arise where there are different types of trustees where some are classified as 'professional' and others not All trustees, irrespective of how they are appointed, are all subject to the PFA which requires all trustees to act independently, impartially, are jointly and severally liable, and must avoid conflicts of interest (fiduciary duties). No support for this proposal Unclear what exactly is the intention with this proposal

Sponsors & Employers Employer SPONSOR Definition should be defined further to clarify the different types of sponsors There are nuances and interactions differ depending on type of sponsor and type of fund: Employer sponsor Industry sponsor (union and bargaining councils) State sponsor Financial Institution sponsor Employer Biggest concern with employers is s13A of the PFA What should the consequences be for non-compliance, which needs to be a careful balancing act so that employers are not disincentivized to participate in retirement funds? How is it intended to bring employers into the COFI Bill - would they be seen as a supervised entity? (this needs to be explored further)

Who is accountable to the members of the fund? Accountability of different financial institutions in value chain – retirement fund, insurer, CIS? Chapter4 Advice and distribution by another FI eg: PFA Default Regulations which allows a member the option to opt out, and the Fund doesn't even know if member is obtaining advice. Complaints – s13B administrator, insurer or retirement fund? Product Design – occupational funds - benefits provided for in the fund rules is dictated by what is contained in the employment contract (eg: % of contributions, multiple of approved risk cover). Principles are created in Bill and the different layer in putting into practice will be dealt with through the standards Depends on the particular circumstance The context and reasonability needs to be considered in each situation. The board is ultimately responsible to the members of their funds. However, legal certainty required under COFI COFI needs to be clear as to what applies to whom and who has the primary obligation - especially for members and who the member must approach for what

Transformation The intention is not to duplicate DTI responsibility for BBEEE Act The FSCA (through COFI) will provide support as they have a front line relationship with the FI and will see how FI are going give effect and deliver on stated objectives and commitments (eg: how do FI embed and deliver on transformation) Transformation Council Process/ Commission will continue set targets

Regulatory uncertainty Which takes precedence where conflict LTIA & PPR √ Overlap IA and Standards FAIS √ CISCA? PFA? FMA? CMS? The transitional provisions as currently written create uncertainty Prudential Supervision of Retirement Funds & CIS Licencing – targeted customer segment Which sections of the PFA are best placed under COFI and will be required to migrate to a conduct standard?

FSCA Regulatory Strategy Next Steps Working through submissions (over 800 pages) - anticipated Bill will be subject to revisions based on public consultation process More urgent pressing changes will happen in the interim through conduct standards NT still hoping for the Bill to be presented to Cabinet this year There will be further consultation on COFI and retirement funds COFI Bill is part of the broader strengthening of market conduct in SA (other initiatives include i) Reform of ombuds system ii) consumer financial education iii) retail banking) After promulgation CoFI Act will not be able to come into immediate force and effect Conduct standards are needed to underpin provisions of CoFI FSCA Regulatory Strategy Sets out objectives for the next 3 years 6 strategic priority focus areas ‘a robust regulatory framework that promotes fair customer treatment’ Interim Measures Amendments to existing market conduct legislation Conduct Standards Exercising its FSR Act supervision and enforcement powers Regulatory Framework

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