THE BANKING ASSOCIATION SOUTH AFRICA (BASA) MAIN SUBMISSION ON THE DRAFT CONDUCT OF FINANCIAL INSTITUTIONS (COFI) BILL (V2) NOVEMBER 2020

Nr

REFERENCE IN ACT/BILL/DOCUMENT

COMMENT (Why is it a problem?)

PROPOSED WORDING/CHANGE

General comments

1.

BASA supports the new legislative framework for the financial sector and understands that the CoFI Bill needs to appropriately interface with existing legislation that applies to the sector. BASA notes that many of our 2019 comments on the previous version of the Bill have been incorporated in the 2020 version, and we are grateful for the careful consideration granted to our previous comments. Where previous comments have not been taken onboard in the 2020 version of the Bill, and as appropriate, we include same in this submission and we will appreciate your consideration of these comments.

In working through the Bill, we found that it required an extensive amount of cross referencing between other pieces of legislation. This leads to the dilution of the content of the Bill and does not allow for ease of reading and / or interpretation of the Bill (particularly for a layperson). Furthermore, reference has been made to the repealing of certain pieces of legislation, notwithstanding that, the concern is that the repealed legislation is not adequately catered for in the Bill, such as the FAIS subordinate legislation as referenced in our comments.

2.

BASA also notes that there are dependencies in other regulatory reform, including the Financial Markets Act, 2012 (“FMA”) and National Payments System Act, 1998 (“NPS Act”)Review, and the ongoing Retail Distribution Review (“RDR”) engagements with the Financial Sector Conduct Authority (“FSCA”). It was therefore not possible to comment fully on many aspects of the Bill and we will appreciate opportunity to revisit the applicable sections when the respective review processes have been concluded. We are of the view that the NPS Act (and Banks Act as applicable) should be the primary regulation law that deals with Payments and the National Payments System within the financial markets/sector.

The NPS Policy Review Paper was published in Dec 2018 and we have received no feedback to consider whether this remains the policy of National Treasury or if anything has changed. The NPS Bill will be published in 2021 with responses to the comments submitted by the public on the policy review paper. We believe a second draft policy paper on the NPS Act would be helpful. Payments involve a two-sided market, and conduct outcomes ultimately need to be balanced, and this is an additional element that must be considered when making standards, in addition to consultation with the SARB NPSD as well as the PA, who is the stability regulator.

Kindly note that the outcomes and finalisation of the advisor categorisation and the investments matters in the RDR proposal papers, will have a significant impact on Schedule 1 of the CoFI Bill and we request opportunity to revisit the applicable sections when the respective outcomes have been concluded.

3.

In the response document supporting the CoFI Bill the FSCA asked whether market infrastructures and their members should be subject to the CoFI Bill for their conduct in relation to their customers and we are of the view that the FSCA should seek to regulate the activities of all clearing members including those clearing members who fall within the market infrastructure. All activities of all clearing members including those clearing members who fall within the market infrastructure.

4.

The Bill is silent on the role of the Compliance Officers compared to other legislation such as Financial Advisory and Intermediary Services Act, 2002 (“FAIS”). Consider the inclusion of roles and responsibility of Compliance Officers in management and oversight of the fit and proper requirements and related legislative frameworks.

5.

The revised CoFI Bill now requires that a retirement fund that performs its own benefit administration should be authorised for the licensing activity of benefit administration in addition to the activity of providing a financial product (item 5.b on Schedule 1). This is to ensure that the current regulatory gap in respect of self-administered funds is closed, as s13B of the Pension Funds Act only applies to third party administrators. It is unclear whether section 13B of the Pensions Funds Act requirements now falls under the Administration requirements under schedule 3 of the CoFI Bill. Clarity is sought in this regard.

6.

We note that the submission dates for comments to National Treasury was only four weeks, and BASA had to request an extension. The CoFI Bill introduces key changes to the regulation of financial institutions and requires wide consultation within financial institutions specifically and industry generally. Version 2 of the Bill also included new provisions and consequential amendments, the potential impact of which had to be carefully assessed and commented on. A four week timeline, which also falls short of the minimum timelines for consultation on subordinate regulatory instruments in S98 of the FSRA, is therefore a cause for concern. The CoFI Bill is an important part of the regulatory reform of the financial sector and warrants sufficient time for meaningful consideration and consultation.

We will appreciate that care be taken to ensure adequate time for consultation and engagements in the future developments of the legislative framework.

8.

We request that consideration be given to include certain key defined terms in the CoFI Bill, which were defined in other legislation to be repealed, such as the definition of “associate” in the FAIS Act. We furthermore request that where appropriate, definitions used in any other legislation which may find application in the context of the CoFI Bill, as far as possible to be included into the Bill for purposes of easy reading and to ensure that the Bill contains comprehensive requirements. There may however be instances where cross references is appropriate, such as cross references to Companies Act definitions or concepts as contemplated under BEE legislation. In our view, this will ensure clarity of regulation and avoid any potential conflict between different pieces of legislation.

We note the inconsistent use of the terms “financial institution” and “licenced financial institution”. We submit that careful consideration should be given in each section to establish which term is more appropriate in the context. This comment is also relevant in the context of the broad definition included in the FSRA for “financial institution” as such definition includes the holding company of a financial conglomerate. In our view (as specifically commented on in the context of Chapter 8), the term “licenced financial institution” should be used in sections intended to regulate licenced financial institutions as institutions dealing with the public or customers in conducting the licences activities as these sections should not apply to holding companies of financial conglomerates.

9.

NT and the FSCA will recall that BASA and members submitted a Draft Conduct Standard in respect of Shari’ah financial services and products. The main objective is to create and ensure level playing fields in the market and hold institutions accountable. As the product continuum of Shari’ah Compliant Financial Services and Products (SCFSP) expands within the South African environment, we are faced with more and more legislative anomalies and we believe that it is important for us to reconcile this lest we are found wanting as an industry as a result of ambiguity that exists within the legislative environment. In respect of credit related matters for SCFSP in South Africa, there are now products that fall within the ambit of the NCA and currently there is no explicit mention of SCFSP in the NCA which could result in the industry falling foul of the NCA. The specificities of SCFSP require that there is no interest in the transaction / contract and while the Income Tax Act and other pieces of associated legislation have dealt with the treatment of these ‘margins / premiums’ as interest for Income Tax purposes, for purposes of the NCA, we need to ensure that items such as:

· Total cost of credit to customers can be cited with the use of Shari’ah lexicon

· Arrears / Default Interest: Within SCFSP contracts, should a client enter into a default or arrears position, the additional charges are effected differently. There is potential that these charges could be misinterpreted to be something other than what could be defined as ‘margin / premium’ inferring the Income Tax Act definition. However, in the absence of the explicit treatment of these charges in SCFSP contracts, there is room for misinterpretation

· Reference Rates: There is no central Shari’ah compliant reference rate within South Africa and thus the concept of ‘the Prime interest rate’ for purposes of credit contracts that fall within the ambit of the NCA would need to include the Shari’ah compliant equivalent definition so as to ensure parity of treatment to the customer.

We will appreciate dialogue and interaction with NT and the FSCA to see how we can overcome these challenges.

10.

We remain concerned about the definitions of “advertising” and “marketing” and we include a dedicated document dealing with our concerns and suggestions, marked as Annexure A to the main submission.

11.

BASA notes the inclusion of credit and debt collection services, in the revised version of the CoFI Bill, aligned with the dispensations in the FSRA which allow for the inclusion of credit and related services and products. The proposed content has far reaching effects and consequences and we include a dedicated submission on Credit and related aspects in Annexure B to the main submission. We touched on some of the pertinent challenges during the engagement with NT and the FSCA on 16 November and we remain committed to continue discussions in order to fully understand and unpack the impact of the CoFI Bill requirements in the credit space. We also need to caution against merely using existing definitions such as advice to fit all the related credit activities and actions into – the definition of “advice” has been designed for products and services other than credit granting.

12.

We also use this opportunity to submit specific comments regarding Wholesale banking and a dedicated submission is attached as Annexure C.

12.

FSR Act Sections 98 and 104

FSR Act 98(2) of the FSRA "The period allowed for making submissions referred to in subsection (1)(a)(iv) must be at least six weeks." (our emphasis

FSR Act section 104:

Reports on consultation processes

(1) With each regulatory instrument, the maker must publish a consultation report.

(2) A consultation report must include: -

(a) a general account of the issues raised in the submissions made during the consultation; and

(b) a response to the issues raised in the submissions.

1. We note that the maker of the second draft of the CoFI Bill failed to comply with the minimum timelines for consultation in S98 of the FSRA as per our comment above. The Bill is extensive, when read with the numerous licensing schedules, as well as the consequential amendments to a number of Acts such as the FSR Act, CISCA and the Pension Funds Act (to name but a few). It is important therefore that industry is afforded sufficient time to provide meaningful comment.

2. Furthermore, we note that the drafter of the second draft of the CoFI Bill failed to comply with the provisions of s. 104 of the FSR Act in that it failed to publish the required consultation report which must include a response to the issues raised in the submissions. As a result, the maker has not addressed all of the comments that have been raised and industry now needs to repeat the comments which were not addressed by the maker during the initial phase of the consultation process and are still relevant which has led to a lot of scarce time of commentators and financial institutions being wasted.

3. It is noted that the FSCA failed to provide a comment matrix, which includes a note on issues which were raised by commentators in respect of the 2018 Version of the Bill, as well as the FSCA response thereto. This resulted in us repeating some of the 2018 comments as we do not have a clear understanding why it was not accepted in the first instance and we deem it still appropriate.

1. We recommend that the FSCA adhere to the provisions of Section 98(2) and 104 of the FSR Act. In addition, where comment is required on amendment to a future Act (as compared to subordinate legislation) due consideration must be given to affording industry longer than a six-period in order that meaningful feedback may be provided.

We suggest the following definitions be included in the Bill, as discussed in the submission.

13.

associate

1. We suggest that “associate be defined.

"associate" -

(a) in relation to a natural person, means -

(i) a person who is recognised in law or the tenets of religion as the spouse, life partner or civil union partner of that person;

(ii) a child of that person, including a stepchild, adopted child and a child born out of wedlock;

(iii) a parent or stepparent of that person;

(iv) a person in respect of which that person is recognised in law or appointed by a Court as the person legally responsible for managing the affairs of or meeting the daily care needs of the first mentioned person;

(v) a person who is the spouse, life partner or civil union partner of a person referred to in subparagraphs (ii) to (iv);

(vi) a person who is in a commercial partnership with that person;

(b) in relation to a juristic person -

(i) which is a company, means any subsidiary or holding company of that company, any other subsidiary of that holding company and any other company of which that holding company is a subsidiary;

(ii) which is a close corporation registered under the Close Corporations Act, 1984 (Act No. 69 of 1984), means any member thereof as defined in section 1 of that Act;

(iii) which is not a company or a close corporation as referred to in subparagraphs (i) or (ii), means another juristic person which would have been a subsidiary or holding company of the first-mentioned juristic person-

(aa) had such first-mentioned juristic person been a company; or

(bb) in the case where that other juristic person, too, is not a company, had both the first-mentioned juristic person and that other juristic person been a company;

(iv) means any person in accordance with whose directions or instructions the board of directors of or, in the case where such juristic person is not a company, the governing body of such juristic person is accustomed to act;

(c) in relation to any person -

(i) means any juristic person of which the board of directors or, in the case where such juristic person is not a company, of which the governing body is accustomed to act in accordance with the directions or instructions of the person first-mentioned in this paragraph;

(ii) includes any trust controlled or administered by that person.

14.

financial customer

1. We note that “financial customer” is still not defined in the Bill. We further note the comments in the response document, however, we are still of the view that the term “financial customer” should be included as a defined term.

1. It is recommended that the definition of “financial customer” should be included as follows:

“financial customer” has the meaning in section 1(1) of the Financial Sector Regulation Act”;

15.

Key person

1. We note that key person is still not defined in the Bill. We further note the comments in the response document; however, we are still of the view that the term key person should be included as a defined term as defined in the FSR Act.

1. We recommend that the definition of key person should be included as follows:

“key person” has the meaning in section 1(1) of the Financial Sector Regulation Act;

16.

Non-retail financial customer

1. We propose this additional definition, carried over from BASA 2019 comments. It ties in with the proposed amendments to “retail financial customer” and “wholesale” definitions.

“Non-retail financial customer” means those customers other than retail financial customers who have been classified as “professional” “wholesale” or

“sophisticated” in accordance with guidelines set out the conduct standard for client classification”.

17.

Arrangement of sections

1. Part 4 Transformation Policy has been incorrectly reference-it should be Transformation Plan in line with the response document commentary.

1. Rectify heading.

18.

CHAPTER 1

INTERPRETATION, OBJECTS AND APPLICATION

PART 1

INTERPRETATION

Definitions

1. (1) In this Act, unless the context otherwise indicates, words and expressions that are not defined in this subsection that are defined in the Financial Sector Regulation Act, 2017 (Act No. 9 of 2017), have the same meaning ascribed to them in terms of that Act, and—

Noted.

19.

''accounting records'' has the meaning defined in section 1 of the Companies Act;

Noted.

20.

''activity'' means an activity listed in Schedule 1 and includes a sub-activity listed in that Schedule;

1. We note the content of the activities which will require licensing under CoFI in Schedule 1. The below functions do not appear to be addressed in the new license framework:

(i) Binder services including incidental binder services as defined in the Long- Term (section 72) and Short-Term (section 70) Insurance Acts, respectively. The definition of binder function in the Short Term Insurance Act includes activities relating to: “enter into, vary or renew a short-term policy”, on behalf of the insurer;

(ii) Underwriting manager’s services which exclude direct contact and advice with/to a financial customer or potential financial customer.

2. See our further detailed comments under Schedule 1 commentary.

1. Schedule 1 of the CoFI Bill should be aligned with section 3 of the FSR Act and existing activities known in the insurance industry currently governed by the Insurance Act and Regulations under the Long-Term and Short-Term Insurance Acts – as an example, binder functions.

2. Clarity is sought on whether the phrase “providing a life policy or a non-life policy as defined in the Insurance Act”, in Schedule 1(c) will include all the activities currently undertaken as a binder function being: “enter into, vary or renew” an insurance Policy?

21.

“advertising” means any communication published through any medium and in any form, by itself or together with any other communication, which is intended to create public interest in the business, financial products or financial services of a financial institution, or to persuade the public (or a part of the public) to transact in relation to a financial product or financial service of the financial institution in any manner, but which does not purport to provide detailed information to or for a specific financial customer regarding a specific financial product or financial service, and “advertise” and “advertisement” have corresponding meanings;

1. We submit the following general comment with regard to the definition of “advertising”:

a) BASA advises that we must guard against duplicate legislation on the same matter. The NCA already deals with the concepts of advertising and marketing with regard to credit in the principal act and in the regulations thereto.

b) We must prevent legal uncertainty and interpretational difficulties. Most consumer legislation – including the CPA, NCA and POPIA - defines advertising as marketing to the public at large (like a TV commercial or a billboard) while marketing or direct marketing refers to instances of approaching a consumer directly or indirectly for the purposes of offering goods, services or products.

c) Only market conduct legislation and regulation are deviating from this approach and meaning. It remains unclear why and has already led to implementation challenges as the same definitions cannot be applied across consumer protection and market conduct legislation and regulations. This results in disparity in consumer education material designed by banks.

d) The term “direct marketing” is not defined in the NCA. The term is however defined in section 1 of the CPA as:

“means to approach a person, either in person or by mail or electronic communication, for the direct or indirect purpose of-

(a) promoting or offering to supply, in the ordinary course of business, any goods or services to the person.”

The definition for “direct marketing” in POPIA is aligned to the CPA definition.

e) We propose the alignment of the market conduct legislation and regulation with the consumer protection legislation and regulations (which are existing and have been implemented).

2. We note that this definition is fully aligned to the definition of "advertising" in the Conduct Standard for Banks 2020, which Standard has already been implemented by the FSCA. We therefore agree – in principle - with the definition in the CoFI Bill.

3. However, given the content of Clause 75(3) of the CoFI Bill, which provides for certain existing “regulations” to remain in force post implementation of the CoFI, Bill we submit that there is a need for the FSCA to provide clarity around which subordinate legislation will be repealed in future? Financial institutions which are regulated by many existing laws require regulatory certainty in instances where a number of conflicting definitions have been promulgated/proposed. Misaligned definitions throughout different pieces of legislation that might all apply at the same time will have an impact on our policies and processes and could cause major system complexities. See our further notes, with examples, below.

4. Examples of definitions in other laws, which are currently inconsistent with CoFI include:

4.1. FAIS GCOC: An “advertisement’ is defined as: any communication published through any medium and in any form, by itself or together with any other communication, which is intended to create public interest in the business, financial services, financial products or related services of a provider, or to persuade the public (or a part thereof) to transact in respect of a financial product, financial service or related service of the provider in any manner, but which does not purport to provide detailed information to or for a specific client regarding a specific financial product, financial service or related service.

4.2. The NCA further defines an “advertisement” as any written, illustrated, visual or other descriptive material, communication, representation or reference by means of which a person seeks to bring to the attention of all or part of the public the nature, properties, advantages or uses of, conditions on, or prices of goods to be purchased, leased or otherwise acquired; any available service; or credit to be granted. Similar to the FAIS GCOC, a reference to “all or part of the public” appears.

4.3. The FAIS GCOC also defines “related services” as any service or benefit that is made together with, or in connection with, any financial product, financial service or benefit in respect of that financial product or financial service, and includes a loyalty benefit[footnoteRef:1] and a no-claim bonus. [1: A “loyalty benefit” is also defined and means: any benefit (including a so-called cash- or premium-back bonus) that is directly or indirectly provided or made available to a client by a provider or a product supplier or an associate of the provider or product supplier, which benefit is wholly or partially contingent upon-(a)the financial product with that provider or product supplier remaining in place;(b)the client continuing to utilise a financial service of that provider or product supplier;(c)the client increasing any benefit to be provided under a financial product; or(d)the client entering into any other financial product or benefit or utilising any related services offered by that provider, product supplier or their associates.]

4.4. The proposed definition of “advertising” aligns with the definition as set out in the Policyholder Protection Rules (PPRS) as well the FAIS GCOC with minor discrepancies pertaining to sentence structure. However, PPR Rule 10 and Section 14 sets out the principles and comprehensive requirements associated with the advertising of financial products and services which sections 29 (1) and 30 of the Bill seeks to address. In light of the duplication across the legislative instruments, will section 10 of the PPRs and section 14 of the FAIS GCOC be repealed in future?

5. It is essential to draw a distinction between the concept of "advertising" and the concept of "direct marketing", so that there is certainty around the requirements that will apply to each:

5.1. Confusion is created in terms of the wording i.e. marketing and advertising, specifically direct marketing. The definition seems to somehow exclude direct marketing by the inclusion of "does not purport to provide detailed information to or for a specific financial customer regarding a specific financial product or financial service" however, is not clear enough and should be aligned or find a balance to POPIA, FSRA and the Consumer Protection Act, 2008 (“CPA”)

5.2. Lastly, the FAIS GCOC defines “direct marketing” and has certain requirements that apply to direct marketers. There is however no similar definition or requirements in CoFI. “Direct marketing” is defined as the rendering of financial services by way of telephone, internet, digital application platform, media insert, direct or electronic mail but excludes the publication of an advertisement. “Direct marketer” is then defined to mean a provider who, in the normal course of business, provides all or the predominant part of the financial services concerned in the form of direct marketing. This definition creates confusion by including “telephone” since it does not align to the direct marketing definition in POPIA which will regulate all direct marketers in future.

1. If the Conduct Standard for Banks and the CoFI definitions for advertising is similar, but there is an exclusion in the Conduct Standard for Banks for the advertisement of credit, then a similar exclusion should appear in CoFI.

2. Alternatively, if the intention is that Chapter 6 should apply to the provision of credit, then the Conduct Standard for Banks exclusion will need to be amended.

3. If the FAIS GCOC will not be repealed, reference to the phrase “related service” in the FAIS GCOC will need to be removed in order to align the definition with that of the CoFI Bill and the Conduct Standard for Banks.

4. Reference to the definition of “direct marketing” and the rules that apply to direct marketers as per the FAIS GCOC will require review should the CoFI Bill not repeal the FAIS GCOC.

5. Clarity is sought on whether the definition of “advertising” would be retained in CoFI and repealed in the Insurance PPRs (and other legislation such as the FAIS GCOC) considering the duplication across legislative instruments?

6. The definition should take cognisance of the definition of “direct marketing” in other laws such as the CPA, the FAIS GCOC and POPIA and ensure that the words used in this definition of “advertising” and in other laws, including words used in other laws regarding the definition of “direct marketing” are not inconsistent and misaligned.

22.

''Auditing Profession Act'' means the Auditing Profession Act, 2005 (Act No. 26 of 2005);

“authorised user” has the meaning defined in section 1(1) of the Financial Markets Act;

Noted.

23.

''Authority'' means the Financial Sector Conduct Authority established in terms of section 56 of the Financial Sector Regulation Act;

Noted.

24.

''claim'' means a demand exercised by a person in respect of a financial product, irrespective of whether or not the person’s demand is valid;

We submit that the current definition is too wide:

1. We repeat our 2019 commentary: "We are of the view that the definition attributed to the term “claim” is not aligned to the context in which it is used throughout the CoFI Bill.

The term “claim” is used in the following context within the CoFI Bill:

•There may not be unreasonable barriers to the financial customer submitting claims; and

•The creation of claims management processes.

In these instances, the financial customer is claiming against a benefit linked to a financial product.

2. The definition is too broad:

(a) it states that a demand may be exercised by "a person". This may be interpreted to refer to any person, irrespective of whether or not they are directly linked to the claim or not.

(b) If we look at the context it is used in within the Bill, it seems to relate to a legal claim in terms of enabling legislation such as the companies act and the Pension Funds Act. The definition should be specific in this regard.

3. A “claim” in PPR means, unless the context indicates otherwise, a demand for policy benefits by a person in relation to a policy, irrespective of whether or not the person’s demand is valid. Is the intention to define policy claims or “complaints?

1. The inclusion of “person” is very wide. One needs to understand the intended application of the word “claim”. If it is intended to cover claims under insurance and retirement policies etc, then it could include beneficiaries who are not the direct financial customer, and “person” may be appropriate. In that instance, the definition of “person” in FAIS may also be appropriate. If not, then we propose that it be replaced with “financial customer. We also note that “claim” is used in the licensing schedule in respect of a “lending agreement” and “financial instrument”. This is under the “General administration” activity (Administration includes--

(a) receiving, submitting or processing the claims of a person in respect of a financial product, lending agreement, or financial instrument). It is unclear how “claim” would apply to a “lending agreements”.

2. “something that is due in law” can only be determined once the claim is processed, so not necessarily at the demand stage.

3. We propose amending the definition as follows:

 "claim" means a demand, for something that may be due in law, exercised by a person who has suffered a direct financial loss in respect of a financial product or a financial service irrespective of whether or not the person’s demand is valid;

25.

''collective investment scheme'' has the meaning defined in section 1(1) of the Collective Investment Schemes Control Act, 2002 (Act No. 45 of 2002);

Noted.

26.

''Companies Act'' means the Companies Act, 2008 (Act No. 71 of 2008);

Noted.

27.

''complainant'' means a person who submits a complaint, who has a direct interest in the agreement, financial product or financial service to which the complaint relates, or a person acting on behalf of a person referred to in paragraphs (a) to (f), and includes a—

(a) financial customer or the financial customer’s successor in title;

(b) beneficiary or the beneficiary’s successor in title;

(c) person whose life is insured under an insurance policy;

(d) person that pays any contribution or money in respect of a financial product or financial service;

(e) member or member spouse of a pension fund, insurance group scheme (or other type of member-based product or scheme); or

(f) potential financial customer or potential member of a pension fund, insurance group scheme (or other type of member-based product or scheme), whose dissatisfaction relates to the relevant application, approach, solicitation or advertising or marketing material referred to in the definition of “potential financial customer”;

1.We are of the view that only sub-clauses (a) and (b) of the definition are necessary. The balance of the subclauses would be covered under the definition of “financial customer”. This was adopted in the Conduct standards for Banks, and alignment is recommended to ensure consistency and regulatory certainty. We are mindful that the definition in the Bill would be wider in scope as it caters for different types of financial institutions, however we suggest that the alignment will ensure clarity.

2. Clarity needs to be provided on what is meant by a "direct interest", how it is to be determined and how it is to be measured? It is also not clear whether the person acting on behalf of another person who submits a complaint, is required to be a party to the arrangement, in order to act on behalf of such person. Alternatively, it is proposed that direct interest be defined. Further alternatively the definition of complainant should be amended to state that a complainant should have a direct and substantial interest. The inclusion of “substantial” could curtail frivolous and immaterial claims.

3. Key concerns regarding the person who is entitled to act on behalf of the complainant must be permissible through legal mandates or legislation, such as Power of attorney, Curatorship documents etc. Without this limitation, the definition is too broad and may infringe on the customers right to privacy and our obligations in this regard. Consideration of POPIA is key in this regard, as well as the consequences in breach. There must be some form of legal nexus between the customer and the person acting on behalf of the customer.

1. We recommend that the definition of "complainant' should be aligned (with changes) to the definition in the Conduct Standard for Banks 2020 as follows:

'“complainant” means a person who has submitted a complaint to a bank Financial Institution and includes:

(a) a financial customer or potential financial customer of the bank Financial Institution concerned and who has a direct and substantial interest in the agreement, financial product or financial service to which the complaint relates; or

(b) a person who is legally mandated or authorised to submit the complaint on behalf of a person mentioned in paragraph (a), provided that a potential financial customer will only be regarded as a complainant to the extent that the complaint relates to the potential financial customer’s dissatisfaction in relation to the activities contemplated in the definition of “potential financial customer”'

28.

“commercial sponsor” means a licensed financial institution that establishes a retirement fund, with the intention that the financial institution, or another financial institution within the same financial group, will provide financial products or financial services to the retirement fund, once established, or its members;

1. We note the wording “or another financial institution in the same financial group” in the definition.

1. We suggest that the restriction to the “same financial group” be removed as outsourcing arrangements may exist.

29.

“commercially sponsored fund” means a retirement fund that is established by a commercial sponsor;

Noted.

30.

''complaint'' means an expression of dissatisfaction by a person to a financial institution or, to the knowledge of the financial institution, to the financial institution’s service provider relating to a financial product or financial service provided or offered by that financial institution, which indicates or alleges, regardless of whether the expression of dissatisfaction is submitted together with or in relation to a query by a financial customer, that—

(b) the financial institution’s or its service provider’s maladministration or wilful or negligent action or failure to act, has caused the person harm, prejudice, distress or substantial inconvenience; or

(c) the financial institution or its service provider has treated the person unfairly;

(d) person that pays any contribution or money in respect of a financial product or financial service;

(e) member or member spouse of a pension fund, insurance group scheme (or other type of member-based product or scheme); or

(f) potential financial customer or potential member of a pension fund, insurance group scheme (or other type of member-based product or scheme), whose dissatisfaction relates to the relevant application, approach, solicitation or advertising or marketing material referred to in the definition of “potential financial customer”

1. We note that the CoFI Bill definition agrees materially to the definition of "complaint".

2. The definition contemplates instances where a complaint is submitted together with or in relation to a “query” by a financial customer. Query is not defined in the CoFI Bill and may include a broader type of request for information where not defined. It is therefore suggested to amend “query “to be referenced to “client query” as contemplated in the FAIS GCOC. The CoFI Bill repeals the FAIS Act. It is however not clear whether the repeal of the primary FAIS Act, will also result in the repeal of the sub-ordinate legislation under FAIS for example: FAIS fit and proper Board Notices and FAIS Codes of Conduct (see comment detail below). It is therefore proposed that the definitions section be amended to include the definition of client query as set out in the FAIS GCOC.

3. The reference to “person” in this definition should be replaced by “complainant”. There is a risk in misalignment because it would appear that reference to "person" includes a broader group of people than the definition of "complainant.

4. We note the wording “pension fund” in (e) and (f) and suggest it be replaced with “retirement fund”.

1. We suggest the following wording:

“complaint'' means an expression of dissatisfaction by a person complainant to a financial institution or, to the knowledge of the financial institution, to the financial institution’s service provider relating to a financial product or financial service provided or offered by that financial institution, which indicates or alleges, regardless of whether the expression of dissatisfaction is submitted together with or in relation to a query by a financial customer, that— (a) the financial institution or its service provider has contravened or failed to comply with an agreement, a law, a rule, or a code of conduct which is binding on the financial institution or to which it subscribes; (b) the financial institution’s or its service provider’s maladministration or wilful or negligent action or failure to act, has caused the person harm, prejudice, distress or substantial inconvenience; or (c) the financial institution or its service provider has treated the person complainant unfairly;

(e) member or member spouse of a pension fund retirement fund, insurance group scheme (or other type of member-based product or scheme); or

(f) potential financial customer or potential member of a pension fund retirement fund, insurance group scheme (or other type of member-based product or scheme), whose dissatisfaction relates to the relevant application, approach, solicitation or advertising or marketing material referred to in the definition of “potential financial customer”.

2. We suggest including the following definition:

"client query" means a request to the financial institution or the financial institution’s service supplier by or on behalf of a financial customer or a potential financial customer, for information regarding the financial institutions financial products, financial services or related processes, or to carry out a transaction or action in relation to any such product or service.

31.

''competence'' includes experience, qualifications and continuous professional development;

1. We note that the CoFI Bill repeals the FAIS Act and we support same. It is our understanding that with the repeal of the primary FAIS Act, that the FAIS fit and proper Board Notices and FAIS Codes of Conduct will also be repealed. Is our understanding correct? Clarity is required in this regard.

1.1. However, we have also noted the contents of clause 73(5) of the CoFI Bill which states that: "73(5) A Regulation made or issued in terms of a financial sector law for which the Authority is the responsible authority on the effective date and in force immediately before the effective date, remains in force despite the repeal of that financial sector law, but may be amended until revoked by the Minister and replaced by a conduct standard prescribed in terms of this Act."

The FSR Act defines a "financial sector law" and a "regulatory instrument" but does not define a "regulation".

1.2. We do not support a future fit and proper regime where the FSCA may prescribe - in granular detail - the format and content of varied competency requirements. We suggest that the discretion be left to the Financial Institution to establish competence in terms of product knowledge as well as knowledge of financial sector laws

1.3. Regarding subsection (dd) must a natural person complete an exam, CPD and have a professional designation? Or may they select to complete any of these three options? Clarity is sought in this regard.

2. Reference is made to "fit and proper requirements in relation to a natural person": Read with clause 13(1) and clause 24 of the Bill, it is noted that "representatives" and "key persons" must comply with fit and proper requirements.

2.1. Exhaustive fit and proper requirements do not serve to protect the industry from “rolling bad apples” and certainly in the South African context, individuals responsible for key conduct failures have been highly skilled and “competent”. It is noteworthy to mention that the Australian Royal Commission report noted that prescriptive fit and proper standards will not solve issues of behavioural misconduct.

2.2. We do not agree that the prescriptive fit and proper compliance type training should apply to key persons. Key Persons within a SIFI which is also a Bank would be pre-approved by the South African Reserve Bank (“SARB”) and in such instances, the key person should be exempt from the CoFI Bill fit and proper "competence" requirements which are noted under subsection (iii) of the Definition.

2.2. It is not clear if the fit and proper rules will also apply to "senior management"? "Senior management" is referenced in the definition of a "control function", but "senior management" is not defined in the Bill. We submit that "senior management" should also be exempted from the fit and proper "competence" requirements as is noted in subsection (iii) of the definition.

2.3. Training should be role specific. Example, a Product Head should have the competence that is applicable to his job profile.

5. It may helpful if the FSCA should introduce Competency Requirements not only for automated advice but other forms of tools and or electronic mediums/platforms/systems that make use of data, artificial intelligence and machine learning which potentially be regarded as a measure of experience. This would assist in levelling the plain fields and to ensure that all financial institutions employ the use of systems/tools that are Competent notwithstanding the “Additional requirements applicable to FSPs that provide automated advice” as set out under Section 38 of BN 194.

5.1. It is also important to note that the reliance on the subordinate legislation presents another potential problem in that the competence requirements (Chapter 3) as well as the requirements for Automated Advice are set out in a board notice that could possibly be repealed depending on what the Regulator decides with regards to the FAIS subordinate legislation following the repeal of FAIS.

6. Execution of sales requirements have not been included under this section of the CoFI Bill as stated under BN 194 of 2017. We suggest that clarity be provided in terms of expectations in relation to execution of sales requirements as provided for under BN 194 of 2017.

7. Clause 65(2) in the previous version of the Bill has been removed. Clause 65(2) stated: "A financial institution that provides a financial product or financial instrument must, if it enters into an arrangement with one or more other financial institutions to distribute or provide advice on its financial products or financial instruments, select financial institutions that have the necessary knowledge, expertise and competence to understand the features and the characteristics of the identified target market of the financial product or financial instrument, correctly place the product or instrument in the market and give the appropriate information to financial customers". This clause references to “competence” in a context wider than that envisaged in the 2020 Version of CoFI. We suggest that the definition of “competence” should therefore be removed, and “competence” should only be stated under the fit and proper requirements and aligned to the BN. Note: The word "competence" is not used in the Bill other than with reference to the fit & proper requirements.

8. The definition of “competence” defines it to include experience, qualifications and knowledge, however s108 and s159 of the FSRA refers to competence as including experience, qualifications and knowledge. Competence is already a defined term as such, in instances where the term competence is referenced, the words “including experience, qualifications and knowledge” should not be included as it already forms part of the definition itself.

9. We note that the definition does not include Regulatory Exams and Classes of Business training as compared to the current definition in Board Notice 194 of 2017, nor does it align with the requirement of “competence” as further expanded on in the CoFI Bill’s definition of “fit and proper requirements”. Does the CoFI Bill intend to alter the definition for all the financial institutions? Is the exclusion of Regulatory Exams and Class of Business intentional by the drafters?

1. The Definition read with Section 24 of the Bill: Section 24 should be amended to make clear that only subsections (i) and (ii) of the Definition will apply to a "Key Person".

We suggest the following amendment: "Key persons" must, at all times, comply with prescribed fit and proper requirements as defined in clauses (a)(i) and (ii) of the "Fit and Proper" definition.

2. Clarity is required on whether, with the implementation of CoFI, the FAIS fit and proper requirements and Codes of Conduct will be repealed?

3. We suggest a similar clause for any future fit and proper requirements for "senior management".

4. It is proposed that the definitions be amended and aligned to reflect that it is not applicable to every person in the relevant institution, but rather that the applicability should be role specific. Additionally, it is proposed that each institution be empowered to make its own decision around what constitutes the requisite skill and competencies, as it would be best placed to determine what is needed from an own-employee, customer and product perspective.

5. We suggest that the definition of “competence” should be removed, and “competence” should only be stated under the fit and proper requirements and aligned to the BN. Note: The word "competence" is not used in the Bill other than with reference to the fit & proper requirements.

6. We propose the following change to the “fit and proper” definition:

'fit and proper requirements'' means—

(a) in relation to a designated natural person, requirements relating to—

(i) honesty and integrity;

(ii) good standing;

(iii) competence, including—

(aa) experience;

(bb) qualifications;

(cc) knowledge of financial products, financial instruments, foreign exchange, foreign financial products, and financial services, as the case may be;

(dd) knowledge of financial sector laws, as assessed through—

(A) examinations;

(B) continuous professional development; and

(C) professional designation or membership;

(b) in relation to a significant owner, requirements relating to—

(i) honesty and integrity;

(ii) good standing; and

(iii) financial standing as determined by the financial institution

32.

''conduct standard'' means a conduct standard prescribed by the Authority as contemplated in section 67 of this Act;

Noted.

33.

''control function” has the meaning defined in section 1(1) of the Financial Sector Regulation Act, and includes the senior management function;

1. We note the following concerns regarding the lack of a definition for “senior management”:

1.1. The previous 2018 definition for "senior management" has been removed from the 2020 version of the Bill. The 2018 CoFI Bill defined 'senior management'' as “means the managers and executives at the highest level of a financial institution or business, which has responsibility for corporate governance and corporate strategy”.

1.2. "Senior management" is currently not defined in either the 2020 CoFI Bill or the FSR Act.

1.3. “Senior management” is defined in the Insurance Act and does not correlate to this proposed definition. This definition seems to limit senior management to top level executives/directors of a financial institution and does not speak to lower management that could have designations of chief executive officers, especially taking into consideration leadership structures in “financial conglomerates”.

1.4. Per our previous comments in 2019 commentary on the CoFI Bill, we do not support any future definition of "senior management" which adopts the definition of "senior management in the Insurance Act. Reason: The Insurance Act definition merely copies certain wording from the "key person" definition of the FSR Act.

1.5. We support a regulatory approach wherein a senior management function (and which is clearly distinguishable from a "key person" function) is tasked with operational level accountability and oversight in respect of matters such as new product approval, advertising pre-approval and ongoing product review and remediation. However, we submit that such a "senior manager" needs to be defined as that level of 1st line management who is clearly distinguishable from a "key person".

2. We do not agree that the definition of "control function" should be expanded to include the phrase "and includes the senior management function". Control function heads are not first line business-facing functions. Control function heads are second /third line officials who afford independent assurance and oversight or raise compliance concerns in respect of actions executed by first line functions. Senior management - in the context as contemplated in this Bill and in current subordinate legislation in FAIS - is a first line function, generally tasked with operational execution. There can be no blurring of accountabilities and role player functions between 1st and 2nd/3rd lines. We therefore suggest that a definition be introduced for "senior management" separate from the "control function" definition.

3. We note that the CoFI Bill places regulatory requirements on managers who are responsible for corporate governance and corporate strategy:

3.1. It not clear which level of management will be responsible for certain obligations in the Bill (key person or senior manager or are they seen as one and the same?)

3.2. Do the drafters have any intentions in relation to managers who carry responsibility for operational execution of strategies?

3.3. By way of example in the FAIS Act regime the role of the Key Individual exists, one of the responsibilities of these individuals is to manage and oversee the activities of representatives. Therefore, being accountable at an operational level for the day to day activities of persons authorised to provide financial services to customers.

4. Product pre-approval and/or pre-notification to the FSCA will be a hindrance to business process and efficiency. Packaged financial solutions are offered and vetted by the executive of a financial institution, product owners and comply with product approval processes where senior management is involved in design and approval of the relevant financial product.

1. We propose that the senior manager be defined, and be distinct from a “key person”, bearing in mind which role may be intended to be covered by the proposed future senior managers regime.

34.

''Co-operatives Act'' means the Co-operatives Act, 2005 (Act No. 15 of 2005);

Noted.

35.

''financial institution'' has the meaning defined in section 1(1) of the Financial Sector Regulation Act, but does not include a market infrastructure;

1. We note the FSCA commentary which accompanied the CoFI Bill and which stated:

"FSCA page 21: Comments noted that the CoFI Bill definition of financial institution should align with the definition used in the FSR Act, as disparate definitions could lead to arbitrage and negative consequences. It was proposed that transitional provisions should rather be included to state that until the FMA Review is finalized, the CoFI Bill provisions will not apply to market infrastructures.

In response, it is considered legally permissible for the definition of “financial institution” to be restricted in the CoFI Bill to exclude market infrastructures. The intention is for the market infrastructures to be excluded from the CoFI Bill as they will continue to be licensed and regulated by the FSCA in terms of the FMA, and having an entity licensed twice by the same regulator i.e. the FSCA for the same activity may be unnecessarily onerous and cumbersome. It could be considered however that market infrastructures be required to comply with specified obligations in the CoFI Bill, especially Chapter 4 on Culture and Governance. Comments would be appreciated in this regard."

2. We however submit that a Market Infrastructure should be subject to compliance with Chapter 4 of the CoFI Bill.

3. Although a “market infrastructure” is excluded from the definition, the regulator should consider the implication of S68: iIn the event of any inconsistency between a provision of this Act or a conduct standard prescribed under this Act, and a rule made by a market infrastructure under the Financial Markets Act, or a rule under the National Payment System Act, that relates to the conduct of financial institutions as regulated in terms of the Conduct of Financial Institutions Act, the provision of Conduct of Financial Institutions Act or the conduct standard prescribed in terms of this Act prevails.

4. The exclusion of “market infrastructure” conflicts with the following provision in Section 3 of Act 19 of 2012 which is amended by inserting following subsection (6):

“(7) A market infrastructure must, when making rules that relate to the conduct of financial institutions as regulated in terms of Conduct of Financial Institutions Act, promote and facilitate compliance with that Act and any standard prescribed in terms that Act.”

5. We have made previous submissions in respect of the fact that holding companies of banking/ financial institution groups are not operating entities, do not have employees, do not have clients/ customers, etc.

6. To impose provisions which are aimed at operating entities is problematic.

1. We suggest that a “market infrastructure” still be included in the CoFI definition, however the Object and Application sections be expanded to reference the limited application of CoFI to market infrastructures. This comment applies equally to the definition of “supervised entities”.

2. A definition for " market infrastructure" should be included in CoFI , to align with the definition in the FSR Act:

‘‘market infrastructure’’ means each of the following, as they are defined in

section 1(1) of the Financial Markets Act:

(a) A central counterparty;

(b) a central securities depository;

(c) a clearing house;

(d) an exchange; and

(e) a trade repository;

3. It is proposed to either i) delete the inclusion of holding companies of financial conglomerates from definition of FSRA; or ii) to exclude it from the definition of financial institution in COFI. We deal with this also when commenting on provisions in COFI where the term “financial institution” is used in Part 1 of Chapters 8

4. We are of the view that it would be more appropriate to refer to “licenced financial institution” in all the sections forming part of Part 1 of Chapter 8. Consideration should be given to this principle in the context of all provisions in COFI.

3.

36.

''financial instrument'' has the meaning defined in section 1(1) of the Financial Sector Regulation Act, and includes a foreign financial instrument;

1. We note that the definition has been expanded to include “foreign financial instrument”.

2. We will appreciate an explanation on the rationale for the inclusion of “foreign financial instrument” in this definition.

1. We recommend that the inclusion of “foreign financial product should be deleted.

37.

''financial product'' has the meaning defined in section 2 of the Financial Sector Regulation Act, and includes a foreign financial product;

1. We note that this definition extends to a “foreign Financial Product”. Is it envisaged that the scope of the CoFI Bill will have an extra-territorial application and will therefore extend to foreign financial institutions who will require licensing? Or is it envisaged that such regulation would be relevant and bring such an entity in scope where such a foreign financial product will be targeting a SA based customer? Clarity is sought in this regard.

2. In past discussions around the fact that the FSRA definition does not include the full list of financial products in FAIS or FMA, the point was made at that stage that it was intentional not to align. Now, under CoFI, and with FAIS to be repealed, with no reference to the full list of products in FAIS or reference to FMA product definition, is the intention to restrict the definition to that in the FSRA?

1. We recommend that the inclusion of “foreign financial product should be deleted.

38.

''Financial Sector Regulation Act'' means the Financial Sector Regulation Act, 2017 (Act No. 9 of 2017);

Noted.

39.

''financial service'' has the meaning defined in section 3 of the Financial Sector Regulation Act;

Noted.

40.

''financial statements'' has the meaning defined in section 1 of the Companies Act;

41.

''fit and proper requirements'' means—

1. in relation to a natural person, requirements relating to—

(i) honesty and integrity;

(ii) good standing;

(iii) competence, including—

(aa) experience;

(bb) qualifications;

(cc) knowledge of financial products, financial instruments, foreign exchange, foreign financial products, and financial services, as the case may be;

(dd) knowledge of financial sector laws, as assessed through—

(A) examinations;

(B) continuous professional development; and

(C) professional designation or membership;

2. in relation to a significant owner, requirements relating to—

(i) honesty and integrity;

(ii) good standing; and

(iii) financial standing;

1. Clarity is required on whether, with the implementation of CoFI, the FAIS fit and proper requirements and Codes of Conduct will be repealed?

2. We suggest that the discretion be left to the Financial Institution to establish competence in terms of product knowledge as well as knowledge of financial sector laws.

3. Regarding subsection (dd) must the natural person complete an exam and CPD and have a professional designation? Or may they select to complete any of these three options?

4. The financial sector laws as applicable to the class of business to the specific individual - example investment legislation - cannot be tested on someone who only specialises in short term insurance.

5. With regard to “knowledge of financial products, financial instruments, foreign exchange, foreign financial products, and financial services”, would this include crypto currency? The Definitions of Financial instrument Financial Product, Foreign Exchange and foreign financial products as defined in the Financial Sector Regulation Act does not define or refer to crypto currency.

6. We require clarity in terms of S6A(3) of FAIS to be repealed : Different fit and proper requirements may be determined for providers, representatives and compliance officers that are natural persons and for those that are partnerships, trusts or corporate or unincorporated bodies.

7. Clarity is required on what constitutes "good standing" - is this articulation too broad?

8. Sub-section (cc) – the reference to "product knowledge" is vague and subject to interpretation. the current regime refers to product specific training. Due to the FAIS Regulations / potentially FAIS fit and proper, remaining effective after the implementation of CoFI, there would be misalignment between the Bill and BN 194 of 2017.

9. Regarding sub-clause (dd) “knowledge of financial sector laws": There are FIs (FSPs) that are currently exempt from RE and also the representatives would not necessarily be members of any professional body as the career path does not require same. Will the representatives that do fall under the two aforementioned circumstance be deemed not to be compliant with the requirement or is the sub-paragraph applicable to only those representatives that it is applicable to?

10. We note that paragraph (a)(iii)(dd) references knowledge to be tested through examinations. The requirement in the FAIS Board Notice 194 allows for a wider more principles-based approach with respect to learning and training. It is our view that the prescriptive nature of examinations may lead to a barrier to entry industry. The FSCA should create an environment that allows previously disadvantaged persons to enter the industry to provide financial services to the unbanked. Learning may take many forms and not necessarily through exams.

11. What regime will be available in respect of Fit & Proper transitional arrangements that came out of Board Notice 194 of 2017? Where representatives lack Regulatory Exams but have the required experience, would there be mechanisms to exempt or grant applicants sufficient time to obtain fit and proper status as per the current board notice?

12. We will appreciate clarity on the mechanisms to exempt or grant applicants sufficient time to meet the fit and proper requirements.

13. We note that (C) makes reference to “professional designation or membership” and we will appreciate clarity on the applicability of the requirement. Is this limited to the financial services industry or is this broader than the financial services industry?

14. Considering that the CoFI Bill is proposing the repeal of the FAIS Act, should the CoFI Bill not include definitions of honesty and integrity, good standing, qualifications, experience, regulatory exams, continuous professional development, etc. etc. Where existing laws are being proposed to be repealed, and where specific definitions from such laws are now being referenced in the CoFI Bill, should these definitions not be included in the CoFI Bill (more so if such definitions are not referenced anywhere else apart from the law that are being proposed for repeal via the CoFI Bill?

We suggest the following: Definition read with Section 24 of the Bill:

1. Section 24 should be amended to make clear that only subsections (i) and (ii) of the Definition will apply to a "Key Person".

2. We suggest the following amendment: "Key persons" must, at all times, comply with prescribed fit and proper requirements as defined in clauses (a)(i) and (ii) of the "Fit and Proper" definition.

3. We suggest a similar clause for any future fit and proper requirements for "senior management".

4. We propose the following change to the “fit and proper” definition:

'fit and proper requirements'' means—

(a) in relation to a designated natural person, requirements relating to—

(i) honesty and integrity;

(ii) good standing;

(iii) competence, including—

(aa) experience;

(bb) qualifications;

(cc) knowledge of financial products, financial instruments, foreign exchange, foreign financial products, and financial services, as the case may be;

(dd) knowledge of financial sector laws, as assessed through—

(A) examinations;

(B) continuous professional development; and

(C) professional designation or membership;

(b) in relation to a significant owner, requirements relating to—

(i) honesty and integrity;

(ii) good standing; and

(iii) financial standing

as determined by the financial institution

42.

“licensed financial institution” means a financial institution that is licensed under this Act;

Noted.

43.

''licensee'' means a person that has obtained a licence in accordance with section 10;

Noted.

44.

''Minister'' means the Minister of Finance;

Noted.

45.

“Non-retail financial customer”  means those customers other than retail financial customers who have been classified as “professional” “wholesale” or

“sophisticated” in accordance with guidelines set out the conduct standard for client classification”.

1. We propose this additional definition, carried over from BASA 2019 comments. It ties in with the proposed amendments to “retail financial customer” and “wholesale” definitions.

46.

“participant” has the meaning defined in section 1(1) of the Financial Markets Act;

Noted.

47.

“payment service provider” means a person who is authorised under this Act to provide payment services as defined in Schedule 1;

1. It is difficult to comment on those provisions of the Bill that place a dependency on the content of the NPS Bill, without having sight of the NPS Bill as yet.

2. We do agree – in principle – that that conduct standards will regulate entities via their activity (payment services to still be defined).

3. The definition of payment service provider as it is currently constructed contemplates two aspects which are to be considered –

1. authorisation; and

2. payment services (as defined in Schedule 1).

Authorisation

Per section 3(2)(a) of the Bill, reference is made to words ‘licence’ and ‘authorise’, which are therefore to be understood as two separate concepts. While you may be issued with a licence, you may not be authorised to render activities under such licence.

“Authorisation”, “Authorise” or “Authorised” has not been defined in the Bill.

However, authorisation / authorise has to be considered in the content of section 9 and 10 of the CoFI Bill. Therefore, a payment service provider would have to apply for a licence [as required under section 9(1) a person may not perform an activity listed in Schedule 1 unless that person has been issued with a licence in terms of this Act or has been appointed as a representative of a financial institution that is licensed under this Act] and then in turn must be authorised to perform such activity (i.e. payment services).

Section 9 contemplates the Authority (‘Authority’ is defined as the Financial Sector Conduct Authority established in terms of section 56 of the Financial Sector Regulation Act – ‘FSRA’)

1.granting the licence (on application) [Sections 113(2) to 116, 118A and 124 of the FSRA applies with the necessary changes to the licensing process under this Act and Sections 117 and 118 of the FSRA apply to licensees and licences granted under this Act]; and

2.being able to vary, suspend or revoke such licence (in accordance with sections 119 to 123 of the FSRA)

Noting the content of the sections referred to above, the responsible authority for payment services has not been clearly stated as the Reserve Bank, which we are of the view it should be based on the description provided in Schedule 1 of payment services (furthermore noting that Schedule 2 to the CoFI Bill doesn’t specifically reference the current National Payment System Act, or any amendment thereto, and the regulatory authority).

Payment Services

‘payment services’ has not been defined in the CoFI Bill. All that is stated in relation hereto is that the definition of payment services in the FSRA is likely to be replaced by a definition of such in the new NPS Bill, that is being developed to replace the existing NPA Act. The content of this activity will therefore be aligned with the definition of “payment service” in the governing NPS law (provided same is contemplated). Therefore, the definition of payment service as defined in the FSRA, was not considered in relation hereto, however noted that payment service is contemplated as a service provided to financial customers to ensure a payment happens, excluding clearing and settlement. It should accommodate banks and non-banks, as per the NPS Policy Review. Generally, means the “front end” of the national payment system i.e. financial customer facing.

For consideration -

· the definition of “financial service provider” being a person that, as a business or as part of a business, provides a financial service;

· the definition of ''financial service'' is contemplated in section 3 of the Financial Sector Regulation Act and included in section 3, reference is made to payment service.

· definition of “financial institution” in the FRSA Act means any of the following, which includes a financial service provider.

Therefore by the very fact that a financial service provider, who provides payment services, is a financial institution, it goes without saying that such person is to be licenced and authorised as contemplated under Chapter 2 of CoFI and therefore a financial institution that provides payment services, is to consider the CoFI Bill in its entirety (and not only consider reference to payment service provider). It is submitted that there is no need to cater for a further definition of payment service provider and hence propose that the defined term of payment service provider be deleted and in the sections where the defined term is referenced, i.e. section 43 (3); 44 (3)(c) and 44(7), 4410 (d) and 49(3)(c)(ii), same to be supplemented to state ‘financial institution which provides payment services’ similar to that as stated in s107 of the FSRA – This will prevent confusion between the term Financial Institution and Payment Serves Provider.

48.

''portfolio'' means a group of assets including any amount of cash in which financial customers acquire, pursuant to a collective investment scheme or an alternative investment fund, a participatory interest or a participatory interest of a specific class which as a result of its specific characteristics differs from another class of participatory interests;

We repeat our 2019 comments with regard to this definition, which have not been addressed:

1.It is not clear whether segregated portfolios fall within the scope of the CoFI Bill.

· Segregated portfolios are portfolios that consist of financial instruments and client assets, that are managed by the financial institution (fully or with limitations) with the intention of generating a financial return for the investor as contemplated in section 2 (3)(a) of the FSR Act.

· The Definition seems to exclude segregated portfolios (model portfolios), directly held non-pooled assets?

1. We propose renaming "portfolio" to "CIS Portfolio" so as not to be confused with other investment portfolios with directly held non-pooled assets.

49.

''potential financial customer'' means a person who has—

(a) applied to, or otherwise approached, a financial institution or a related party or representative of the financial institution to become a financial customer;

(b) been solicited by a financial institution to become a financial customer; or

(c) received advertising in relation to any financial product or financial service;

1. The reference to “received” in subsection (c) is too broad. Would this mean that driving past a billboard advertising a financial product or service form part as having received advertising?

2. ‘Solicited’ is not defined and we are not sure if this refers to marketing or any other approaches by the Bank. POPIA defines direct marketing as an approach either in person or by mail or by electronic communication. This is a much clearer description than a reference to a person being “solicited” by a financial institution. We do not agree that the definition should include “advertising”. Advertising may end up being received by financial customers who do not form part of the intended targeted customer group therefore those recipients cannot be viewed as "potential" financial customers.

3. This very broad definition of potential customers, outside of advertising, could place a burden on the financial institution which is not commensurate to the risk. The obligations related to potential financial customers should be differentiated based on the activity being conducted.

4. Less restrictive requirements should apply where potential customers have not acted on the solicitation/ advertising conducted.

5. Consider the impact in terms of POPIA in relation to a prospective customer. The CoFI Bill definition is in conflict with POPIA:

5.1. POPIA limits this to "in the context of a sale" whereas the CoFI Bill definition extends to solicitation and receiving advertising.

5.2. POPIA does not define who will be regarded as a prospective customer or a prospect, however, there are various international guidance such as the Information Commissioners Office (ICO) in the UK that has advised that a customer, for marketing purposes, could be regarded as someone that has showed a sufficient level of interest in a product or service. This would include someone that has applied for a product or approached a responsible party with the intention of becoming a customer (i.e. asked for a quote and provided his/her personal information).

5.3. In terms of POPIA, direct marketers may only send electronic direct marketing communications without marketing consent to their customers (as per the customer exception in section 69 of POPIA). This provision has been interpreted to include persons that have applied but have not taken up a product or service or have approached the responsible party and expressed sufficient interest in the product or service (i.e. customers). If the definition of “potential financial customer” in the CoFI Bill retains part (a) to that definition (applied to or otherwise approached…), it could cause unintended consequences for direct marketers from a POPIA perspective.

6. We propose further that the reference to “related party” be removed. The term is not defined and makes the application of the “potential financial customer” even wider and more uncertain.

7. We propose that part (a) of the definition also be revised to remove “applied to or otherwise”. The reason for this proposal is that it gives the impression that someone that merely applied for a product / service is a prospect rather than a customer. We believe that someone has applied to be a financial customer be moved into the definition of financial customer.

1. We suggest the following amendments:

'potential financial customer'' means a person who has— (a) applied to, or otherwise approached, a financial institution or a related party or representative of the financial institution to become a financial customer; (b) been solicited approached by a financial institution to become a financial customer; or (c) received advertising in relation to any financial product or financial “directly received advertising detailed information in relation to any financial product or financial service and forms part of the targeted customer group for which the particular financial product and or financial service has been designed."

50.

“prescribed” means prescribed by the Authority in a conduct standard as contemplated in section 67

51.

''prudentially regulated financial group or financial conglomerate'' means a banking group referred to in the Banks Act, an insurance group referred to in the Insurance Act, or a financial conglomerate designated in terms of section 160 of the Financial Sector Regulation Act that is subject to regulation and supervision by the Prudential Authority, and a reference to “prudentially regulated financial group and financial conglomerate” has a similar meaning;

1. Clarity is sought as to why market infrastructure is excluded from this definition when securities services is included as a service offered by a Conglomerate.

52.

“proprietary trading” means the buying and selling of financial instruments or foreign exchange by a financial institution for its own account;

53.

''prudentially regulated financial institution'' means a financial institution that is subject to regulation and supervision by the Prudential Authority, but does not include a market infrastructure;

1. Noted. See our comments relating to the exclusion of “market infrastructure” under the definition of “financial institution” above.

54.

''public sector retirement fund" means a retirement fund to which the State, or to which a national or provincial public entity, or a national or provincial business enterprise as those terms are defined in section 1 of the Public Finance Management Act, or a municipality or municipal entity as defined in section 2 of the Local Government: Municipal Systems Act, 2000 (Act No. 32 of 2000), contributes;

55.

''related service'' means any service or benefit provided or made available by a financial institution or any associate of that financial institution, together with or in connection with any financial product or benefit;

1. With reference to Section 73(5) of the Bill, it is not clear if the FAIS GCOC will be repealed or not. The FAIS GCOC also defines “related services” as any service or benefit that is made together with, or in connection with, any financial product, financial service or benefit in respect of that financial product or financial service, and includes a loyalty benefit[footnoteRef:2] and a no-claim bonus. [2: A “loyalty benefit” is also defined and means: any benefit (including a so-called cash- or premium-back bonus) that is directly or indirectly provided or made available to a client by a provider or a product supplier or an associate of the provider or product supplier, which benefit is wholly or partially contingent upon-(a)the financial product with that provider or product supplier remaining in place;(b)the client continuing to utilise a financial service of that provider or product supplier;(c)the client increasing any benefit to be provided under a financial product; or(d)the client entering into any other financial product or benefit or utilising any related services offered by that provider, product supplier or their associates.]

2. “associate” has not been defined in the CoFI Bill and the FSRA Act. “Associate” has been defined in the FAIS Act however, FAIS will be repealed. We request that a definition of “associate” is included in the CoFI Bill which is aligned with the definition used in the FAIS Act.

3. “Benefit” is not defined and is very broad, as it does not refer to financial instruments only financial products.

4. “any service or benefit’ is very broad and we request clarity whether this is meant to replace intermediary services.

5. We note that our comments submitted in 2019 in respect of this definition have not been addressed. Same is repeated here for easy reference:

Regarding “associate”:

2.1. Clause 57(b) of the FSR Act notes that the objective of the FSCA is to promote “fair treatment of customers by “financial institutions”. An “associate” is not defined in the FSR Act nor is it defined in CoFI.

2.2. “Associate” has a different meaning in this context.

This should be defined.

5.3. Additionally, it must be kept in mind that financial institutions do contract with third parties and rely on such third parties for specific services. These third-party relationships are governed by agreements between the respective parties. In the context thereof, it is not clear to what extent CoFI will apply.

Regarding “related service”:

2.4. A “related service” is not defined in the FSR Act. Only a “financial service” and a “financial product” is defined in the FSR Act.

2.5. If an activity does not fall within the definition of “financial service” it cannot be regulated under CoFI.

2.6. It is noted that the definition of “related service” is not restricted to a financial service thus, by implication, any type of service or benefit would fall within the scope of related service.

1.If the FAIS GCOC will not be repealed, reference to the phrase “related service” in the FAIS GCOC will need to be removed in order to align the definition with that of CoFI and the Conduct Standard for Banks. Similarly, reference to the definition of “direct marketing” and the rules that apply to direct marketers as per the FAIS GCOC will require review should CoFI not repeal the FAIS GCOC.

Definitions throughout different pieces of legislation that might all apply at the same time will have an impact on our policies and processes and could cause major system complexities.

2.Recommend that the term "associate" be defined.

3.Recommend that the reference to “related service” be deleted in its entirety.

4.Alternatively, clarity is required around (a) whether it is the intention of the Bill to include non-financial services/ benefits (that is: any type of related services) to this definition?

(b) the extent of the applicability of CoFI in relation to a financial institutions contractual arrangement with various third parties.

56.

''representative'' means any person, including a person employed by a representative, who performs an activity listed in Schedule 3 for or on behalf of a financial institution in terms of an employment contract or any other mandate or agreement, but excludes a person rendering a clerical, technical, administrative, legal, accounting or other service in a subsidiary or subordinate capacity, which service—

1. does not require judgment on the part of the latter person; or

(b) does not lead a financial customer to any specific transaction in respect of a financial product in response to general enquiries;

1. We note that this definition addresses concerns raised when we commented on the CoFI Bill in 2019, and the amended definition now references to the exclusions from a definition of "representative" as contained in the current FAIS Act. We agree with this insertion.

2. It is not clear whether the definition also refers to a “juristic representative?” The definition refers to any person who performs an activity listed in Schedule 3. Schedule 3 refers to a representative performing discretionary services as a natural person. Mention of institutional form extends to distribution and advice activities only. The exclusion of juristic representatives as defined in the Administrative and Discretionary Codes of Conduct under FAIS requires to be addressed.

3. We advise that the license categorisation under the RDR project will require finalisation and aligned consultation, prior to the enactment of Schedule 3.

1. We suggest that the regulator make clear whether or not “juristic representatives” will be permitted in future and if the definition here includes a “juristic representative”?

57.

“research service” means the provision of analytical, evaluative or research, as a business or a part of a business, for the purposes of distilling information in respect of or assessing the desirability or unfeasibility of a particular financial investment, financial product, financial instrument, foreign exchange or financial service, or the provider of a financial product, financial instrument or financial service.

1. We will appreciate clarity on whether FSPs that are relied on in the outsourcing Research Services be required to be licensed under the CoFI Bill?

1. See our comments in the Wholesale submission.

58.

''retail financial customer'' means a financial customer that is—

(a) a natural person; or

(b) a juristic person, whose asset value or annual turnover is less than the threshold value as prescribed after consideration of any similar threshold values determined under the Consumer Protection Act and the National Credit Act;

1.This Bill is materially misaligned with the Conduct Standard for Banks 2020 which Conduct Standard does not refer to the NCA in the definition of a "retail financial customer". The Conduct Standard instead only refers to the CPA thresholds. It is also noted that the prescribed thresholds for the NCA and the CPA are currently not aligned, which creates uncertainty in relation to the applicability of this provision.

1.1. A bank would be regulated under the Conduct Standard for Banks and the CoFI Bill:

1.2. Principally, the law relating to the same regulated entity should not contain conflicting definitions in different pieces of Conduct legislation.

1.3. We suggest that the definitions for "retail financial customer" in the CoFI Bill be amended to align to the definition of same in the conduct Standard, namely the references to the NCA must be excluded.

2. We note that CoFI proposes licenses under CoFI in respect of "credit agreements" as defined in the National Credit Act.

2.1. In principle, the law relating to the same regulated entity should not contain different regulatory obligations in different instruments.

2.2. We note from Schedule 1 of the CoFI Bill that only Chapters 1 (interpretation, object and application), Chapter 2 (licensing), Chapter 4 (Culture and governance), Chapter 9 (reporting), Chapter 11 ( general provisions, conduct standards and offences) and Chapter 12 (final and transitional provisions) is proposed to apply to credit agreements. The CoFI Bill therefore requires a provider of a credit agreement to comply with obligations such as reporting, as well as compliance by the credit provider with Conduct Standards. Refer in this regard to Section 67(1) in Chapter 11 which notes that "The Authority may make conduct standards for and in respect of—(a) financial institutions required to be licensed under this Act"

2.3. The Conduct Standard for Banks requires compliance (by the provider of a credit agreement) merely with the Culture and Governance obligations in that Standard.

3.We note the relevant FSCA commentary on the CoFI Bill - see page 18 of 28 - which states that:

"The Bill has been revised to give effect to the approach taken to credit re