While it’s unlikely that the Conduct of Financial Institutions (COFI) Bill will be tabled before Parliament rises ahead of the elections this year, market players are eagerly awaiting its enactment and the many benefits it will bring, especially when it comes to low risk, rapid innovation in the fintech space.
Designed to complement the Banks Act and Insurance Acts, COFI has been drafted to consolidate thousands of pages of disparate financial legislation and create a single standard of industry conduct. It will impact all financial institutions, including banks, insurers, credit providers, and financial advisors and, importantly, non-financial institutions such as telcos, retailers, fintechs and any other organisation providing financial services.
“A lot of work and consultation has gone into this legislation with a number of work streams closely examining the existing institutional legislations and the impact of the new law. In essence it gives regulators the scope to govern institutions based on their activity. With the introduction of the bill, the conduct of every institution that participates in the provision of any financial service product will fall under the oversight of the regulator,” explains Mpho Sadiki, Group MD: Merchant Solutions (Africa) at Network International.
Level playing fields
While some in the industry have baulked against any additional regulatory burden, Sadiki says this is the wrong way of looking at things.
He explains that the new legal framework will move away from the current sectoral approach, where 13 separate laws are applicable to licenced institutions.
Rather, the COFI regulations have provided for an activity-based approach. This means that similar activities will be uniformly regulated and supervised, irrespective of the type of institution performing the activity.
For fintechs like Network International, which provides critical payments infrastructure services, the Bill will open the door for new business with traditional providers and merchants and, according to Sadiki, this can only benefit the market and the consumer.
“COFI is a big deal because it removes the limitations of who can provide services, opening up participation and injecting some much needed competition and innovation into the industry, while still ensuring the industry guards against fly-by-night outfits. By creating a level playing field the legislation allows for rapid deployment of new products that can only benefit the local consumer. The organisations most likely to benefit from this new environment are those who have access to technology partners who can enable rapid, low-risk deployment to take advantage of opportunities as soon as they arise, ” Sadiki says.
A more inclusive approach
The new bill would also benefit industry participation and Sadiki uses the new instant payment mechanism, PayShap, which has been designed to boost financial inclusion, as a prime example of how COFI would deliver immediate benefits.
“Vision 2025 speaks about the need for better financial inclusion. For this to reach scale we need to quickly create access to more financial products - and this requires competition. We have gone on this journey of modernising payments and building this brilliant capability that is able to facilitate instant payments. But right now, only registered banks can participate. With COFI more than just the banks can get involved to originate and receive payments, driving competition in the market and benefiting the consumers and building trust in the entire financial system,” he says
Speaking about how the new regulatory regime will impact outsourced payment services, Sadiki says fintechs, like Network International, that have a tech stack
that has proven its compliance capabilities in multiple markets, will give the regulator a high level of confidence in new endeavours. This will mean partners can rapidly deploy new offerings with confidence and without having to worry about possible restrictions or keeping up with compliance requirements w.r.t reporting and AML/CFT.
This more open and inclusive approach will also help South Africa transition towards true open banking.
On the direct to merchant side, Sadiki says it will enable businesses like Network International to provide financial service capabilities and products that it couldn’t previously access. It also creates the opportunity for Network International to further invest in existing capabilities, drawing on the group’s experience in other markets to bring innovative new payment services to South Africa.
“South Africa has a mature and excellently regulated financial services sector. By levelling the playing fields and moving towards an activities-based regulatory regime we are preparing an environment that is primed for more innovation. And that is where APIs and open banking can shine. COFI stands to offer our industry far more opportunities than whatever inconveniences may come with revised or new regulations,” Sadiki comments.
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