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South Africa's financial sector is on the cusp of its most significant regulatory transformation in decades with the formal introduction of the Conduct of Financial Institutions (COFI) Bill, 2026, to Parliament in April 2026. This landmark legislation, central to the Financial Sector Conduct Authority's (FSCA) 2026 Three-Year Regulation Plan, signals a fundamental shift towards a harmonised, activity-based, and principles-based market conduct framework. Financial institutions face a comprehensive relicensing process and heightened expectations for governance, accountability, and customer treatment. Concurrently, the FSCA continues to demonstrate a robust enforcement posture, imposing substantial administrative penalties and debarments for non-compliance, underscoring the urgent need for legal professionals and regulated entities to proactively prepare for this evolving regulatory landscape.

The South African financial services landscape is undergoing a profound transformation, marked by the recent formal introduction of the Conduct of Financial Institutions (COFI) Bill, 2026, to Parliament. This legislative milestone, which occurred in April 2026 following Cabinet approval, represents the culmination of years of reform aimed at strengthening market conduct regulation. For legal practitioners advising financial institutions, the COFI Bill is not merely a future prospect but an immediate imperative, fundamentally reshaping compliance obligations, licensing requirements, and the very approach to market conduct across the sector. Its impending enactment and subsequent phased implementation will necessitate a comprehensive re-evaluation of existing operational and governance frameworks.

The journey towards the COFI Bill began with the Financial Sector Regulation Act 9 of 2017 (FSR Act), which established South Africa's "Twin Peaks" regulatory model. Under this framework, the Prudential Authority (PA) is responsible for the safety and soundness of financial institutions, while the Financial Sector Conduct Authority (FSCA) oversees market conduct and consumer protection. The FSR Act empowered the FSCA to promote fair treatment of customers, enhance market integrity, and ensure financial stability. However, conduct requirements remained fragmented across various industry-specific laws, leading to gaps and overlaps. The COFI Bill is designed to address this fragmentation, providing a single, holistic legal framework for market conduct regulation that applies consistently to all financial institutions. This shift is a critical component of the broader Twin Peaks reform process, aiming to align South Africa with international best practices in financial oversight.

The COFI Bill introduces a paradigm shift from institutional-based to activity-based regulation, meaning financial institutions will be licensed and regulated based on the specific activities they perform, the products involved, and the categories of customers served, rather than their institutional form. This will necessitate a comprehensive relicensing process for thousands of financial institutions, including banks, insurers, retirement funds, and financial services providers. The framework is principles-based and outcomes-focused, emphasising fair treatment of customers, transparency, and accountability throughout the product lifecycle, from design to post-sale service.

Under COFI, governing bodies, directors, and key individuals will bear enhanced responsibilities for overseeing conduct, compliance, and customer outcomes, with clear fitness and propriety standards. This elevates the importance of robust internal controls, risk management frameworks, and effective complaints management systems. The FSCA's 2026 Three-Year Regulation Plan, published on 3 July 2026, explicitly places the COFI Bill at the centre of its regulatory programme, indicating that much of the FSCA's future conduct-regulation work will be developed through, or alongside, the COFI transition.

This proactive regulatory stance is further evidenced by the FSCA's 2025-2028 Regulatory Strategy, which signals a move towards more outcomes- and evidence-based supervision. The Authority is leveraging technology to simplify licensing processes, improve risk-based supervision, and enhance oversight through data collection and analysis. Practitioners must also note the immediate compliance requirement of the Omni-Risk Return, with the first submission due in September 2026 for all FSCA-supervised Financial Services Providers (FSPs), irrespective of COFI's formal enactment.

The FSCA's enforcement actions underscore its commitment to robust regulation. Recent cases highlight significant administrative penalties and debarments for contraventions such as providing unauthorised financial services, misuse of client funds, and breaches of financial regulations. For instance, in March 2026, officials of the South African Army Foundation faced debarment and fines exceeding R44 million, while a R358 million penalty was imposed on Mr. Stephanus Johannes Grobler, and Banxso (Pty) Ltd and its directors received a R2 billion administrative penalty in December 2025. The FSCA also continues to publish lists of employers with arrear pension contributions, demonstrating its commitment to protecting retirement fund members. These actions serve as a clear warning that non-compliance carries severe consequences.

The transition to the COFI framework presents complexities, particularly for outsourced service providers, where licensing and accountability remain areas requiring careful consideration. The FSCA's focus on functional accountability, rather than just formal legal structure, means that financial institutions will need to scrutinise their outsourcing arrangements and ensure that service providers meet the new conduct standards. The phased implementation of COFI, with public consultation on high-priority themed frameworks expected during 2026/27, provides a window for institutions to engage with the evolving requirements and adapt their operations accordingly.

The introduction of the COFI Bill to Parliament and its central role in the FSCA's 2026 Regulation Plan mark a pivotal moment for South Africa's financial sector. Legal practitioners must advise their clients to move beyond a reactive compliance mindset and proactively engage with the implications of this new regulatory era. This includes a thorough review of current licensing statuses, governance structures, internal controls, and customer-facing processes to align with COFI's activity-based, principles-based, and outcomes-focused approach. The FSCA's intensified supervisory and enforcement posture, coupled with immediate requirements like the Omni-Risk Return, demands urgent attention.

Financial institutions should prioritise developing a comprehensive COFI readiness strategy, including assessing the impact on their business models, technology infrastructure, and human capital. Engaging with legal and compliance experts will be crucial to navigate the complex relicensing process and to ensure that robust frameworks are in place to meet the enhanced standards of conduct and accountability. The coming years will be defined by continuous adaptation, and those who embrace this regulatory evolution early will be best positioned to thrive in South Africa's transformed financial landscape.