In July 2022, the Financial Sector Conduct Authority (FSCA) released its regulation plan for the next three years (2022-2025). Most significant was the effective placing on the “back burner” of the conduct of financial institutions bill (COFI) which was previously anticipated to become effective in 2022. COFI has already been through two different drafts and public comment processes. However, it seems that due to extensive public review and comment, a third draft of COFI is likely to be released for public comment and further work on the underlying regulatory framework is required before it will be enacted. Due to the sweeping regulatory changes that COFI is set to introduce including the repeal of some key financial services legislation, it is not surprising that the FSCA has pushed the pause button on COFI until some further work is completed.
This underlying framework for COFI is precursory and will ensure that the FSCA can facilitate a smooth and effective transition into the new regulatory regime once the COFI Bill is enacted. This development is made up of three phases, which will be progressed concurrently:
- High-level design of the regulatory framework: The FSCA will consider the overall design of the regulatory framework to be implemented under COFI. This includes the role of conduct standards as supporting regulations to COFI and how they should be grouped, numbered and positioned.
- Harmonisation of the regulatory frameworks: This phase commenced in 2020. It is based on the need to avoid fragmentation of regulatory supervision and arbitrage, and inconsistent customer outcomes across the financial sector by the identification of key conduct themes. In respect of these conduct themes, the FSCA will develop cross-sector conduct standards applicable to the financial industry, regardless of the type of institution or activity rendered. Where required, further sector-specific conduct standards may be issued to supplement the general conduct standards.
- Transition to the COFI framework: COFI provides that anything done or prescribed under an Act that is amended by COFI (e.g. board notices, guidance notes etc.) shall remain valid and in effect until replaced by a new conduct standard under COFI. Therefore the FSCA will focus on transitioning existing subordinate legislation and notices into the COFI framework so that these pre-existing instruments can be harmonised with COFI. They will apply in the interim until replaced by new COFI conduct standards.
The FSCA has not provided any indication of when the expected third draft of COFI would be available for public comment or when the COFI Act would become effective. Instead, the FSCA has indicated that the drafting of the harmonisation frameworks is underway, and consultation on the frameworks should occur during 2023. The FSCA is also considering setting up industry reference groups to serve as consultation and discussion forums for progressing this work.
In the interim Caveat Legal is ready to assist our clients with the impending market conduct regulatory changes as part of the harmonisation projects before COFI is enacted. Please contact us if you have further questions on COFI or the changes to the market conduct standards for the financial services industry.