14 June, 2023.
This series of articles is inspired by legendary author, the late Stephen R Covey, whose bestselling book, The seven habits of highly effective people, impacted millions of people around the world. FSPs will do very well to consider the habits highlighted in these articles.
The first habit
As a quick reminder again, in the first article on the essential habits of highly successful FSPs under COFI, I highlighted the importance of defining reality and to be proactive. The reality is that the Conduct of Financial Institutions Act (COFI) is upon us, and it will impact your business. Best be proactive and start preparing for the next wave of regulatory reform.
The second habit – Seek first to understand, then to be understood
In the previous articles (Parts 1, 2 and 3) I highlighted that it will be necessary to reassess and stress-test your business and your client engagement process before conducting business under the new Act. I also highlighted the importance of seeking first to truly understand the fundamentals of COFI before expressing an uninformed opinion and potentially leading your team in the wrong direction. In the first two articles I mentioned the significance of understanding the purpose or objective of the Act and that COFI does not stand on its own. It must be read with the Financial Sector Regulation Act as the FSR Act created the regulatory foundation for COFI to exist. The third article highlighted that FSPs should be aware that the principles of Treating Customers Fairly (TCF) will be officially incorporated into the COFI Act. These articles are available on in the Member Resources for those members who missed it.
In this article the significance of culture takes centre stage.
Culture and Governance
The principles of ethical culture and corporate governance are the two cornerstones on which COFI is founded. In terms of section 14(1) of the Conduct of Financial Institutions Bill, a financial institution must identify and promote a culture within the financial institution that supports ethical behaviour and aims to ensure that the matters referred to in Part 1 of COFI, such as promoting confidence and trust in the financial sector, are central to the values and practices of the financial institution.
According to sociologists, culture consists of the values, beliefs, communication, and practices that people have in common. Essentially, culture is about the way you and your people treat other people, how you act in critical situations, how you manage pressure in the business, and how you respond to the myriad of challenges you face in this highly competitive and onerous environment. Imagine a culture in your FSP where all key individuals, representatives, and admin personnel-
(i) act in good faith and in the interests of your financial customers and treat them fairly.
(ii) conduct your business transparently, with integrity, honestly, fairly, and with due skill, care, and diligence.
(iii) ensure that financial products and financial services, and information relating to financial products and financial services, are provided, promoted, and marketed to financial customers in a way that is clear, unambiguous, and not misleading or fraudulent.
(iv) deal with conflicts of interest effectively and fairly and in accordance with any prescribed requirements relating to the avoidance or mitigation of conflicts of interests.
I am convinced that if all financial services providers conduct business in this manner, it will instil trust and customers will be very confident to deal with such businesses. As a customer, conducting business with me honestly, with integrity, fairly, transparently, with skill, care, and diligence, and acting in my best interest is what I would expect from any FSP. If your focus is establishing trusted relationships between your FSP and your clients, treating your clients in this way is the culture that you would want to cement in your FSP, and not because these examples of conduct are required in terms of section 12 of the COFI Bill. As far as market conduct legislation is concerned, advisors and intermediaries usually have one of two distinct vantage points, namely:
(a) Rules and regulations; or
If you approach market conduct legislation from a rules and regulations point of view, COFI will overwhelm and irritate you. Then it is easy to consider it as a barrier to do business. However, if you approach COFI with the perspective that at its core, the objective is to promote confidence and trust, and that most of its provisions are enablers that help to create trusted relationships between advisors and clients, you will consider COFI as a sound business guide that will enable you to conduct good business.
My advice: Choose your vantage point wisely.