Last year South Africa became the first African country to switch to a UK-style 'Twin Peaks' model of regulation, named after Dr Michael Taylor's ground-breaking proposal of the mid-1990s. It has now decided to absorb another great British institution - the 'principles for business' to be found in the PRIN part of the UK's rulebook.

In this instance, legislation is required and, according to commentators, is about to be enacted. Last year the National Treasury resolved to improve the cultures of financial firms and also their 'conduct' - a nebulous term that covers the way in which a firm (along with its staff) comports itself when dealing with customers, counterparties and the market in general. The Government consulted interested parties about various proposals and the result, not yet enacted, is the Conduct of Financial Institutions Bill or COFI for short.

Chapter 3 aims to promote good cultural and governance-related practices at financial institutions, especially those that pertain to the interests of customers. The chapter sets a number of general principles for financial institutions to uphold when operating in South Africa. This is a vital part of the Government's drive to improve all market conduct in the financial sector. General principles (found in clause 30(2)) dictate that every financial institution must, at all times:

• conduct its business with integrity;
• conduct its business with due skill, care and diligence;
• organise and control its affairs responsibly and effectively;
• maintain adequate financial and other resources;
• observe proper standards of market conduct and of conduct of business;
• pay due regard to the interests of its financial customers and treat them fairly;
• pay due regard to the information needs of its financial customers and communicate information to them in a way which is clear, fair and not misleading;
• manage conflicts of interest fairly;
• take reasonable care to ensure the suitability of its advice and discretionary decisions for any financial customer who is entitled to rely upon its judgment;
• arrange adequate protection for financial customers' assets when it is responsible for them; and
• deal with the Financial Sector Conduct Authority in an open and co-operative way.

The UK's Financial Conduct Authority's rulebook (at PRIN 2.1) also contains virtually the same 11 principles and the South African law copies them practically verbatim. Chapter 3 sets requirements for 'governance' - a term that includes corporate governance, risk management and internal control requirements. Clause 31 places a burden squarely on the shoulders of each firm's governing body, stating that it must (a) endorse and be ultimately responsible for the establishment, implementation, subsequent reviews of, and continued internal compliance with, governance arrangements at the firm, and (b) ensure that these governance arrangements are 'appropriately embedded.'

The COFI Bill requires the governance arrangements at every firm to include a 'transformation policy,' the better to develop South Africa's economy along the right lines. In other words, it must follow the Black Economic Empowerment Act 2003 and the Financial Sector Code for Broad-Based Black Economic Empowerment issued in terms of section 9(1) of that Act. More and more people all over the world are obsessing about pay in the financial sector, so Part 5 seeks to require financial institutions to improve their conflict-of-interest policies. Part 6 contains principle requirements for remuneration practices at financial institutions.

Staff standards

Clause 39 of Part 4 suggests that "key persons and significant owners" must, at all times, be "fit and proper" to be involved in financial services.

Principles for determining remuneration and compensation are to be found in clause 44 in Part 6. This applies to any remuneration, compensation or consideration that is: (a) offered or provided, directly or indirectly, by a financial institution or a person  on behalf of a financial institution; (b) accepted, directly or indirectly, by a financial institution or an associate of a financial institution; or (c) accepted, directly or indirectly, by any other person, including a representative, contractor or service provider, from a financial institution. Such remuneration, compensation or consideration must (a) be reasonably commensurate with the actual activity or service performed; (b) not result in any activity or service being remunerated twice; and (c) not be structured in a manner that may increase the risk of unfair outcomes for financial customers.

Part 7 deals with standards of conduct regarding governance and culture. According to clause 73 (1) a financial institution must, after the point of contracting with a financial customer, continue to treat that customer fairly, both for the duration of, and to a reasonable extent after the termination of, the contractual relationship between the financial institution and the financial customer - a relationship that may only be ended in a fair manner. Amounts owing to or unclaimed benefits of a financial customer must be treated as amounts being held in trust by the financial institution on his behalf.

Shades of TCF

The phrase "treat that customer fairly" echoes another British antecedent to the Bill; the UK's hoary old "treating customers fairly" or TCF initiative on which the old Financial Services Authority embarked in the 'noughties.

The word 'fairly' appears seven times in the Bill. A complaint might refer to a firm treating a customer unfairly; that firm ought to conduct its business fairly; it must continue to treat its customer fairly; it ought to treat him fairly when trying to recover debts from him; it cannot transfer certain assets or liabilities unless the regulator thinks that it is treating customers fairly; financial statements must fairly represent the firm’s business.

More echoes are to be found in the Treasury explanatory policy paper that accompanied the appearence of the Bill in its first draft. It says that structural regulatory reform began with a disscussing document in 2014 called Treating Customers Fairly in the Financial Sector: A Draft Market Conduct Policy Framework for South Africa. It says that a good market conduct policy ought to "deliver the customer fairness outcomes targeted by the Treating Customers Fairly initiative." It also contains three mentions of 'TCF,' an acronym so familiar to it that it does not trouble to say what it stands for. All through the Bill, and indeed all through South Africa's reform programme, the example of the United Kingdom stands out proud.