The practice of compounding (that is, the preparation, mixing, combining, packaging and labelling of a medicine by, amongst others, a pharmacist) [1] has attracted renewed attention and regulatory scrutiny, in light of the recent proliferation of compounded medicines containing GLP-1 [2] agonist active components in the South African market. GLP-1 agonists are a class of medicines directed at the treatment of type 2 diabetes and related cardiovascular conditions, as well as chronic weight management and obesity. [3]

The compounding of particular medicines for individual patients by a pharmacist is expressly contemplated in the Medicines and Related Substances Act[4] (“Medicines Act”), which regulates the manufacturing and supply of medicines in South Africa. Compounding is generally used in circumstances where mass-produced formulations of medicines are either unavailable or unsuitable for a particular patient.

In terms of section 14(1) of the Medicines Act, all medicines that are subject to registration, as determined by the South African Health Products Regulatory Authority (“SAHPRA”), are required to be registered in order to be lawfully imported, offered, advertised or sold in South Africa.

As a legal prerequisite to the registration of any medicine, SAHPRA must be satisfied that the medicine in question is, inter alia, suitable for the purpose for which it is intended, and is safe, efficacious and of good quality. [5]

Notably, the registration requirements in the Medicines Act include an explicit carve-out for compounded medicines in terms of section 14(4) of the Medicines Act. Four principal requirements, for the lawful sale of an (unregistered) compounded medicine emerge from section 14(4) of the Medicines Act, namely that –

• the medicine must be compounded for a particular patient in the specific quantity required for the treatment of that patient;
• the medicine must not contain any component which has been prohibited for sale in terms of the Medicines Act, or which SAHPRA has declined to register;
• the medicine must not be advertised; and
• the active components of the medicine must appear in another medicine which has been registered under the Medicines Act.

It is this last-mentioned requirement that the High Court, Pretoria, was called upon to interrogate and clarify in the recent decision of Novo Nordisk (Pty) Ltd v iDexis Compounding Specialists (Pty) Ltd t/a Sentrade Pharmacy and Four Others, [6] which was handed down on 22 June 2026 (“the iDexis decision”). The iDexis decision concerned the extent to which compounded medicines containing GLP-1 agonist active components may lawfully be advertised, offered and sold in South Africa.

The prevalence of these medicines in the South African market has not gone unnoticed by SAHPRA and the South African Pharmacy Council (“SAPC”), who, on 23 May 2026, announced that they would pursue “intensified enforcement action against the unlawful manufacturing and distribution of unregistered GLP-1 and [gastric inhibitory polypeptide] medicines”. [7]

It is against this background that Novo Nordisk Proprietary Limited (“Novo Nordisk”), being the authorised South African importer and distributor of registered medicines containing semaglutide (a GLP-1 agonist and Scheduled substance), branded as Ozempic and Wegovy, launched an application for an urgent interdict against iDexis Compounding Specialists Proprietary Limited (“iDexis”), and its sole shareholder and director.

Novo Nordisk sought to prevent iDexis and its shareholder/director from manufacturing and selling (unregistered) medicines containing semaglutide, on the basis that doing so contravened the Medicines Act, pending the outcome of an investigation by SAHPRA and the SAPC into their alleged illegal manufacture and sale of these medicines. iDexis, in turn, sought to argue that the compounding of medicines containing semaglutide is lawful, as Ozempic, which contains semaglutide, is a registered medicine in South Africa.

In deciding whether or not to grant the interim interdict, the court focused on what it regarded as the definitive issue in so far as the legality of iDexis’ activities was concerned, namely whether the active pharmaceutical ingredients (“APIs”) in Novo Nordisk’s and iDexis’ respective products were of such a nature that iDexis was lawfully permitted to compound its product by virtue of section 14(4) of the Medicines Act.

In doing so, Van Niekerk J undertook a detailed factual analysis of the API in Ozempic and Wegovy, as contrasted with the API in iDexis’ product, which originated from a source undisclosed by iDexis. Taking into account that the semaglutide developed and manufactured by Novo Nordisk Denmark is a biological product extracted from yeast, whilst the API in iDexis’ product is a synthetic peptide with a molecular structure similar (but not identical) to the Ozempic API, the court concluded that section 14(4) did not permit iDexis to compound medicines containing a synthetically produced semaglutide that had not been approved and registered with SAHPRA.

Interpreting section 14(4) in light of the purpose of the Medicines Act (being the regulation of medicines in the public interest), the court held that –

“… it is a matter of logic and common sense that the active component of a scheduled medicine, which requires a stringent registration process, can never be allowed into a medicine without the scrutiny of SAHPRA, and without the proper stringent screening process envisaged in terms of the Medicines Act and regulations, by relying on “similarity” subjectively determined, under the guise of compounding in terms of section 14(4)”. [8]

iDexis’ compounding of medicine containing synthetically produced semaglutide was, therefore, found to be unlawful. Turning to the relief sought, the court found that the requirements for an interim interdict had been met, holding in particular that, where it appears conduct may be contrary to the Medicines Act, such conduct should not be permitted to continue unabated, particularly where the ongoing illegality is also a criminal offence (as in this case).

The iDexis decision now provides helpful legal clarity on the interpretation of section 14(4) of the Medicines Act and the ambit of lawful compounding, as contemplated in this section.

Pharmacists and licensed pharmacies would be well advised to take note of the decision and seek the appropriate legal advice to ensure that their compounding activities align with the applicable statutory framework. The interim nature of the relief granted in the iDexis decision, the court’s limited focus in deciding the matter, and the far-reaching impact of the matters canvassed in the judgment, however, signal that the debate surrounding lawful compounding, particularly in so far as it pertains to medicines containing GLP-1 agonists, is far from settled.

[1]        The General Regulations published in terms of the Medicines Act, under GN 859 in GG 41064 of 25 August 2017, define “compound” as “the preparation, mixing, combining, packaging and labelling of a medicine (a) by a pharmacist practising in accordance with the Pharmacy Act, 1974; (b) by a veterinarian practising in accordance with the Veterinary and Para-Veterinary Professions Act, 1982 (Act 19 of 1982); or (c) by a person licensed in terms of section 22C(1)(a) of the Act and practising in accordance with their scope of practice”.

[2]        Glucagon-like peptide-1.

[3]        See paragraph 13 of the iDexis decision.

[4]        No. 101 of 1965.

[5]        Section 15(3) of the Medicines Act.

[6]        Case number 2024-130119.

[7]        Media Release published by SAHPRA and the SAPC, entitled “SAHPRA and the SAPC Crack Down on Unlawful Manufacturing of Unregistered GLP-1/GIP Medicines” and dated 23 May 2026.

[8]        Paragraph 64 of the iDexis decision.

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Given that the Draft Mineral Resources Development Bill, 2025 is yet to be promulgated, there remains some uncertainty as to the interpretation of “controlling interest” and when a change in such “controlling interest” triggers the requirements of section 11 of the Mineral and Petroleum Resources Development Act, 2002 (“MPRDA“) to obtain ministerial consent prior to transfer of the controlling interest.

In the recent judgment of Afrimat Iron Ore (Pty) Ltd v Minister of Mineral and Petroleum Resources and Others (2026/089786) [2026] ZAGPPHC 403 (18 May 2026) (“Afrimat Judgement“) [1], Judge Millar provides important guidance on the interpretation of “controlling interest” under the MPRDA, specifically in the context of a minority shareholder having an ‘interest’ in the transfer of a mining right in terms of section 11 of the MPRDA.

Background

Section 11(1) of the MPRDA provides that ‑

“A prospecting right or mining right or an interest in any such right, or a controlling interest in a company or close corporation, may not be ceded, transferred, let, sublet, assigned, alienated or otherwise disposed of without the written consent of the Minister, except in the case of change of controlling interest in listed companies.”

The dispute in the Afrimat Judgement was centred around whether the fifth respondent (Lungile Mlotshwa) had an interest in the mining right that required consideration before the Minister could consent in terms of section 11 of the MPRDA to the transfer of the mining right from Ochre Shimmer Trade and Invest 78 Proprietary Limited (“Ochre“) to Afrimat Iron Ore Proprietary Limited (“Afrimat“) [2].

The fifth respondent’s late husband, to whom she was married in community of property, previously held 34% of the shareholding in Ochre. On his death, the fifth respondent, by operation of law, held an undivided half share in the community estate and thereby acquired 17% of her late husband’s shares in Ochre, which she was entitled to claim transfer of into her name. The fifth respondent subsequently acquired the remaining 17% of the shares in Ochre by agreement with her late husband’s estate, giving her 34% of the total issued shares in Ochre [3]. The fifth respondent subsequently entered into separate agreements with the remaining two shareholders of Ochre (who each held 33% of the issued shares in Ochre) to sell her shares in Ochre to them (in different proportions), which agreements were concluded between May and October 2024 with an effective transfer date of 31 October 2024 [4]. After the conclusion of the abovementioned sale agreements, the remaining two shareholders acquired in different proportions the 34% shareholding of the fifth respondent and granting one of the remaining shareholders a majority in Ochre.

During February 2026, the fifth respondent became aware of a transaction between Ochre and Afrimat, in terms of which Ochre wished to dispose of its mining right to Afrimat and required section 11 ministerial consent under the MPRDA prior to effecting transfer of the mining right [5]. The fifth respondent objected to the transfer of the mining right on the basis that she still held an interest in the mining right because the transfer of her shares to the remaining shareholders in October 2024 had not been approved by the Minister in terms of section 11 of the MPRDA, and contending that the transfer was void ab initio [6].

Reinforcement of the Substance-Over-Form Approach

The court in the Afrimat Judgment endorsed a substance-over-form approach in its interpretation of whether there has been a change in the “controlling interest” requiring section 11 approval and specifically considered the judgements hand down in the Mogale Alloys v Nuco Chrome Bophuthatshwana [7] and Vantage Goldfields SA v Arqomanzi [8] which respectively considered what constituted an ‘interest’ and the disposal of a controlling interest in a mining right that would trigger the requirement of obtaining section 11 ministerial consent. Both judgments reiterated that if the effect of a disposal would be that the holder of a controlling interest would lose such control, then the disposal would require the Minister’s consent, even if no-one else acquires that controlling interest. [9]

The court in the Afrimat Judgement reiterated that an assessment of control should not be confined to legal ownership alone. Instead, regard must be had to the practical ability to direct the affairs of the company and to influence strategic decision-making [10]. The court recognised that although the fifth respondent held one additional share (34% in contrast to the 33% held by each of the remaining two shareholders) she did not hold a sufficient shareholding for it to constitute a controlling interest, because any two of the three shareholders acting in concert would together hold a controlling interest and the remaining two shareholders jointly held 66% and control Ochre [11]. The fifth respondent’s 34% could only ever constitute part of a controlling interest when exercised together with one or the other of the shareholders [12]. Furthermore, the court held that the fifth respondent erred in the interpretation of section 11(1) intimating that her ‘interest’ vested in the Mining Right. The Mining Right was held by Ochre and subject to the shareholding of Ochre Shimmer, therefore none of the shareholders in Ochre held a direct interest in the Mining Right itself [13].

The court in the Afrimat Judgement further emphasised that section 11(1) of the MPRDA does not relate to the acquisition of a controlling interest in a right holder (which occurred when one of the original shareholders purchased the majority of the shares in Ochre from the fifth respondent), and only relates to the disposal of a controlling interest in a right holder [14]. In the circumstances, section 11 ministerial consent was not required to give effect to the internal restructure of Ochre and the transfer of the fifth respondent’s shares to the remaining shareholders of Ochre [15].

Conclusion

The Afrimat Judgment reinforces the importance of undertaking a comprehensive regulatory assessment when structuring transactions involving mining rights. The decision serves as a timely reminder that the concept of control extends beyond the mere transfer of shares and that the requirement for the Minister’s consent under section 11 of the MPRDA is triggered on the disposal of a controlling interest, not the acquisition of control . As mining transactions continue to become increasingly complex, given the current legislative framework, the judgment provides a useful guide for assessing when ministerial consent in terms of section 11 of the MPRDA is required and highlights the importance of aligning transaction structures with the objectives of the MPRDA.

[1] Afrimat Iron Ore (Pty) Ltd v Minister of Mineral and Petroleum Resources and Others (2026/089786) [2026] ZAGPPHC 403 (18 May 2026) (hereinafter the “Afrimat Case“).

[2] Afrimat Case para 2.

[3] Afrimat Case paras 11 and 17.

[4] Afrimat Case para 18.

[5] Afrimat Case paras 19–21.

[6] Afrimat Case para 21.

[7] Mogale Alloys (Pty) Ltd v Nuco Chrome Bophuthatswana (Pty) Ltd and Others 2011 (6) SA 96 (GSJ)

[8] Vantage Goldfields SA (Pty) Ltd and Another v Arqomanzi (Pty) Ltd and Others (733/2022)[2023] ZASCA 106 (27 June 2023)

[9] Afrimat Case paras 26 – 28

[10] Afrimat Case paras 26 and 27.

[11] Afrimat Case para 27.

[12] Afrimat Case para 29.

[13] Afrimat Case para 23

[14] Afrimat Case para 30.

[15] Afrimat Case paras 29 and 30.

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Constitutional subsidiarity is an important principle of South African law. While the term sounds technical, the principle itself is relatively simple: if Parliament enacts legislation to give effect to a constitutional right, litigants should rely on the provisions of that legislation rather than directly on the provisions of the Constitution of the Republic of South Africa, 1996. Effectively, that legislation becomes the primary source through which the right must be enforced.

That means a person cannot simply ignore the legislation and rely directly on the Constitution. Instead, they must either rely on the applicable legislation or challenge the legislation as unconstitutional if they believe that it does not meet constitutional standards.

This principle was formulated to respect the doctrine of separation of powers by recognising Parliament’s role in giving practical content to constitutional rights.

The courts have routinely applied this principle for years. However, on 2 July 2026, the Constitutional Court in Adonisi and Others v Minister for Transport and Public Works, Western Cape and Others; Minister of Human Settlements and Another v Minister for Transport and Public Works, Western Cape and Others [2026] ZACC 29 formulated a nuanced approach on how it may apply. The Court dealt with the constitutional obligations of government and state organs to use state-owned property to address spatial inequality.

The applicants argued that by selling off a state-owned property (colloquially referred to as the Tafelberg property)—which is located in Sea Point, a seaside suburb in Cape Town, close to educational facilities, health facilities, transport nodes, and social amenities—government had failed to fulfil its constitutional obligations to use such properties to address the enduring legacy of spatial apartheid and to progressively provide access to adequate housing. The respondents counterargued that by directly invoking the Constitution instead of existing housing legislation (such as the Housing Act, the Social Housing Act, and the Spatial Planning and Land Use Management Act, amongst others) the applicants had contravened the principle of constitutional subsidiarity.

The Supreme Court of Appeal accepted the argument. However, the Constitutional Court rejected the argument and adopted a more purposive interpretation.

The Constitutional Court clarified that while subsidiarity is a vital principle, it is not an absolute barrier to blocking constitutional accountability because not all constitutional rights are structured in the same way. The court explained that some constitutional provisions expressly require Parliament to give effect to the right in question (for example, section 9(4) of the Constitution states: “National legislation must be enacted to prevent or prohibit unfair discrimination”). In such instances, constitutional subsidiarity must be fully applied because the Constitution itself identifies legislation as the primary means of enforcing the right.

However, the socio-economic rights in sections 26 and 27 of the Constitution (which protect the rights of access to housing, healthcare, food, water and social security) differ in that they require the State to take “reasonable legislative and other measures” (my emphasis) to progressively achieve these rights. This means government has a constitutional obligation to adopt and implement reasonable policies, programmes, plans and executive actions. Accordingly, even where legislation exists, courts may still examine whether government’s conduct is reasonable in light of the constitutional right. In other words, subsidiarity does not prevent courts from measuring the State’s conduct directly against constitutional standards.

The Court found that it could directly evaluate whether the relevant local and provincial governments (i.e. City of Cape Town and the Western Cape Province respectively) acted reasonably under the Constitution when they failed to provide affordable housing in the inner-city and surrounds. The Court ultimately found that they had failed to meet this constitutional standard.

While the primary importance of this judgment is its finding that government or state organs can and should be held accountable for failing to meet their constitutional obligations to combat spatial inequality, it is also important for clarifying that constitutional subsidiarity is not always the end of the enquiry, particularly where courts are asked to assess whether government or state organs have reasonably implemented constitutional rights.

It is important to note that the Court’s interpretation does not create an exception to constitutional subsidiarity, nor does it abandon the principle—it merely qualifies it. By adopting this approach, the Constitutional Court has contributed to redressing the spatial injustice inherited from apartheid, and to advancing social justice and transformation.

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The franchising industry has long been a bone of contention at antitrust authorities worldwide. Franchisees often complain to competition regulators about their treatment by franchisors. However, in South Africa no such complaints have as yet resulted in finalised enforcement activity by the Competition Commission. This may soon change. On 26 June 2026, the Commission published draft Terms of Reference (“ToR“), signalling its intention to launch a market inquiry into the franchise sector in South Africa (“Market Inquiry“).

Reasons for the market inquiry

The Market Inquiry stems from the Commission’s belief that there are market features that may impede, distort or restrict competition in the South African franchise business market. In addition, the Commission has observed a rising number of mergers and acquisitions in well-established franchise sectors which, it says, gave rise to concentration in those sectors. This bulletin analyses the rationale driving the Commission’s latest regulatory intervention and outlines what this could potentially mean for franchisors and franchisees operating in South Africa.

The Competition Act 89 of 1998 empowers the Commission to conduct a market inquiry if it believes that certain features or a combination of features in a market for any goods or services impede, distort or restrict competition within that market. The Commission may also initiate a market inquiry to fulfil the objectives of the Competition Act. The ToR intimates that the Market Inquiry is anchored in the public interest objectives of the Act, which mandate:

• ensuring that small and medium-sized enterprises (“SMEs“) have a fair chance to participate in the economy; and
• promoting a greater spread of ownership, especially by increasing the ownership levels of historically disadvantaged persons (“HDP“) in firms in the market. [1]

Consequently, the purpose of the Market Inquiry is to assess whether current franchising models act as a barrier to entry, growth, or expansion for SMEs and HDPs in the South African economy.

Features in the franchise sector believed to be impeding, distorting or restricting competition

In the ToR the Commission highlights several systemic features within the franchise market that it believes may stifle competition. These include the following:

• Participation in the franchising sector is not yet proportional or reflective of the broader demographic South African landscape, limiting the overall impact on economic inclusivity and transformation. The Commission noted that the franchise sector still reflects skewed racialised patterns of ownership.
• Power balances between franchisors and franchisees. In particular, the Commission has received numerous complaints that franchisees are subjected to restrictive and potentially exploitative practices by franchisors, who exert control over their operations and supply chains.
• Franchisees lack bargaining power during the negotiation of franchise agreements.
• Limitations caused by franchise funding requirements imposed by franchisors or credit financiers. This can be through the requirement of upfront significant capital contributions.
• Franchisors imposing unfair trading terms and conditions on franchisees.
• Exploitation of information asymmetries between franchisors and franchisees.

Accordingly, the Market Inquiry will examine whether and to what extent the abovementioned features exist and, if so, whether they have an adverse effect on competition in the market. Of relevance, franchisors and franchisees should expect probing by the Commission into the above features and may be required to respond to one or more written information requests. They may also be called upon to make oral presentations regarding their businesses at various public and private hearings.

Scope of the Market Inquiry

The Market Inquiry’s focus is expected to be on three broad themes, including (a) finance, funding and terms and conditions of franchise operations; (b) franchise agreements’ terms and conditions and practices; and (c) exploitation of information asymmetries.

The Commission further indicates in the ToR that it may focus the Market Inquiry on sectors that appear to have greater potential to influence market dynamics, and has identified the following categories or areas of interest:

Fast Food: This refers to fast food restaurants chains. Examples include Chicken Licken, KFC, Kauai, McDonalds South Africa, Barcelos Flamed Chicken, Roman’s Pizza, Pizza Perfect.

Construction: This refers to construction and hardware stores. Examples include Italtile Retail, CTM, Talisman Hire, Mica Investments.

Automotive: This refers to automotive stores offering parts and car services such as brake pad replacement, wheel bearing repairs and wheel changes. Examples include Midas, Hi-Q Automotive, HJ Bosch & Sons Panel Beaters, PG Glass, Battery Clinic and Super Quick.

Grocery: This refers to grocery stores. Examples include Pick n Pay, Spar, Food Lovers Market, Shoprite Holdings (via OK Franchise division).

Fuel Stations: This refers to the grocery and fast-food stores located within fuel stations. Examples include convenience stores and quick-service restaurants at Engen, Astron, Shell and BP forecourts.

Health and Beauty: This refers to health and beauty stores. Examples include Legends Barbershop, Revive Herbal Health and Sorbet.

Timelines

The public is invited to submit comments on the draft ToR by 7 August 2026. The Commission is also expected to publish a final ToR. Within 20 days after the publication of the final ToR, the Commission is expected to commence with the Market Inquiry, with a deadline for completion being within 18 months thereafter. However, this timing is probably ambitious, given the broad scope of the Market Inquiry, touching as it does on a multitude of business activities and market players.

Conclusion

The launch of the Market Inquiry may herald a seismic shift for the South African franchising landscape. Historically, market inquiries have resulted in binding, highly disruptive remedial actions, including forced changes to long-standing corporate business models.

It can be expected that many franchisees, particularly SMEs and HDPs, will make use of this public platform to make their grievances heard regarding pricing, one-sided contract terms and funding difficulties.

For certain franchisors, their standard operating models may come under threat. We expect that strict supply chain exclusivity clauses, mandatory procurement systems and rebate structures will be subjected to intense scrutiny. It would be advisable for franchisors to proactively audit their existing franchise agreements and operational policies at this early stage, to ensure that their houses are in order when the Commission comes knocking.

[1] A historically disadvantaged person for the purposes of the Competition Act is defined as: (a) one of a category of individuals who, before the Constitution of the Republic of South Africa, 1993 (Act No. 200 of 1993), came into operation, were disadvantaged by unfair discrimination on the basis of race; (b) an association, a majority of whose members are individuals referred to in paragraph (a); (c) a juristic person other than an association, and individuals referred to in paragraph (a) own and control a majority of its issued share capital or members’ interest and are able to control a majority of its votes; or (d) a juristic person or association, and persons referred to in paragraph (a), (b) or (c) own and control a majority of its issued share capital or members’ interest and are able to control a majority of its votes.

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Introduction

In this article series, we take a deep dive into the South African Conduct of Financial Institutions (COFI) Bill – a major financial sector regulatory reform – one theme at a time.

COFI was drafted in conjunction with the Financial Sector Regulation Act (FSRA), the two pillars of the Twin Peaks regulatory reform. The Twin Peaks regulatory reform is a response to financial system weaknesses identified by the 2008 Global Financial Crisis, such as the systemic risks of large insurers and inappropriate market conduct practices.

The FSRA has already been implemented. The FSRA introduced the Twin Peaks regulatory framework, bringing into existence two regulators for the industry. The first regulator is the Prudential Authority (PA) responsible for the prudential regulation of financial institutions, while the second is the Financial Sector Conduct Authority (FSCA) responsible for regulating market conduct.

COFI represents a major overhaul of how financial institutions will be regulated in South Africa. Currently, different financial institutions are regulated by different legislation. COFI will involve shifting to a harmonised, principles-based conduct regime focused on customer outcomes, transparency and inclusion. COFI also provides for a single licensing and supervision framework and stronger enforcement and standards across the financial sector. Its implementation will unfold over several years and reshape regulatory expectations for financial institutions and consumers alike.

National Treasury has indicated that COFI will be finalised in 2026. COFI has recently been adop­ted by Cab­inet for sub­mis­sion to Par­lia­ment.

COFI – What Really Changes?: Part 6

In our previous articles, we examined the Purpose and Application of COFI, the Licensing Framework, Consumer Protection and Transparency, the Principles and Conduct Requirements and the Governance and Accountability under COFI. In this article, we look at COFI versus the current regime, with a focus on FAIS, and consider what the shift to COFI will mean in practice. That is, what really changes?

From sectoral to unified, activity-based regulation and licencing

The current regime is not governed by a single statute, but rather by a combination of laws, including FAIS, the Long-term and Short-term Insurance Acts, the Collective Investment Schemes Control Act (“CISCA”) and elements of the FSRA. While these frameworks have developed over time, they have resulted in a fragmented and sector specific approach to conduct regulation in the sense that under the current framework, financial institutions are regulated based on their legal form and sector. Different rules apply to financial advisors and managers, insurers, collective investment scheme administrators and other market participants, often resulting in overlapping or inconsistent requirements.

COFI introduces a single conduct framework that applies across the financial sector. Rather than regulating specific categories of institutions, COFI regulates financial activities, regardless of who performs them. This also means that entities that previously have fallen outside specific sectoral regimes are now to be brought within the regulatory net owing to the activities they perform (for example, “corporate advisory services”).

This shift permeates into the licencing framework. Under the current regime, licensing is largely entity based and sector-specific. Financial advisors and investment managers are licensed as FSPs under FAIS, insurers are licensed as such under insurance legislation, collective investment scheme managers are authorised under CISCA and so on. This means that one entity may require multiple licences in terms of multiple legislation.

In line with international trends, COFI replaces this with an activity-based licensing model, under which a financial institution holds a single licence with multiple activity authorisations linked to the activity/ies performed, the financial product involved and the category of customer served.

In short, it is not what you are, but what you do that counts.

From indirect to direct accountability

A defining feature of the current framework, particularly under FAIS, is its reliance on the concept of representatives, including both natural persons and juristic representatives, who act under the licence of an FSP.

COFI represents a shift towards increased accountability. This is seen by increasing transparency requirements through imposing greater disclosure requirements (such as, in some cases, making financial statements available to the public) but also in shifting the focus away from representatives and towards the person who actually performs the regulated activity.

This has potentially significant implications: First, certain entities that currently operate as juristic representatives may be required to obtain their own licences, particularly in areas such as discretionary investment management. Second, the continued role of juristic representatives in other contexts, such as the provision of financial advice, remains uncertain under the current draft, including in light of transitional provisions.

This represents a move towards increased accountability as well as direct accountability at the level at which the activity is performed, rather than reliance on layered licensing structures.

Ultimately, COFI signals a shift towards a regulatory regime in which it is not only what you do that counts, but how you behave while doing it.

From rules-based to outcomes-based conduct

The current regulatory framework is largely rules-based, supported by detailed subordinate legislation, codes of conduct and sector-specific requirements. Compliance is often demonstrated through adherence to prescribed rules and processes.

COFI introduces a principles- and outcomes-based framework, centred on the delivery of fair customer outcomes. Financial institutions must consider whether conduct has resulted in appropriate outcomes for customers. While this allows for greater flexibility, it also introduces interpretive uncertainty, particularly in the absence of detailed conduct standards at the outset.

It is not only what you do and how you behave while doing it, but also how it lands with consumers that counts.

From protective rules to increased governance and culture expectations

Under the current framework, governance requirements vary across sectors and are often indirect or embedded within broader prudential or operational requirements.

COFI places greater emphasis on governance, conduct culture and accountability. COFI requires that the governing body takes responsibility for conduct, institutions embed a conduct-oriented culture and that senior management actively oversees conduct risk.

This elevates conduct from a compliance issue “managed” by a compliance team to a core governance function across all financial institutions for which leadership is responsible. Conduct consideration is expected to be an integral part of the culture of every financial institution.

It is not only what a financial institution does that counts, but what its leadership does and what its culture is.

From reactive to proactive enforcement

Under the current regime, supervision is often focused on compliance with sector-specific rules and licensing conditions, with different regulators historically overseeing different parts of the market.

COFI empowers the FSCA to adopt a more proactive and judgement-based supervisory approach. The FSCA is empowered to issue binding conduct standards and monitor customer outcomes. Notably, the FSCA is empowered to intervene where there is a risk of harm, even in the absence of clear rule breaches.

This represents a shift towards more intrusive and risk-based (as opposed to breach-based) supervision.

What does this mean for financial institutions?

The existing legislative framework will not fall away immediately upon the introduction of COFI. Instead, there will be a phased transition, during which existing licences and authorisations will remain valid and institutions will be migrated to the COFI licensing framework over time.

Financial institutions should begin to align their businesses with the new regulatory philosophy encompassed by COFI.

In anticipation of COFI’s implementation, financial institutions should begin –

• mapping their activities against the proposed licensing categories;
• assessing whether any group entities or service providers may require separate licences;
• reviewing governance and operational structures to align with an activity-based regulatory framework;
• reviewing their financial reporting and audit processes and considering the potentially public positioning of their financial information;
• reviewing their product governance frameworks, assessing how customer outcomes are currently measured and monitored, strengthening conduct risk management processes and embedding conduct considerations into decision-making at all levels of the organisation;
• clarifying the roles and responsibilities of boards and senior management; and
• strengthening conduct risk governance frameworks, reviewing remuneration and incentive structures and ensuring that appropriate management information is available to monitor customer outcomes.

Early engagement and preparation will be key to navigating the transition to COFI.

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1. Introduction

On 22 May 2026, a proclamation by President Ramaphosa enacted amendments to the Companies Act 71 of 2008 (“Companies Act”) that impact remuneration governance for public and state-owned companies. Two long anticipated sections are now in force: Section 30A imposes a statutory duty to prepare a remuneration policy (“Policy”), and section 30B requires companies to prepare an annual remuneration report (“Report”). Both the Policy and the Report must be presented to shareholders for approval by ordinary resolution at prescribed intervals.

The legislative intervention is significant. Prior to the amendments, unlisted public companies were largely free to determine remuneration policy and disclosure at their discretion, while companies listed on the Johannesburg Stock Exchange (“JSE“) were subject to the relevant Listings Requirements (“Requirements“) which required advisory, non-binding shareholder approval of a remuneration policy and report, and compliance with the relevant King Code of Governance on an apply and explain basis. In response to the enactment, the JSE has proposed amendments to its Requirements that would effectively defer to the Companies Act in relation to the compilation and approval of the Policy and Report and the consequences of rejection (with exceptions for foreign primary issuers). King V was drafted in anticipation of sections 30A and 30B and takes a similar approach whilst retaining additional recommendations on remuneration governance, assurance and disclosures.

The general scope and contents of the recently enacted amendments have been widely discussed and do not bear revisiting. Instead, this note considers three specific matters relevant to the new framework. First, the characteristics of the Policy and the Report and the extent to which the wording of the relevant sections underscore the distinction between these documents. Second, the consequences of a Policy being rejected by shareholders and the risks associated with the implementation of a rejected Policy. The discussion will turn, finally, to the application of the framework to group companies.

2.  Policy and report – the importance of distinction

Although section 30A requires all public and state-owned companies to prepare a Policy and present it for shareholder approval by ordinary resolution, the section does not prescribe the contents of the Policy. In contrast, section 30B sets out more detailed guidance regarding the Report and stipulates that it must comprise at least a background statement; a copy of the Policy; and an implementation report containing, among other things, the total remuneration received by each director and prescribed officer and the remuneration of the highest and lowest paid employees.

A clear distinction between the Policy and the Report has important strategic implications. The newly inserted section 30(4A) indicates that the legislature recognised the distinct characteristics and purposes of the two documents. The subsection provides that where any provisions of the Report are subjected to an audit under section 30 ‘any company policy or the background statement of the remuneration report, must not be subjected to that audit’.

The exclusion speaks to the fact that the Policy is a prospective, strategic document with a three-year approval cycle. The Report, on the other hand, is focused on retrospective and specific factual and financial disclosures and is approved on an annual basis. When assessing the Policy, the question is not whether particular calculations are correct but instead whether the calculations should have been made at all, and whether the chosen metrics and formulas incentivise desired behaviour. The latter question is one of strategic judgment, not financial accuracy, and an audit is not the mechanism suited to answering it, not least in the absence of a formal standard that would provide a meaningful basis for assurance. The exclusion in section 30(4A) avoids practical difficulties, delays and expenses that could arise where auditors are asked to express an opinion on matters of judgment and strategy inherently within the board’s discretion. The Policy should confine itself to principles, frameworks, performance metrics, and strategic intent. Verifiable financial details should not be included in a document that has sensibly been excluded from audit.

In practical terms, a Policy that confines itself to principles and frameworks can remain stable over the three-year approval cycle without requiring material amendment each year. A clear demarcation that takes into account the interaction between the Policy and the Report could also minimise risks associated with undisclosed discretionary adjustments. Discretionary adjustments to performance metrics for remuneration purposes could result in a divergence between the performance reported to shareholders in the financial statements and the performance used to assess executive pay. Where such adjustments are applied without adequate prior disclosure, the remuneration committee may be assessing performance against a more favourable picture than that presented to shareholders, and pay outcomes might appear disproportionate to reported performance. A well-structured Policy can mitigate this risk by defining performance metrics clearly while preserving appropriate discretion for the board. This enables the board to respond flexibly where required but allows shareholders to assess the Report against transparent criteria, reducing the likelihood of rejection due to perceived inconsistency or lack of disclosure.

3. The consequences of a rejected remuneration policy

Section 30A(2)(a) provides that a Policy that is rejected by shareholders must be presented at the next annual general meeting (“AGM“) or at a shareholders’ meeting called for that purpose. The section offers no guidance beyond this requirement and does not address the interim validity of a rejected Policy, the validity of decisions or actions taken on the basis of a rejected Policy, or the liability, if any, that could follow where the board continues to act on the basis of a rejected Policy. This stands in contrast to the instances where a Report is rejected, in which case section 30B sets out more specific consequences, including the requirement that members of the remuneration committee must stand for re-election.

As a preliminary point, where the Policy is not tabled for shareholder approval at all, certain consequences are relatively clear. First, the failure to present the Policy could form the basis of a complaint to the Companies and Intellectual Property Commission, which in turn could result in the issuance of a compliance notice. In addition, shareholders could approach the court in terms of section 161 of the Companies Act to seek an order to rectify any harm done to them by the company as a consequence of an omission that contravened the Companies Act. Directors could also face liability in terms of sections 76 and 77 for contravening the provisions of the Companies Act. Finally, shareholders have the power to remove directors as an ultimate deterrent to non-compliance.

The consequences are less apparent where the Policy is tabled as required but is then rejected by the shareholders. In such instances, the better view appears to be that the shareholders’ rejection would not invalidate a rejected Policy or any actions taken on the basis thereof. Section 30A does not expressly indicate that the validity of the Policy is affected by the shareholders’ rejection thereof, instead requiring only that the Policy should again be tabled for approval at a subsequent meeting or the following AGM.

As a governance instrument, the Policy is intended to act as a barometer of shareholder sentiment, to ensure transparency, and to facilitate engagement. The remuneration amendments were designed to improve disclosure of senior executive remuneration, to ensure reasonable remuneration, and to provide more objective benchmarks. These aims can be achieved without an implied sanction of invalidity. Tying the consequences of a rejected Policy to the rejection of the Report, on the other hand, provides the necessary degree of oversight and accountability whilst avoiding the disruptive and commercially impractical consequences of a policy vacuum.

Unlike instances where no Policy is tabled at all, legal consequences following its rejection appear less likely. A board that implements a rejected Policy may fall foul of statutory and common law directors’ duties and it is conceivable that the board’s actions could form the basis for an application to protect shareholders’ rights in terms of section 161. An application for relief from oppressive or prejudicial conduct in terms of section 163 would, on the face of it, be even less likely to succeed. Section 30A requires only that a rejected Policy should be presented at a subsequent meeting and imposes no further restrictions on the board’s general authority to manage the business and affairs of the company. Absent extraordinary circumstances, it is not clear how a board that otherwise acts with the necessary care and skill and in the best interests of the company would breach directors’ duties by reason only of implementing a rejected Policy.

This does not imply that the rejection of a Policy is without risk, and companies should especially anticipate the practical consequences that could arise. Section 30B requires a copy of the Policy to form part of the Report that must be presented for approval annually. Prior rejection of the Policy would be a strong indication that shareholders are likely also to reject the Report that gives effect to it. This would trigger the two-strike mechanism introduced by section 30B(4) and (5). Boards must prepare for a subsequent AGM without absolute certainty that the newly tabled Report will be approved, in which case members of the remuneration committee would have to stand for re-election to the board and are excluded from committee membership. Where there is any indication that a Report might be rejected for a second consecutive year, these eventualities would have to be taken into account when preparing for the relevant AGM.

4. Group companies and remuneration governance

A final question that has been raised in connection with sections 30A and 30B relates to the fact that the provisions do not address their application to group companies. Where a public holding company has limited employees of its own, while executive management and the broader workforce are employed by operational subsidiaries, an incongruity could arise: the holding company is required to table a Policy and Report for shareholder approval even though the economically significant remuneration arrangements exist at subsidiary level. If the subsidiary is a private company, it would not be subject to the statutory provisions at all. However, the reporting duties of sections 30(4) and 30(5), which extend to some private companies by means of the public interest score, would still require certain remuneration-related disclosures in the financial statements.

Proposed amendments to the JSE Requirements appear not to address this issue. However, listed companies remain subject to the King V Code on Corporate Governance (“King V“), which indirectly addresses the omission. Compliance with King V’s principles and the disclosures required by its Disclosure Framework would not permit a listed holding company to entirely exclude subsidiaries when preparing its Policies and Reports, even where the Companies Act technically allows this. Nonetheless, given the discretion inherent in King V’s apply and explain regime and the fact that its recommendations are less prescriptively set out, some uncertainty remains. Listed companies would have to determine for themselves how their Policies and Reports should explain group-wide remuneration governance, including where key executives are employed and how the board has assessed relevant governance principles across the group.

5. Conclusion

The framework introduced by sections 30A and 30B represents a notable shift in remuneration governance, and company boards and remuneration committees in particular will have to consider remuneration practices with even greater strategic care than before. This note discussed three considerations that should inform implementation of the relevant statutory provisions. First, the distinction between the Policy and the Report and the strategic importance of proper classification when determining the contents and scope of the two documents. Second, the consequences of a rejected Policy in relation to the validity of the Policy, the validity of actions taken in its implementation, and the potential for legal liability under these circumstances. On a proper interpretation of section 30A, it appears appropriate that the risks associated with a rejected Policy are tied to the two-strike mechanism triggered by the rejection of the Report, thereby avoiding the uncertainty and potential disruptions associated with invalidity. Finally, the application of the framework to group companies creates uncertainty, addressed in part by compliance with King V in the context of listed companies.

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The National Treasury published the draft General Public Procurement Regulations and draft Public Procurement Tribunal Regulations (“Draft Regulations“) for public comment as contemplated in section 63 of the Public Procurement Act, 2024 (“Act“). The Constitutional Court recently heard a challenge to the Act’s validity. Together, that challenge along with the publication of the Draft Regulations have placed ongoing conversations on the operation of the Act back in the forefront. In this article we draw specific focus on the dispute resolution mechanism contemplated in Chapter 6 of the Act.

The Act introduces a two-layered dispute resolution mechanism which allows bidders to challenge the decision of an organ of state to award a bid to another competing bidder.

The first layer to the dispute resolution mechanism is the internal remedy contemplated in section 35(1) of the Act. In terms of this provision, a bidder aggrieved by the decision of an organ of state may submit, to that organ of state, an application for reconsideration of the award. The application for reconsideration must be submitted within 10 days from the date on which the aggrieved bidder is informed of the decision to award the bid to another competing bidder. Upon receipt of the application for reconsideration, the organ of state has a choice to either: (a) dismiss the application for reconsideration; or (b) immediately institute an internal investigation and inform the bidder of its findings and decision within 30 days.

From our interpretation of the Act, the internal remedy must be complied with if an aggrieved bidder wishes to utilise the dispute resolution mechanism contemplated in the Act. Section 35(1) of the Act must be read together with section 35(2)(a) of the Act. Section 35(2)(a) of the Act expressly provides that a bidder must submit the application for reconsideration before it can approach the Public Procurement Tribunal (“Tribunal“) or a court to review the decision to award a bid. The only circumstance where this peremptory step need not be taken is if there are exceptional circumstances that are in the interests of justice. A failure to follow the process contemplated in section 35(1) of the Act could result in the Tribunal or court directing the aggrieved bidder to first submit the application for reconsideration.

The second layer to the dispute resolution mechanism is found in section 47 of the Act. This section provides that if an aggrieved bidder is not satisfied with the decision on the application for reconsideration, the aggrieved bidder may submit an application for review with the Tribunal. This application for review must be submitted within 10 days from the date on which the aggrieved bidder is informed of the outcome of the application for reconsideration. It is noted that the 10-day period may be extended to 15 days if the application for review raises public interest considerations. Upon receipt of the application for review, the Tribunal has 30 days to make an order (unless an extension has been requested). Once the order has been made, the order of the Tribunal may be judicially reviewed in terms of the Promotion of Administrative Justice Act 3 of 2000 or any applicable law.

At face value, the time periods contemplated in the two-layered dispute resolution mechanism suggest that procurement disputes will be addressed expeditiously. This view is supported by section 51(1)(b) of the Act which states that the Tribunal “must strive to ensure that proceedings are conducted with as little formality and technicality, and as expeditiously as possible…”. While we note that the rules of the Tribunal will only be determined once the Tribunal has been constituted, the framing and operation of the two-layered dispute resolution mechanism and the role of the Tribunal may not presently work as efficiently has contemplated. The unfortunate reality is that procurement law matters in South Africa are rarely matters which can be determined expeditiously or with little formality and technicality, unless the issue is narrow.

Procurement disputes often turn on whether a bid award complied with applicable procurement prescripts. This assessment may include consideration of the information considered by the organ of state at each stage of the procurement cycle and the procedure it followed. Depending on the scale and complexity of the bid, this may also involve reviewing extensive documentation and affidavits either supporting or challenging the impugned decision. This raises questions about whether an aggrieved bidder would have access to all of the documents it requires to support its complaint and whether the matter can be extensively and properly ventilated by the Tribunal within the timelines and format mandated by the Act.

With the above realities in mind, it is our view that the dispute resolution mechanism contemplated in the Act may not achieve its intended objective of expeditious resolution of procurement disputes.  Instead, it will add additional, potentially unsatisfactory, steps before final resolution of the dispute by a court. The question is whether the truncated timelines and informal processes of the Tribunal will assist in any way in reducing the number of procurement disputes which find their way to our courts.  Furthermore, would it not be more efficient for an aggrieved bidder, after exhausting the internal remedy contemplated in section 35(1) of the Act, to approach the court directly to review the award decision, rather than first approaching the Tribunal and thereafter seeking judicial review of the Tribunal’s decision?

Admittedly, an advantage of pursuing the dispute resolution mechanism contemplated in chapter 6 of the Act is the standstill mechanism in section 53 of the Act which by-passes the need for an aggrieved party to obtain an interim court order which prevents the organ of state from taking steps to conclude a contract with the successful bidder until the conclusion of the application for reconsideration and/or the application for review in terms of the Act. Once steps are taken outside of the Act, an interim court order will need to be obtained by the aggrieved bidder unless an agreement is reached with the organ of state.

It may be some time before it becomes clear how the Act’s two-layered dispute resolution mechanism will operate, and whether it will frustrate the resolution of procurement disputes or provide an effective and efficient alternative without overburdening the already constrained court system.

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South Africa is in the midst of what could prove to be one of the most significant reforms of its public procurement framework since democracy. Or it may not be, depending on what the Constitutional Court decides.

The Public Procurement Act 28 of 2024 (“the Act“) was assented to by the President on 18 July 2024 and published in Government Gazette No. 50967 on 23 July 2024, but it is not yet in force. Until it is, procurement decisions remain governed by the Preferential Procurement Policy Framework Act 5 of 2000 (“PPPFA“), the Public Finance Management Act 1 of 1999 and the Municipal Finance Management Act 56 of 2003, including the 90/10 and 80/20 preference point systems set out in section 2 of the PPPFA.

On 16 April 2026, National Treasury published the draft General Public Procurement Regulations, 2026 (“the Regulations“) and draft Public Procurement Tribunal Regulations, 2026, for public comment. The comment period has since been extended to 15 July 2026, which reflects the breadth of what is being proposed.

The new evaluation model

Under the current system, price drives the outcome. A bidder offering the lowest price will often prevail, provided it meets the basic threshold requirements and scores sufficient preference points.

Regulation 25 establishes a mandatory threshold-based model that departs materially from the current system. Procuring institutions must now assign weight across four criteria: capability and capacity to deliver, functionality and technical requirements, preference, and price. The first three criteria are each subject to a mandatory minimum threshold of 70%, and a bidder who fails any one is excluded before price is even considered.

Sections 17 to 19 of the Act reinforce the shift towards a threshold-driven model. Section 17 mandates outright set-asides for designated categories of suppliers; section 18 introduces prequalification thresholds that determine eligibility for participation, and section 19 imposes subcontracting obligations on successful bidders.

For contracts below R20 million, Regulation 56 requires procuring institutions to reserve certain procurement exclusively for identified categories of persons, including black people, black women, women, persons with disabilities, military veterans, youth, and small enterprises within a particular geographical area, provided the bidder demonstrates 100% ownership by that category. Where no qualifying bids are received, the procuring institution must re-advertise the bid or proceed with no preferential procurement, after making reasonable efforts and reporting to the Public Procurement Office and the relevant provincial treasury.

For contracts of R100 million and above, successful bidders must subcontract at least 25% of the total contract value to enterprises 100% owned by South African citizens. Draft Regulation 64 (6) includes a direct payment mechanism: if a supplier defaults on payment to a subcontractor, the procuring institution may pay the subcontractor directly and deduct that amount from what is owed to the supplier.  This is a meaningful protection for smaller businesses historically exposed to delayed or defaulted payments from main contractors, albeit it introduces a new layer of financial risk for suppliers.

Regulation 60 adds a retrospective eligibility requirement. To qualify under section 18, bidders must show that at least 40% of their prior procurement spend was on enterprises that are at least 51% owned and managed by black people, with proof of such compliance. Past procurement behaviour, not just a current B-BBEE certificate, now forms part of eligibility.

The concept of prequalification criteria is, however, not new, having been the subject of the legal challenge launched by Afribusiness, which made its way to the Constitutional Court in Minister of Finance v Afribusiness NPC 2022 (4) SA 362 (CC) against the now repealed 2017 Preferential Procurement Regulations. Prequalification criteria are reintroduced in section 18 which establishes a framework, requiring procuring institutions to apply specified conditions, within prescribed thresholds, to promote the participation of historically disadvantaged groups. These criteria may include minimum requirements for bidders to demonstrate black economic empowerment participation or to subcontract a portion of the contract to qualifying small enterprises, particularly those owned by black people, women, youth, persons with disabilities, and military veterans. The section further provides that bidders who fail to meet these prequalification criteria must be disqualified and obliges procuring institutions to identify opportunities where such measures can support transformation in underrepresented sectors.

The constitutional question mark

The Western Cape Government, joined by the City of Cape Town and amaBhungane, has launched an application in the Constitutional Court for a declaration that the Act is unconstitutional and invalid, on the grounds that Parliament failed to facilitate reasonable public participation on material amendments as required by section 59(1)(a) of the Constitution. The matter was argued before the Constitutional Court on 18 and 19 May 2026.

The challenge is procedural, not substantive in that it targets how the Act was passed, not what it does. The Constitutional Court has long been clear that meaningful public participation in the legislative process is not a formality. In Doctors for Life International v Speaker of the National Assembly 2006 (6) SA 416 (CC), the Court confirmed that a failure to facilitate genuine public involvement can render legislation invalid. If the Court finds that the passage of the Act fell short of that standard, the Act and the draft Regulations will fall with it.  Until then, the Act remains signed, not commenced, and constitutionally contested.

One element likely to survive any outcome is the debarment framework under section 15. A central debarment register will be established and procuring institutions will be required to verify suppliers against the database before awarding contracts, and to ensure that every transaction is digitally traceable.  As the Constitutional Court affirmed in Allpay Consolidated Investment Holdings v CEO, South African Social Security Agency 2014 (1) SA 604 (CC) said, compliance with procurement principles is a constitutional obligation, not a technical exercise. The debarment database will therefore strengthen this obligation.

Notwithstanding the current constitutional challenge, the direction of travel is clear. Whatever the Constitutional Court decides, the policy instinct behind the legislation i.e. tighter entry controls, traceable transactions and accountability for how preference is actually delivered is unlikely to disappear.  A successful challenge would remit the Act back to Parliament for proper public participation and not completely bury the reform agenda.

For businesses bidding in the public sector, the practical message is to prepare now rather than awaiting certainty that may not arrive on a convenient timeline.  Bidders must pressure-test their capability and technical documentation against the 70% thresholds, since these are now pass/fail gates.  In addition, businesses relying on subcontracting models should review payment processes and contractual terms in light of direct payment mechanism, which shifts real financial exposure onto main contractors.  Lastly, any business with a B-BBEE strategy built around point-in-time compliance should start tracking procurement spend given the retrospective threshold under Regulation 60.

One significant tension not resolved by the Regulations is that the measures designed to advance transparency and redress also add layers of threshold compliance, documentation and risk allocation which will likely lengthen procurement timelines, particularly for relatively small bidders without dedicated compliance resources. Whether the trade-off is justified is, in part, what the public comment process is for.

Readers are encouraged to participate in the public comment process before 15 July 2026. Comments can be submitted to DraftGeneralProcurementRegulations@treasury.gov.za.

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Introduction

In this article series, we take a deep dive into the South African Conduct of Financial Institutions (COFI) Bill – a major financial sector regulatory reform – one theme at a time.

COFI was drafted in conjunction with the Financial Sector Regulation Act (FSRA), the two pillars of the Twin Peaks regulatory reform. The Twin Peaks regulatory reform is a response to financial system weaknesses identified by the 2008 Global Financial Crisis, such as the systemic risks of large insurers and inappropriate market conduct practices.

The FSRA has already been implemented. The FSRA introduced the Twin Peaks regulatory framework, bringing into existence two regulators for the industry. The first regulator is the Prudential Authority (PA) responsible for the prudential regulation of financial institutions, while the second is the Financial Sector Conduct Authority (FSCA) responsible for regulating market conduct.

COFI represents a major overhaul of how financial institutions will be regulated in South Africa. Currently, different financial institutions are regulated by different legislation. COFI will involve shifting to a harmonised, principles-based conduct regime focused on customer outcomes, transparency and inclusion. COFI also provides for a single licensing and supervision framework and stronger enforcement and standards across the financial sector. Its implementation will unfold over several years and reshape regulatory expectations for financial institutions and consumers alike.

National Treasury has indicated that COFI will be finalised in 2026. COFI has recently been adop­ted by Cab­inet for sub­mis­sion to Par­lia­ment.

Governance and Accountability: Part 5

In our previous articles, we examined the Purpose and Application of COFI, the Licensing Framework, Consumer Protection and Transparency and the Principles and Conduct Requirements under COFI. In this article, we consider COFI’s approach to governance and accountability and the extent to which COFI seeks to influence not only what financial institutions do, but how they are run.

Conduct as a governance issue
A defining feature of COFI is that it elevates market conduct from a compliance function to a governance responsibility.

Under the current regime, conduct risk is often managed within legal or compliance teams. COFI, however, makes it clear that responsibility for delivering fair customer outcomes rests with the leadership of the institution itself.

This reflects a broader international regulatory trend: poor conduct is increasingly seen not as a failure of rules, but as a failure of governance, oversight and culture.

The role of the “governing body”

COFI places primary responsibility for conduct on an institution’s “governing body”. The governing body is expected to ensure that the institution conducts its business in a manner that delivers fair customer outcomes, oversee the effectiveness of conduct risk management frameworks and embed appropriate policies, processes and controls across the organisation.

This represents a shift from oversight of compliance to active accountability for conduct outcomes.

Conduct culture

COFI introduces a focus on “conduct culture”, being the values, behaviours and incentives that shape how an institution interacts with its customers. Financial institutions will be expected to demonstrate that their culture supports fair treatment of customers, responsible product design and distribution and ethical decision-making at all levels of the organisation.

This will impact expectations pervasively. For example, remuneration structures will need to be reevaluated to ensure that they do not incentivise poor customer outcomes.

Senior management accountability

While COFI does not introduce a formal individual accountability regime equivalent to those seen in some international jurisdictions (such as the United Kingdom’s Senior Managers and Certification Regime), it nonetheless places heightened expectations on senior management.

In practice, this is likely to lead to a more structured allocation of responsibilities within institutions, even if not formally prescribed in the legislation.

Key challenges

While the governance framework under COFI is conceptually aligned with international best practice, it
raises several practical and conceptual challenges.

Concepts such as “conduct culture” and “fair outcomes” are inherently difficult to define, much less measure and evidence. These concepts require institutions to make qualitative judgments about behaviours and outcomes. The reliance on broad, principles-based obligations introduces interpretive uncertainty, (particularly, before any conduct standards are issued – see our article: Principles and Conduct Requirements). In addition, it is unclear how the FSCA and PA will distinguish between genuine conduct failures and reasonable differences in business judgment. This begs the question: Will the emphasis on governing bodies, senior management and conduct culture lead to better customer outcomes on the ground? Without clear guidance on quantifiable outcomes and how they should be assessed and evidenced, there is a possibility that institutions will prioritise regulatory defensibility over substance.

Smaller institutions may face disproportionate challenges in implementing governance frameworks that are sufficiently robust to meet regulatory expectations. Concepts such as a “governing body”, formal conduct risk frameworks and sophisticated monitoring systems may not align neatly with the structures of smaller firms (see our comments about proportionality in our previous article: Purpose and Application). This, in turn, may serve as a disincentive for market entrants, scuppering objectives of inclusivity in the financial services sector.

Practical implications

COFI’s governance requirements will require financial institutions to reassess not only their policies and procedures, but also their decision-making structures and organisational culture.

In preparation, institutions should consider –

• clarifying the roles and responsibilities of boards and senior management;
• strengthening conduct risk governance frameworks;
• reviewing remuneration and incentive structures; and
• ensuring that appropriate management information is available to monitor customer outcomes.

COFI represents a ramping up in accountability. It is not only what a financial institution does that counts, but what its leadership does and what its culture is.

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Business rescue was introduced as a mechanism to rehabilitate financially distressed companies and preserve value. In practice, however, it is often invoked only once liquidation is imminent. This article considers how the defensive use of business rescue, rather than its application as a proactive restructuring tool, materially undermines its prospects of success, with many processes effectively constrained before they begin.

Chapter 6 of the Companies Act 71 of 2008 introduced business rescue as a mechanism to rehabilitate financially distressed companies. Its purpose is clear, to facilitate the restructuring of a company in a manner that allows it to continue operating on a solvent basis or, failing that, to achieve a better return for creditors than immediate liquidation.

In principle, it is a powerful and necessary tool for struggling companies. In practice, however, its effectiveness is often undermined by the circumstances in which it is invoked.

In many cases, by the time business rescue is considered, the business is no longer capable of being rescued. A mechanism built for intervention – not reaction – business rescue is designed to operate at the point of financial distress, not financial collapse.

The statutory framework assumes that, while the company is under pressure, it retains sufficient operational substance and stakeholder confidence to support a restructuring process. The moratorium on creditor claims is not an end in itself; it is a tool to create space within which a viable business rescue plan can be developed and implemented.

Central to this framework is the requirement of the “reasonable prospect of rescue”. This is a substantive threshold. It requires a credible, supportable basis on which the company can be rehabilitated, whether through operational restructuring, the introduction of new capital, or a compromise with creditors. It is not satisfied by the mere hope that conditions might improve.

In the current economic environment, that threshold is increasingly difficult to meet. South African businesses are operating under sustained pressure: elevated interest rates, constrained demand, rising input costs and ongoing infrastructure challenges. In this context, financial distress is often prolonged rather than sudden. Businesses absorb pressure for as long as possible, drawing on facilities, extending creditor terms and reducing internal buffers, while the inevitable is looming.

By the time formal proceedings are considered, the position has often materially deteriorated. Business rescue is therefore frequently initiated not as part of a restructuring strategy, but as a response to imminent liquidation. Its immediate function becomes the moratorium – a means of halting enforcement action and stabilising the position.

This is a fundamental shift. A process intended to enable restructuring becomes, in effect, a defensive measure. Where business rescue is invoked in these circumstances, a critical element is often missing: a realistic pathway to rehabilitation.

The underlying business may no longer be viable on any sustainable basis. Liquidity may be exhausted. Access to additional funding (including post-commencement finance) may be limited or unavailable. Creditor relationships may already be compromised. In these conditions, the business rescue practitioner is required to formulate a restructuring plan within a set of constraints that materially limit its prospects of success.

Where business rescue is initiated early and while the business still retains operational stability, there is scope to intervene meaningfully. Funding can be secured, cost structures adjusted and stakeholder support mobilised. The process functions as intended. Where it is initiated at the point of imminent liquidation, the position is fundamentally different. At that stage, the process becomes a futile exercise, and where the restructuring of the business is left with minimal options. The business rescue practitioner then has the unenviable task of managing a business that has largely exhausted any possibility of it being successfully restructured. Value erosion has already occurred, and the ability to reverse such erosion is limited.

The distinction between those two scenarios is often the difference between a viable business rescue and an inevitable failure.

The defensive use of business rescue also shapes stakeholder behaviour. Creditors are increasingly attuned to proceedings that appear to have been initiated to delay enforcement. Where confidence in the underlying viability of the business is limited, support by stakeholders for the proposed business rescue plan is correspondingly weak.

Funders adopt a similarly cautious approach. Post-commencement finance is, by its nature, risk capital (and often unsecured). It is unlikely to be made available in circumstances where there is no clear and credible restructuring thesis. Without stakeholder alignment, the process becomes self-limiting.

These dynamics are amplified by the current economic environment. Recent increases in input costs (fuel crises) have placed sustained pressure on margins across multiple sectors. At the same time, constrained consumer demand has limited the ability of businesses to pass those costs through. The result is a gradual erosion of profitability and liquidity.

Importantly, this erosion is often not immediately visible. Businesses continue to trade, but with reduced financial flexibility and increasing reliance on short-term measures. It is within this environment that business rescue is increasingly being invoked, not at the point of manageable distress, but at the point where that accumulated pressure becomes unsustainable.

None of this detracts from the value of business rescue as a mechanism. Where it is used as the statute intended, it remains a workable option for a proactive and well-considered restructuring strategy. Business rescue remains one of the most effective mechanisms for preserving value in the South African economy and provides a structured framework within which businesses can reorganise, negotiate with stakeholders and, where necessary, compromise debts and gain access to new capital.

The issue is not the tool. It is the timing and purpose of its use.

Business rescue is too often positioned as a last line of defence. In doing so, it is expected to resolve circumstances that have already progressed beyond the point at which meaningful and successful intervention is possible.

The question is not whether business rescue works. The statutory framework is clear, and where properly applied, it is effective. The question is whether it is being used in the way contemplated by Chapter 6.

When business rescue is deployed as a defence to liquidation, or to frustrate creditors rather than as a considered restructuring mechanism, its prospects of success are inherently limited. In that sense, many business rescues do not fail because the process is flawed. They fail because, by the time they begin, the outcome is already largely determined.

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