Lize de la Harpe, Senior Legal Advisor at Sanlam Corporate

Introduction

The FSCA recently published a Conduct Standard setting out requirements applicable to financial institutions providing financial education initiatives, which Conduct Standard will come into effect one year after publication, being 26 March 2026.

Let’s unpack the impact thereof.

Background

Data gathered over the last decade provides strong evidence of persistent low levels of financial literacy in South Africa. The Financial Sector Regulation Act, 2017 (FSR Act) provides the FSCA with the legislative mandate to protect financial customers by providing financial customers with financial education programmes. In addition, the FSR Act also empowers the FSCA to make conduct standards, aimed at, amongst other things, ensuring that financial education programmes or other activities promoting financial literacy are appropriate to the financial customers that the program is aimed at.

Consequently, during 2020 the FSCA published a Discussion Paper which was aimed at putting forward a variety of proposals relating to ensuring that financial education programs provided by financial institutions are appropriate to meet the objectives of the FSCA.

Based on the comments received from the industry and other stakeholders, and taking into account the financial education mandate of the FSCA, the FSCA published the final Conduct Standard together with a Statement of Need and response document summarising the comments it received on the 2020 Discussion paper.

What is a “financial education initiative”?

The Conduct Standard only applies where a financial institution provides or offers a financial education initiative as defined, and aims to ensure the protection of financial customers by requiring that financial institutions that provide financial education initiatives take reasonable steps to ensure appropriate standards of behaviour, put in place governance and oversight arrangements when developing financial education content as well as when implementing, monitoring, evaluating and reporting on consumer financial education activities.

The definitions of “financial education” and “financial education initiative” as set out therein is therefore critical as it essentially sets the scope of the activities covered.

“Financial education” means the process by which financial customers improve their understanding of financial products, product providers, financial services, service providers and financial concepts and risks which aims to develop the skills and confidence to –

• become more aware of financial risks and opportunities
• make informed financial decisions
• manage their financial affairs more sustainably
• know where to go for financial assistance and recourse, or
• take other effective actions to improve their financial well-being and the financial well-being of those under their responsibility.

A “financial education initiative” is defined as –

• any financial education programme, or other similar initiative or activity that is aimed at providing financial education, excluding any such initiative that is aimed at marketing or creating awareness surrounding a specific financial product or service, financial product provider or financial service provider, or

• a consumer education programme, which forms the basis for a financial institution to claim any points for consumer education in terms of the codes of good practice on broad based black economic empowerment issued by the Department of Trade and Industry.

As one can see from the wording, the definition of “financial education initiative” contains two key concepts, both of which should be aimed at providing financial education, i.e.: a “programme” which entails an officially organised system of financial education driven activities, and an “initiative” being a new plan or process to achieve something or solve a problem. To qualify as an initiative similar to a financial education programme, the initiative must entail some form of systematic planning/process aimed at providing financial education. This would, for example, include an awareness campaign but would exclude a once off action like publishing an arbitrary article providing general information.

The reference to “financial customers” is as defined in the FSR Act and does not include other stakeholders such as the board of a pension fund, participating employers, etc.

Specific exclusions

It is important to draw a distinction between general information and product/service provider and financial product specific information.

The intention of this Conduct Standard is not to capture activities that are aimed at marketing or creating awareness surrounding a specific financial product/service provider or their specific products. The intention is also not to include arbitrary actions such as the publication of a once-off article providing consumer relevant information, even if such information is general in nature.

For example –

• any retirement fund related communication or action that is aimed at providing information supporting the understanding of a particular retirement fund will not constitute a financial education initiative, and

• a once-off or arbitrary publication (on a website or a news article) providing general consumer relevant information will not constitute a financial education initiative. However, if, for example, a financial institution executes a planned series of publications which is aimed at promoting financial education in a systematic manner, that would constitute a financial education initiative.

Responding to the initial Discussion Paper, several commentators highlighted concerns as to what extent the Conduct Standard intends to cover communication by a retirement fund to its members regarding specific benefits, bearing in mind that the provision of benefit under a retirement fund is a product under COFI. The FSCA, in its response document, confirmed that communication to members is not regarded as a “financial education initiative” and amended the definition of same in the final version to make this clear. Additional context was also added to the Statement of Need document to clarify the position with regards to what types of activities the FSCA intends to be included within the scope of financial education initiatives and which not.

Governance and reporting

The Conduct Standard requires financial institutions to have appropriate governance arrangements in place to oversee the design and implementation of financial education initiatives. The financial institution will need to decide on what type of measures they will be implementing and are expected to provide a rationale as to why the measures that they have implemented are appropriate taking into account the factors mentioned in the Conduct Standard.

Financial institutions will also be required to report to the FSCA on its financial education initiatives in the manner and form as may be prescribed. When the detailed reporting obligations are developed, same will be published for public consultation and stakeholders will be able to comment again at that stage. The FSCA has undertaken to align the reporting obligations with other reporting that is required to be submitted, in order to avoid duplication of efforts.

Marketing and branding

One of the main objectives of the Conduct Standard is to ensure that marketing is not done under the “guise” of financial education. The FSCA feels strongly that there should be no branding in the content of the consumer education material and, in fact, initially contemplated whether it should prohibit marketing done in conjunction with consumer education initiatives altogether.

As a middle ground the FSCA decided to allow some form of marketing as part of the initiative itself, but under the proviso that such marketing is not excessive and does not overwhelm the initiative. However, marketing of a financial institution’s specific financial products or services is not allowed.

Conclusion

Financial institutions and other stakeholders have a responsibility to the consumers and the communities they serve to partner on their journey towards financial literacy. The complexity of financial products, coupled with technological developments and a continuously changing economic, social and political environment, impact how financial decisions are made by consumers.

This Conduct Standard does not compel a financial institution to undertake financial education initiatives; however, where a financial institution does undertake financial education, same must adhere to the requirements as prescribed in the Conduct Standard.

Lastly, take note that the requirements set out in the Conduct Standard are principles-based. As such, they may be applied in a manner that is proportional to the nature, size, complexity and risk profile of the financial institution concerned as well as the nature and target group of the relevant financial education initiative.

ENDS