FINANCIAL SECTOR CHARTER

1
FINANCIAL SECTOR CHARTER
presented by
Leila Moonda

• September 2007

2
Overview

• Broad-based black economic empowerment (BBBEE) is
  not a legal requirement it is a business
  imperative that may or may not lead to a
  competitive advantage
• The Codes of Good Practice and the FSC are
  guidelines for measurement of BBBEE compliance

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The BBBEE Imperative

• Competitive advantage
• Retain existing business / sales / customers
• Increased sales volumes
• Access to new markets
• Staff retention and growth
• Social imperative
• Growth of the Black middle class booming
  economy
• Job creation alleviate poverty and reduce crime
  
• Personal perspectives

4
Who is Subject to the Charter

• Currently applies to signatories of the Charter
• Banks
• Long-term insurers
• Short-term insurers
• Re-insurers
• Managers of collective investments
• Asset managers
• Listed entities
• Any other institution may opt-in
• Once the Charter is gazetted as a Sector Code, it
  will apply to all institutions active in the
  sector, i.e including intermediaries

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Exemptions under the current framework
SUBJECT TO CHANGE WITH ALIGNMENT

• Less than 50 employees human resource
  development provisions
• Less than R10m designated investments
  empowerment financing
• Both of the above totally exempt, but may
  opt-in
• Companies subject to global policy certain
  Board member provisions
• Companies subject to global policy ownership
  provisions
• Wholesaler access provisions

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Measurement of BBBEE Status under the Codes

• Exempt Micro Enterprise (EME)
• Less than R5million turnover
• Auto Level 4 status, regardless of compliance
• If gt50 Black owned Level 3 status
• Can opt to be measured as a QSE should they wish
  to obtain a higher score
• Qualifying Small Enterprise (QSE)
• Turnover Between R5million and R35million
• Can select ANY of the 7 elements, 25 points each,
  100 total
• Relatively easy to become BBBEE compliant
• Large Business
• Score on 7 elements out 100 points

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The FSC elements
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The CoGP Elements
9
CoGP Scorecard for QSEs

• Easy to become compliant

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Alignment recommendation re elements

• If the FSC adopts the approach that allows QSEs
  to score on fewer elements (e.g. 4 out of 6) and
  intermediaries cannot comply with Access and
  Empowerment Financing, it means that
  intermediaries have to comply with the ownership
  provision.
• Intermediaries should make a recommendation to
  the FSC Council that HRD be split between
  Employment Equity and Skills Development and
  Ownership and Control be split. This would see
  the FSC duplicate the 7 elements of the Codes and
  have two additional elements of Access and
  Empowerment Financing, giving the FSC 9 elements.
• Intermediary QSEs could then have the option of
  selecting 4 of 7 elements (excluding Access and
  Empowerment Financing)

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HR Development

• Building a diverse, non-racial, non-sexist and
  sustainable intellectual pool
• Un-quantified commitments to
• Mentorship, Career Path programs
• Cultural Diversity and Gender sensitivity
  programs
• Where possible, support Educational Institutions
• Skills Audit to be undertaken to identify black
  skills shortage

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Employment Equity Targets in the FSC and the CoGP
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Employment Equity Alignment

• The FSC current catgorisation is according to
  salary bands
• The DTI CoGP categorisation is as per the
  Employment Equity Act
• The Trade Associations have put forward a
  position to the Charter Council that the
  categorisation according to salary bands be
  maintained.
• With the alignment process the targets in the FSC
  will be increased to the targets in the CoGP. The
  Trade Associations have proposed that the
  Adjusted Recognition for Gender not be
  incorporated into the FSC, but that there be a
  separate target for Black Women at 50 of the
  Black people target.

14
Skills Development
15
Skills Development Alignment

• The Trade Associations have recommended that the
  criteria and scoring in the FSC remain.
• The TAs have recommended that the Learnership
  targets and scoring mechanism be aligned to the
  Codes

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Procurement Enterprise Development (FSC)

• Currently premium scoring is awarded to Black
  Owned, Black Women-owned, Black SMEs or excellent
  performers in Sectoral Charters.
• As part of the alignment scoring will be aligned
  to what is in the CoGP.
• Un-quantified Commitments
• Promote early payment to Black SMEs
• Encourage existing suppliers to become BEE
  accredited

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Preferential Procurement in the CoGP

• Promotes BEE compliance by all entities in a
  value chain
• Specific targets for buying from QSE and EME
  companies promote their sustainability
• Specific targets for buying from 50 black owned
  or 30 black women owned entities
• Enhanced recognition for buying from value adding
  suppliers, encourages local content (factor of
  1.25)
• Means a company registered as a vendor under the
  VAT Act of 1991, where NPAT total labour cost gt
  25 of total revenue
• Enhanced recognition for buying from ED
  beneficiaries (factor of 1.2)

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Procurement

• Procurement from BEE accredited companies
• 50 by 2008
• 70 by 2014
• Same targets as per the CoGP
• Suppliers currently have to be rated on a broad
  based methodology. Though this continues to be a
  problem as there are no accredited verification
  agencies as yet. Self assessment of suppliers
  who are QSEs has been discussed by the various
  Trade Associations and the FSC Procurement
  committee and agreed to be acceptable
• Procurement in the FSC will be aligned to the CoGP

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Calculation of Procurement spend in the Codes and
the Charter
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Enterprise Development

• Objectives
• Foster new BEE companies
• Develop existing BEE companies
• Mechanisms
• Skills transfer
• Secondment of Staff
• Infrastructure Support
• Technical and Administrative support and
  assistance
• Currently scored as part of Procurement, but as
  part of the alignment process will be split from
  Procurement. The current proposal is that it is
  scored as part of Empowerment Financing

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Enterprise Development in the CoGP (large)
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Access
As Brokers do not make products available, they
can apply for exemption from this criteria.
However, Brokers do have a role to play in
assiting with the distribution of Access products.

• Broadening the effective provision of financial
  services to LSM 1-5
• To ensure that majority have access to basic
  affordable financial services
• Defining Effective Access
• Affordability cost effective services to LSM
  1-5
• Innovative, user friendly products/services and
• Non-discriminatory practices.

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Consumer Education

• This is a sub-category of Access wth a target of
  0.2 of NPAT with a score of 2 points.
• Even if intermediares receive exemption from the
  Access provisions, they will still be required to
  comply with the provisions of Consumer Education.

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Empowerment Financing
As brokers act as intermediaries, they do not
hold any designated investments in their own
right and would therefore be exempt from this
provision of the FSC

• Mobilising resources for investment in
  socio-economic transformation
• Affected Institutions those taking
  designated investments
• Designated investments deposits, savings,
  investments, risk insurance premiums
• R123.5bn currently targeted
• BEE transaction financing (5 points)
• Targeted investments (low-income housing,
  transformational infrastructure, agriculture,
  black SMEs) (17 points)

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Targeted investment / BEE Transaction Financing
targets
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Ownership control

• Enable genuine participation in the holding and
  strategic direction of the Sector
• Black ownership to be aimed at
• Promoting productive and sustainable
  participation by black people
• Encourage involvement of broad based
  constituencies in BEE transactions
• Encourage ownership that is likely to add value
  to the financial institution
• Encourage funding structures that facilitate
  transfer of economic interest

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Control targets
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Corporate social investment

• Projects aimed at black people, have a strong
  developmental approach contribute toward
  transformation
• Promote investment by the sector in areas
  specific to the needs of the majority
• Target
• 0.5 p.a. of post tax operating profits (FSC)
• 1 of NPAT (CoGP)
• The recommendation is that as part of the
  aignment process the target be increased to 0.8
  of NPAT. With the 0.2Consumer Education spend
  this wold equal the target in the Codes.

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Application

• Targets apply from 1st January 2004 until 31st
  December 2014. With the alignment process the
  dates are likely to match the timeframe of the
  CoGP, i.e. to be extended to 2017.
• Principles embodied in the Charter are perpetual

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Charter Council

• The Charter Council will establish an Executive
  with the delegated mandate to
• Receive, consider and approve Annual Audits from
  Financial Institutions
• Issue guidance notes on the interpretation and
  application of Charter
• Conduct reviews identified in the FSC
• Engage Govt., DFIs, Regulatory Agencies BEE
  Advisory Council to promote implementation of the
  FSC
• Independent Body

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Charter Council
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Charter Council Executive

• Principal Officer appointed 01st October 2005
  Enoch Godongwana
• Chairman rotates every year amongst the
  constituencies, currently Kennedy Bungane from
  ABSIP
• Council offices established at 66 Marshall
  street, Jhb CBD

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Status

• Charter was gazetted as a Transformation Charter
  by the DTI on the 09th February 2007.
• As the Charter has not yet been gazetted as a
  Sector Code, government may still choose have its
  financial sector suppliers rated against the DTI
  Codes
• The Charter Council is working towards having the
  FSC gazetted as a section 9 Sector Code by the
  end of 2007. That means that the new provisions
  of the FSC will be applicable from the 01st
  January 2008.

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Intermediaries Involvement

• The intermediaries are interacting with the
  Principal Officer to ensure that their views
  regarding the alignment are taken into account.
• The Principal Officer has indicated that members
  of associations that do not sit on the Charter
  Council will be charged for a review of their
  scorecards. The costs of this is still to be
  confirmed.