FINANCIAL SECTOR CODE

07 December 2010 © 2010,BEE Institute, All Rights Reserved


FINANCIAL SECTOR CODE

Presented by Leila Moonda


FSC

The Financial Sector Code commits all participants to actively promoting a transformed, vibrant and globally competitive financial sector that reflects

the demographics of South Africa, which contributes to the establishment of an equitable

society by providing accessible financial services to black people and by directing investment into

targeted sectors of the economy.


Gazetting and Implementation

Gazetted as a Sector Code on the 26th November 2012.

Implementation applicable from measurement periods ending after the 01st January 2012

Transitional period ended on 30th June 2013 (automatic exemption from Access to Financial Services and Empowerment Financing)


Contributing Economy ..

Non- Contributing Economy ..

51 million

6.9 million

30.5 million


>=R100 000 p.a.

R50 000 - R100 000 p.a.

R7 200 – R50 000 p.a.

<=R7 200 p.a.


>=R100 000 p.a.

R50 000 - R100 000 p.a.

R7 200 – R50 000 p.a.

<=R7 200 p.a.


B-BBEE Goal2020

R50 000 p.a.

R50 000 - R100 000 p.a.

R100 000 – R200 000 p.a.

R200 000 p.a.


Black Economic Empowerment


What is BEE

Black Economic Empowerment:

Furthering the economic interests of Black people

Black = African, Coloured , Chinese or Indian persons, born in SA, a citizen by descent or

became a citizen before 27 April ’94 or can demonstrate that they were unable to

obtain citizenship by naturalisation under Apartheid


BEE Act

Establish BEE Advisory Council

Codes of Good Practice for BEE

Transformation Charters / Sector Codes


BEE Scorecard

Government Supply

Supplier

Supplier

Supplier

How is BEE Enforced?


Verification Agency

BEE Verification – score– Score is broken into levels:

• Level 1: 100 or higher

• Level 8 : 30 points

• Non compliant: <30

Measured every 12 months



Public Sector:

– BEE score incorporated in tender score

– Minimum tender requirement

– Licences

– Sale of state owned assets

– Public Private Partnerships



Private Sector:

– Your score counts towards your customer’s score

– Your supplier’s score counts towards your score



LowHighNon-compliant

BEE Score

Supplier C

2 days delivery

2 days delivery

5 days deliveryService

Same brand of paperQuality

R35/reamR35/reamR40/reamPrice

Supplier BSupplier A

Differentiating Factor

Most likely choiceHow is BEE Enforced?


BEE not a compliance issue……

……..it is a competitiveness issue.



FSC Overview


Who falls within the scope of the FSC?

The FS Code applies to – Banking;– Long-term insurance;– Short-term insurance;– Re-insurance;– The management of retirement, pension and collective investment scheme

assets;– Managers of formal collective investment schemes; – Financial Services Intermediation and Brokerage – Underwriting Management Agents – Private equity fund managers– Members of any exchange licensed to trade equities or financial instruments


Scorecard varies by entity size

– Generic • More than R35 million turnover per annum

– Qualifying Small Financial Enterprises (QSFI)• R5 million to R35 million per annum + designated investments

less than R50 million

• Measured as per DTI Qualifying Small Entities (QSE) scorecard

– Exempted Micro Enterprises (EME)• Less than R5 million

• NO SCORECARD!

Scorecard Overview


FSC vs DTI ScorecardsElement FSC Points DTI Points

Ownership 14 20

Management Control 8 10

Employment Equity 15 15

Skills Development 10 15

Preferential Procurement 16 20

Empowerment Financing and Enterprise Development

15 + 5 15

Access to Financial Services / Consumer Education

14 0

Socio-Economic Development 3 5

Total 100 100


FSC Broker ScorecardElement FSC Points

Ownership 14

Management Control 8

Employment Equity 15

Skills Development 10

Preferential Procurement 16

Empowerment Financing and Enterprise Development15 (exempted from

Empowerment Financing)Access to Financial Services / Consumer Education 2 (exempted from Access)

Socio-Economic Development 3

Total 83


Recognition LevelsB-BBEE Status Qualification B-BBEE recognition level

Level One Contributor ≥ 100% on the FSC Scorecard 135%

Level Two Contributor ≥ 85% but < 100% on the FSC Scorecard 125%

Level Three Contributor ≥ 75% but < 85 % on the FSC Scorecard 110%

Level Four Contributor ≥ 65% but < 75% on the FSC Scorecard 100%

Level Five Contributor ≥ 55% but < 65% on the FSC Scorecard 80%

Level Six Contributor ≥ 45% but < 55% on the FSC Scorecard 60%

Level Seven Contributor ≥ 40% but < 45% on the FSC Scorecard 50%

Level Eight Contributor ≥ 30% but < 40% on the FSC Scorecard 10%

Non Compliant Contributor < 30% on the FSC Scorecard 0%


OwnershipOwnership Total Points Targets

2.1. Voting Rights of Black People 3 25% + 1 Vote

2.2. Voting Rights of Black Women 1 10% + 1 Vote

2.3. Economic Interest of Black People 3 25%+ 1 Share

2.4. Economic Interest of Black Women 1 10%+ 1 Share

2.5. Economic Interest of Black Des ignated Groups , Black Participants in Employee Share Ownership Schemes , Black Participants in Broad Based Ownership Schemes and/or Black Participants in Co-ops 1 2.5%

2.6. Net Equity Va lue (Formula A and B as per para . 4 of Annexe 100 (C) 3 A/B

2.7. Di rect or Indi rect Ownership in Excess of 15% 2 10%

Total 14

2.9. Ownership by Black New Entrants 2 10%

2.10. Ownership by ESOPs , Broad Based Schemes and Co-ops 1 10%

Total Including Bonus Points 17

Ownership Fulfilment

Bonus Points


Ownership ExemptionLocal subsidiaries of Multi-nationals are exempted from Ownership.

Does not apply to branches of foreign banks who are required to do additional Empowerment Financing to achieve Ownership points.

Code FS000, Statement 000, 2.9


Management Control, Employment Equity and Skills Development

No adjusted recognition for gender.

Separate targets for Black Women


Management ControlManagement Control – Measurement Criteria Weighting Target

2.1 Board Participation

2.1.1 Voting rights of Black board members as a percentage of voting rights of all board members

0.5 50%

2.1.2 Voting rights of Black women board members as a percentage of voting rights of all board members

0.5 25%

2.1.3 Black executive members of the Board as a percentage of all executive members of the board

1.0 50%

2.1.4 Black women executive members of the Board as a percentage of all executive members of the board

1.0 25%

2.2 Top Management

2.2.1 Black Senior Top Management as a percentage of all Senior Top Management 1.5 40% 2.2.2 Black women Senior Top Management as a percentage of all Senior Top

Management 1.5

20%

2.2.3 Black Other Top Management as a percentage of all Other Top Management 1.0 40% 2.2.4 Black women Other Top Management as a percentage of all Other Top

Management 1.0

20%

Total 8

2.3 Bonus Points

2.3.1 Black Independent Non-Executive Board Members as a percentage of all Independent Non-Executive Board Members*

1.0 40%


Exclusion of Expats If there is a Global Policy imposing board

members, executive or senior managers they can be excluded from the calculations.

Limited to 20% of category, sub-minimum of 1

If Black South African staff are seconded to overseas operations, the maximum number of expats excluded can be increased


Employment Equity


Skills Development


Preferential Procurement


Included spend– Operational expenses, cost of sales and capital

expenditure– Labour brokers and independent contractors– Costs related to facilitating BEE contributions –

Enterprise & Socio-economic Development– discretionary stock-brokering spend procured by

investment managers on behalf of clients, regardless of whether this spend is recorded in the financial statements of the investment manager

Total Measured Procurement Spend


Exclusions– Taxes or levies– Organ of state or public entity with

regulated monopoly– Bodies listed in Schedule 1 of PFMA– Salaries and wages– Pass through third party procurement

where it is not recorded in your books– Investments in or loans to an Associated

Enterprise



Exclusions– Enterprise Development and Socio-

economic Development– Imports:

• Capital goods or components for value-adding in South Africa provided that there is no existing locally produced equivalent

• Or one can differentiate local from imported on the basis of brand or technical specifications



Exclusions– Property expenditure, where the property is held

as an investment

– Broker commissions and commissions paid to insurance intermediaries;

– Reinsurance premiums;

– Any items of procurement where the supplier is imposed in terms of a Global Policy for technical reasons



Due to the Sector specific exclusions, financial

institutions must at all times include within their

portfolio of enterprise development programmes,

initiatives targeting Black Owned property,

brokerage and insurance intermediary businesses



Enterprise Development Measures the monetary and non-monetary

contributions, recoverable and non-recoverable contributions

Objective of contributing to the development, sustainability and financial and operational independence of the beneficiary entities

Options in terms of the target

– 3% of Net Profit After Tax (NPAT)

– 3% x “indicative profit margin” x Turnover (where “indicative profit margin” is NPAT/turnover)


Enterprise Developmentfor enterprises exempt from Empowerment Financing


Access

Target market The target market for long-term and short-

term insurance products will be based on income = tax threshold for individuals= R60,000 per annum and double the tax threshold for families = R120,000


Brokers and Access

• Short-term and long-term insurers will have Access targets

• Distribution will be key to ensuring they meet their targets

• Products must be affordable• Will brokers be able to distribute products within

an affordability framework• Alternative distribution channels


Consumer Education

Consumer Education:

transferring knowledge and skills to consumers, future

consumers and potential consumers

for individual well-being and the public good

development of consumer’s knowledge and understanding of

the financial sector and its products and services.

empowering consumers with knowledge to enable them to

make more informed decisions about their finances and

lifestyles


Consumer Education

Measurement Criteria

Weighting Target

Consumer Education 2 Year 2012: 0.25%Year 2013: 0.30%Year 2014: 0.40%


SED


Qualifying Beneficiaries:

– Black people

– Organisations where 75% or more of benefit

flows to black people = 100% counts

– Where the benefit is less than 75% it counts

pro-rata

Socio-Economic Development

Documents

FINANCIAL SECTOR CODE