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Financial Sector Code (FSC) of Good Practice on Broad Based Black Economic Empowerment (BBBEE) Dr Rob Davies, the Minister of Trade and Industry, has Issued the Draft Amended Financial Services Sector Code for public comment in terms of section 9 (5) of the Broad -­‐Based Black Economic Empowerment Amendment Act 2003, (Act No. 53 of 2003) as amended by the B -­‐BBEE Act 46 of 2013. ABSIP encourages members to submit inputs and comments on the draft amended FSC sector code (http://www.gov.za/sites/www.gov.za/files/39818_gon257.pdf ) as soon as possible in writing for the attention of Mr Jacob Maphutha and Ms Mologadi Leshiba, to the following email address [email protected] and also copy [email protected] . The deadline date for comments is the 16 May 2016. Comments to ABSIP should however be sent at least a week before the deadline. ABSIP is represented on the FSC Council by three of its members. Over a period of nearly two years we consulted extensively with ABSIP members and in most instances managed to incorporate member inputs in the alignment process at the FSC Council. ABSIP over this period has also consulted with BBC and other stakeholders. The amendments to the BBBEE Act and the Codes, came into effect on the 1 May 2015. It fundamentally changed the current BBBEE framework and is a powerful statement of the Government’s intention to promote and implement BBBEE to normalise society in South Africa. The FSC BBBEE Codes of Good Practice combined with the Generic BBBEE Act has the potential of taking South Africa on a higher transformative economic growth profile. Local procurement, local employment and risk capital for the assistance of Black Industrialisation are some of the key improvements in helping local job creation and reducing inequality in South Africa. Attached is the ABSIP summary circular on the Draft FSC revised Code of Good Practice. Summary of Draft BBBEE FSC Codes of Good Practice Introduction Government policy has been based on the “voluntary” principle that the manner in which a business applies BBBEE is to be decided by the individual business having regard to its own business needs. The BBBEE framework provides a methodology for measuring the BBBEE rating of the business. NATIONAL EXECUTIVE COMMITTEE
Tryphosa Ramano (President), Andile Nyhonyha (Deputy President), Delphine Govender (Deputy President), Sibongiseni Mbatha (SecretaryGeneral), Lerato Molefe (Treasurer), Ephraim Moletsane (Student Development), Mathane Makgatho (Absip Women In Focus)
The BBBEE framework introduces penalties in certain circumstances. Although the BBBEE Act and Codes do not impose legal obligations on firms to comply with BBBEE targets, a business’s BBBEE status is an important factor affecting its ability to successfully tender for Government and public entity tenders and (in certain sectors like mining, gaming, telecommunications) to obtain licences. Private sector businesses require their suppliers to have a minimum BBBEE rating in order to boost their own BBBEE ratings. BBBEE is accordingly an important factor to be taken into account by any business in normalising and conducting business in South Africa. •
The amended Codes of Good Practice for Broad Based Black Economic Empowerment will significantly reduce current compliance levels by two to three levels. •
The number of elements is being reduced to five: ownership, management control, skills development, enterprise and supplier development and socio-­‐economic development. •
The revisions go a step further by identifying priority elements on which companies should concentrate: ownership, skills development and enterprise and supplier development. Failure to comply with a 40% sub-­‐
minimum in any of these priority elements leads to an automatic reduction of one level in your contribution level. •
There is a focus on the human resource aspects of the scorecard, with real emphasis being placed on employment equity and skills development – with black females now carrying their own, separate measurement indicators. Skills development now takes into account the training of employees as well as unemployed people who could then be employable. •
The procurement element is heavily weighted towards procuring from black-­‐owned businesses and local procurement as opposed to the highest-­‐rated businesses. Socio-­‐economic development contributions are now fully focused only on support that facilitates income-­‐generating activities in the hands of the beneficiaries. Applicable BBBEE codes to FSC codes Some of the major differences of the FSC Codes of Good Practice with the BBBEE Code of Good Practice are: The Life Offices and Banks have two additional elements: •
Empowerment Financing and Enterprise Supplier Development (25 points) •
Access to Financial Institutions (12 points) The Short Term Insurers also have one additional element: •
Access to Financial Institutions (12 points) An important change in the Ownership Element is the following on page 24 of the Ownership Statement FS100: • 3.9.3 A measured entity subject to code FS600 (banks and life offices) can top up the shortfall in its ownership points through the provision of commercial risk capital for the financing of black industrialists, as an equity equivalent that becomes available on exit of empowerment partners. Such financing can be provided at an individual company level or as a collaborative effort with other industry players. NATIONAL EXECUTIVE COMMITTEE
Tryphosa Ramano (President), Andile Nyhonyha (Deputy President), Delphine Govender (Deputy President), Sibongiseni Mbatha (SecretaryGeneral), Lerato Molefe (Treasurer), Ephraim Moletsane (Student Development), Mathane Makgatho (Absip Women In Focus)
This incentive provision of commercial risk capital for the financing of black industrialists may be a significant game changer for the introduction of risk capital for ABSIP members to take ownership of and manage the next generation of Black Business. ABSIP will have to monitor the progression of this additional potential pipeline of Risk Capital Funds for Black Professionals and Black Business. This will assist the Government in its policy of promoting Black Industrialists. A voluntary dispensation for the Top 100 Retirement Funds Including Umbrella Funds, have been incorporated in the FSC Codes of Good Practice (page 117 to 118). Introduction Many aspects of South Africa’s B-­‐BBEE dispensation are not relevant to retirement funds. However, funds play a critical role in the South African economy by virtue of the amount of members’ savings, which exceeds R4 trillion. Retirement funds also have a critical role to play in the transformation of the financial sector itself, largely by virtue of the appointment of private sector service providers. Funds are also currently required by Regulation 28 of the Pension Funds Act to consider environmental, social and governance (ESG) criteria and B-­‐BBEE as part of their supplier selection processes. Suggested Scorecards In order to accommodate the transformation and empowerment imperatives outlined above, it is suggested that retirement funds measure themselves annually against certain aspects of the broad-­‐based empowerment scorecard contained in the Draft Amended FSC. In essence, it is proposed that large retirement funds compile and publish annual scorecards for the preferential procurement and management control elements of the Draft Amended FSC, using the measurement metrics contained in the Code adapted specifically as illustrated below. Other proposed annual disclosures Retirement funds are classified as mandated investors in B-­‐BBEE legislation. Trustees however have little or no influence on membership demographics. For this reason, it is suggested that large funds should not be scored on the ownership aspect of B-­‐BBEE, but should report annually on the proportion of fund liabilities attributable to black male members and black female members, based on the principals enshrined in FS Code 100. Retirement funds traditionally do not employ large numbers of employees. However, given the critical role that trustees, office bearers and principal officers play in the economy, it is suggested that funds annually disclose details related to accredited SAQA approved training spent on trustees and executive managers such as principal officers and other staff. This should include the quantum, average spend per staff member, number of staff members trained, together with some examples of key training interventions. Member education initiatives, where applicable, should also be disclosed both in terms of number of members trained and amount spent relative to size of membership. The B-­‐BBEE annual reporting by retirement funds should include a narrative on the B-­‐BBEE score achieved and future plans for improving the score. The Council will measure transformation on an annual basis; this may include relying on surveys that are available in the public domain. If NATIONAL EXECUTIVE COMMITTEE
Tryphosa Ramano (President), Andile Nyhonyha (Deputy President), Delphine Govender (Deputy President), Sibongiseni Mbatha (SecretaryGeneral), Lerato Molefe (Treasurer), Ephraim Moletsane (Student Development), Mathane Makgatho (Absip Women In Focus)
sufficient disclosure by pension funds does not materialise, then consideration will be given to revising this dispensation. NATIONAL EXECUTIVE COMMITTEE
Tryphosa Ramano (President), Andile Nyhonyha (Deputy President), Delphine Govender (Deputy President), Sibongiseni Mbatha (SecretaryGeneral), Lerato Molefe (Treasurer), Ephraim Moletsane (Student Development), Mathane Makgatho (Absip Women In Focus)