FINANCIAL SECTOR CODE

2. FINANCIAL SECTOR CODE Presented by Leila Moonda

3. 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.

4. 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)

5. 51 million Contributing Economy .. 6.9 million 30.5 million Non- Contributing Economy ..

6. >=R100 000 p.a. R50 000 - R100 000 p.a. R7 200 – R50 000 p.a. <=R7 200 p.a.

7. >=R100 000 p.a. R50 000 - R100 000 p.a. R7 200 – R50 000 p.a. <=R7 200 p.a.

8. B-BBEE Goal 2020 R200 000 p.a. R100 000 – R200 000 p.a. R50 000 - R100 000 p.a. R50 000 p.a.

9. Black Economic Empowerment

10. 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

11. BEE Act • Establish BEE Advisory Council • Codes of Good Practice for BEE • Transformation Charters / Sector Codes

12. How is BEE Enforced? Supplier BEE Scorecard Government Supplier Supply Supplier

13. 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

14. How is BEE Enforced? Public Sector: • BEE score incorporated in tender score • Minimum tender requirement • Licences • Sale of state owned assets • Public Private Partnerships

15. How is BEE Enforced? Private Sector: • Your score counts towards your customer’sscore • Your supplier’s score counts towards yourscore

16. How is BEE Enforced? Most likely choice Differentiating Factor Supplier A Supplier B Supplier C Price R40/ream R35/ream R35/ream Quality Same brand of paper 2 days delivery 5 days delivery 2 days delivery Service BEE Score Non-compliant High Low

17. How is BEE Enforced? BEE not a compliance issue…… ……..it is a competitiveness issue.

18. FSC Overview

19. 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

20. Scorecard Overview 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!

21. FSC vs DTI Scorecards

22. FSC Broker Scorecard

23. Recognition Levels

24. Ownership

25. Ownership Exemption Local 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

26. Management Control, Employment Equity and Skills Development • No adjusted recognition for gender. • Separate targets for Black Women

27. Management Control

28. 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

29. Employment Equity

30. Skills Development

31. Preferential Procurement

32. Total Measured Procurement Spend 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

33. Preferential Procurement 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

34. Preferential Procurement 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

35. Preferential Procurement 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

36. Preferential Procurement 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

37. 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)

38. Enterprise Developmentfor enterprises exempt from Empowerment Financing

39. 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

40. 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

41. 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

42. Consumer Education

43. SED

44. Socio-Economic Development 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