The Financial Sector Code on Broad-Based Black Economic
Empowerment (the FSC) was gazetted on 26 November 2012, in terms of
section 9(1) of the Broad-Based Black Economic Empowerment (BBBEE)
Act, 2003 (the BEE Act) and will constitute the basis upon which
companies operating in the financial sector will be measured for
BBBEE compliance and thus obtain BBBEE compliance ratings. The
Codes of Good Practice on BBBEE issued by the Department of Trade
and Industry in 2007 (DTI Codes) will in such event not apply to
such companies.
The FSC applies to any natural or juristic person conducting a
business, trade or profession in the South African financial
sector, including:
- banking;
- long-term insurance;
- short-term insurance;
- re-insurance;
- management of retirement, pension and collective investment scheme assets;
- management of formal collective investment schemes;
- financial services intermediation and brokerage;
- management of investments on behalf of the public, including private equity, members of any stock exchange licensed to trade equities or financial instruments in South Africa; and
- underwriting management agents.
The proposed scorecard in the FSC contains all of the seven
elements in the generic DTI Code scorecard (i.e. ownership,
management control, employment equity, skills development,
preferential procurement, enterprise development and socio-economic
development). It also contains two further elements specific to
companies operating in the financial sector, namely empowerment
financing and access to financial services.
The aim of including these additional elements is to encourage the
financial sector to implement initiatives to make financial
services accessible to the previously unbanked and under-served
population of South Africa. It is also intended to encourage the
provision of affordable housing; financing of black SMMEs and
agricultural activities; and investing in various forms of
infrastructure that create the necessary platform to grow the
economy.
Given the additional elements, the weightings applicable to most
of the generic scorecard elements have been reduced. So, for
example, the ownership element in the generic scorecard accounts
for 20% of the total score. In the FSC scorecard, the weighting
attached to the ownership element (excluding the bonus points) has
been reduced to 14%.
The 2007 Financial Sector Charter set a target of 25% black
ownership by 2010, at least 10% of which was required to be
satisfied by way of "direct ownership", i.e., direct
ownership and control of the shareholding and voting rights by the
black shareholders and not through any form of institutional
shareholding. The FSC proposes the following overall ownership
targets:
- 25% plus 1 vote of total voting rights exercisable by Black People;
- 10% plus 1 vote of total voting rights exercisable by Black Women;
- 25% plus 1 share of economic interest by Black People; and
- 10% plus 1 share of economic interest by Black Women.
Separate ownership scorecards are provided for local measured
entities and local branches of foreign banks. In addition an
ownership fulfillment target will apply to economic interest as a
result of direct or indirect B-BBEE ownership in excess of
15%.
Like the DTI Codes, the FSC proposes the application of the flow
through principle and modified flow through principle in the
calculation of the effective voting rights and shareholding of
Black People in an entity operating in the financial sector.
The FSC proposes to be binding for all measurement periods ending
prior to 31 December 2017, when a full review of progress made
against the sector code will be undertaken by the Minister of Trade
and Industry and the Minister of Finance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
