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BEE and the Financial Sector Charter


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Title: BEE and the Financial Sector Charter

  • BEE and the Financial Sector Charter

  • In August 2002, at the NEDLAC Financial Sector
    Summit, the financial sector committed itself to
    the development of a Black Economic Empowerment
    (BEE) Charter.

S 1. Charter Preamble Commitment made noting
  • that South African society remains characterised
    by racially based income and social services
    inequalities - which is not only unjust, but
    inhibits the countrys ability to achieve its
    fully economic potential
  • BEE is aimed at addressing inequalities
  • It will unlock the sectors potential, and
    promote its global competitiveness

Parties to this charter are.
  • Committed to promoting a globally competitive
    financial sector
  • that reflects the demographics of South Africa,
  • contributes to the establishment of an equitable
    society by providing accessible financial
    services to black people and directing investment
    into targeted sectors of the economy.

This financial sector charter
  • Was voluntarily developed by the sector
  • Is a Transformation Charter ito BEE
  • Constitutes a framework and establishes the
    principles upon which BEE will be implemented
  • Represents a partnership programme
  • Establishes targets
  • Outlines processes for implementing the charter
    and mechanisms to monitor and report on progress.

  • BEE accredited - being validated in terms of this
    charter as a BEE company, or having achieved a
    certain standard of BEE contribution in terms of
    a charter scorecard.
  • BEE transactions acquisition by blacks of
    direct ownership in financial sector entity, and
    JVs in BEE companies
  • Black companies - companies that are more than
    50 owned and are controlled by black people.

Interpretation cont
  • Black empowered companies more than 25 owned
    by black people and where substantial
    participation in control is vested in black
  • Black influenced companies companies that are
    between 5 and 25 owned by black people and with
    participation in control by black people.
  • Black people All Africans, Coloured and Indians
    who are South African citizens and includes black
    companies also in certain circumstances,
    includes permanent residents of the Republic of
    South Africa.

Interpretation cont
  • Black women-empowered enterprise companies that
    are more than 30 owned by black women, and where
    substantial participation in control is vested in
    black women.
  • Broad-based ownership where an empowerment
    shareholder represents a broad base of members
    such as employees or where the benefits support a
    target group, for example black women, people
    living with disabilities and the youth.
  • Control authority to manage assets, the
    determination of policies and direction of
    business oparations. indicators
    listed in defn e.g. voting rights and general
    participation in control structures and in
    executive management

Interpretation cont
  • Direct ownership ownership of an equity
    interest together with control over all of the
    voting rights attaching to that equity interest.
  • Empowerment financing provision of finance for
    or investment in
  • Targeted investment and
  • BEE transactions

Interpretation cont
  • Financial sector all the classes of financial
    institution defined below.
  • Banks
  • Long-term insurers
  • Short-term insurers
  • Re-insurers
  • Managers of formal collective investment schemes
    in securities
  • Investment managers and other entities that
    manage funds on behalf of the public
  • Any other institution in the financial sector may
    opt in

Interpretation cont
  • Indirect ownership investor owns equity in a
    company on behalf of beneficiaries and there may
    not be direct participation by the beneficiaries
    in the voting rights.
  • Management
  • Senior management cost to the employer is
  • R450 000 pa or more excludes executive
  • Middle management between R250 000 and
  • R450 000 pa
  • Junior management R150 000 and R250 000 pa
  • Salary bands will be increased in line with the
    consumer price index (CPIX)

Interpretation cont
  • Procurement all expenditure to acquire goods
    and or services including capital expenditure,
    but excluding
  • Broker commissions
  • Commissions paid to insurance intermediaries
  • Property and rental purchases
  • Salaries and wages
  • Procurement spending where there is a monopoly
  • Procurement where supplier imposed by global
    policy for technical reasons
  • Social investment spending

Interpretation cont
  • Sound business practice business practice
    conducive to maintaining and promoting,
    Confidence in the sector etc see definition
  • Targeted investment financing of or equity
    investment in SA projects where gaps /backlogs in
    economic development and job creation have not
    been adequately addressed by financial
    institutions such as in low income housing etc

Section 3 Challenges facing the Financial Sector
  • Financial sectors plays a central role in
    enhancing growth and development. South African
    financial sector is world class, but is
    confronted with a number of challenges
  • The sector is dominated by a few very large
  • Low levels of black participation, especially of
    black women
  • Access to financial services difficult for blacks
  • No effective provision of credit to black
  • National level of savings and investment is
  • Insufficient investment into targeted investments
    of national priority
  • Funds circulates outside the formal financial
    system, stokvels,
  • Limited support for new black firms
  • Need to find meaningful ways to support the
    Prouldy South African Campaign

Challenges cont
  • By addressing the challenges, the financial
    sector will make a significant contribution
    towards economic growth and also promote growth
    in the financial sector.

Challenges cont
  • To address BEE, the following imperatives must be
  • Long term financial stability and sectors
    capacity to finance economic growth to be
  • Enhance access to financial services for blacks
  • A savings culture to be developed
  • Investing in the skills development and training
    of existing and new black professionals and
  • Black leadership must be fostered
  • Promote triple bottom line (economic,
    environmental, social) accountability, including
    good corporate governance

Challenges cont
  • Representation of black women and black people
    living with disabilities must be increased
  • Black firms providing services and products to
    the financial services industry must be increased
  • Business to support black entrepreneurs
  • Direct savings towards targeted investment of
    national priority
  • The sector must lower the barriers to entry and
    must promote the empowerment objectives of this

SECTION 4.Application of the Financial Sector
  • Targets applied from 1 January 2004 until
  • 31 December 2014.
  • the Charter Council will review and make
    decisions regarding the implementation of the
    charter on an ongoing basis, and
  • Principles contained in the charter will be
    relevant beyond 2015.
  • In 2009 the Council will have a mid-term review
  • Ownership provisions will be reviewed in 2011 to
    establish shortcomings
  • In 2015 the Council will undertake a second
    comprehensive review to decide further steps.

  • The provisions of the charter are to be achieved
    in a manner consistent with sound business

Application of the Financial Sector Charter cont
  • Provisions of the charter will not apply in the
    same manner to all financial institutions. The
    following examples of qualifications are provided
  • Human Resource Development less than 50 staff
    members but still bound by other BEE
  • Empowerment Financing less than R10m
  • If a global policy applies ratios change
  • Retirement funds less than 50 memberscertain
    exclusions if more than 50, different
  • All Provisions less than 50 staff members
    less than R10m designated investment
  • Anyone can opt in!
  • Any exclusions need to apply to Council and
    motivate exclusion

Application of the Financial Sector Charter cont
  • Parties to the Charter agree that
  • when sourcing products and services from the
    financial sector, competing for business, they
    will use the charter rating to explain their BEE
  • Specifically agreed, when competing for business,
    the charter rating to explain their BEE
  • Tenders - Government will base their adjudication
    of BEE contribution on the charter rating
  • Private sector should base its evaluation of the
    BEE in terms of this charter

Human Resource Development
  • Each financial institution undertakes to
  • Promote a non-racial, non-sexist environment
  • Increase the participation of black people in
    skilled, strategic and operational leadership
  • Invest in leadership to enable them to play a
    central role in driving the transformation

Human Resource Development cont
  • In addition to the obligations of Employment
    Equity and Skills Development legislation
  • Each financial institution will have a minimum
    target of 20 to 25 black people at senior
    management (gt R450 000pa) level by 2008
  • 4 black women at senior management level (gt R450
    000pa) by 2008
  • 30 black people at middle management level (gt
    R250 000pa) by 2008

Human Resource Development cont
  • 10 black women at middle management level (gt
    R250 000pa) by 2008
  • 40 to 50 black people at junior management
  • (gt R150 000pa) by 2008
  • 15 black women at junior management level (gt
    R150 000pa) by 2008
  • A 2014 target of 33 of the relevant total back
    representation target has been set for black
    women representation at all four levels.
  • The Council will establish other 2014 targets for
    management and executive level before 2008

Human Resource Development cont
  • Over and above any skills levies, from the
    effective date of the charter to 2008, spend 1,5
    of total basic payroll per annum on training of
    black employees.
  • Skills development initiative shall be directed
    at skills programmes that promote black skills.
  • Financial sector undertakes to implement a
    Learnership Programme which will employ up to
    4,5 of its total staff in the form of black
    matriculants in registered learnerships.

Human Resource Development cont
  • Each financial institution undertakes to develop
    and report on
  • Career pathing to facilitate progress in their
    black employees careers
  • Implementation of mentorship programmes
  • Targeted recruitment
  • Cultural diversity and gender sensitivity
  • Introduce training programmes in line with the
    NQF requirements.

Chapter 6.Procurement Policies
  • Financial institutions will implement a targeted
    procurement strategy. The target will be 50 of
    the value of all procurement from BEE accredited
    companies by 2008 and 70 by 2014.
  • A minimum of two thirds of that expenditure must
    be spent with BEE accredited companies as the
    primary vendor. The residual one third may be
    channeled via a primary vendor.

Procurement Policies cont
  • Financial institutions will
  • Provide support to black SMEs, setting aside
    areas of procurement reserved or preferred for
    black SMEs only
  • Promote early payment
  • Encourage existing suppliers to address BEE
  • Explore ways of supporting the Proudly South
    African Campaign
  • The Charter Council will review the 2008 and 2014
    targets in 2005.

Enterprise Development
  • The sector will
  • Improve levels of assistance to BEE accredited
    companies such as infrastructure support,
    secondment of staff etc. Measurable financial
    support will be scored under procurement
  • Support establishment of BEE accredited companies
    through which the sector sells its products and
    services this will be scored under procurement
  • Support j.vs debt financing of and equity
    investment in BEE companies this will be scored
    under Targeted investments
  • the sector undertakes to, where appropriate,
    refer business opportunities to and procure
    financial services from, black owned financial

Access to Financial Services
  • the Sector recognises that access to retail
    financial services is fundamental to BEE
  • specific actions were agreed in relation to
  • Ensuring the provision of financial services
  • Affordable banking services
  • savings schemes
  • Credit for small and micro enterprise and poor
  • Aim is
  • to enhance accumulation of savings and direct
    them to development initiatives
  • Increase access to financial services to a
    greater segment of the population, such as access
    to savings products, life assurance products etc

Access to Financial Services cont
  • Sector agrees
  • to annually invest a minimum of 0.2 of post tax
    operating profits in consumer education
    empowering consumers to make informed decisions
    about their finances. from charter effective
    date to 2008
  • Focus of education to empower consumers to make
    informed decisions about their finances and
  • To eliminate discrimination in the provision of
    financial services
  • By 2005 there will be standards to monitor and
    evaluate the above initiatives on access.

Section 9.Empowerment Financing
  • All the parties commit themselves to working in
    partnership with Government and to mobilise
    resources for empowerment financing.
  • Preliminary calculations estimate new empowerment
    financing from the sector could exceed R75bn
  • Investment in transformational infrastructure
    will depend on mechanisms to identify and analyze
    potential projects

Principles of BEE transactions
  • BEE ownership initiatives should be aimed at
    promoting the sustainable participation of black
    people in the sector
  • Ownership to be encouraged where it adds value to
    the co and includes management and control
  • Funding structures to facilitate the transfer of
    full economic interest to the BEE partner, aimed
    at long term shareholder- type relationships.
  • Retention of shareholding to be promoted
  • Broad based empowerment to be promoted -Employee
    ownership to be promoted

Ownership in the financial sector
  • Each financial institution will have a target of
    a minimum of 25 black ownership at holding
    company level by 2010
  • 10 by way of direct ownership by black people
  • Bonus points to be warded if more than 10 is
    directly owned

Ownership in the financial sector cont
  • Direct ownership should include
  • Direct ownership as a result of BEE transaction
  • Broad-based ownership
  • Disposal of any assets or businesses by the
    financial institution to black people as a going
  • Direct shareholding, at subsidiary level
  • Joint venture or partnership arrangements

Ownership in the financial sector cont
  • Any transaction which involves BEE parties
    acquiring equity on a conditional, deferred
    basis, with no issue of equity carrying upfront
    economic interest for the avoidance of doubt,
    will not fall to be counted as direct ownership
  • If direct ownership transaction unwinds, it must
    be referred to the Charter Council who will
    analyse the original transaction was it a
    genuine transaction?
  • if owned more than 25 by empowered co, the
    institution can take into account the direct
    black ownership in that other company

Control in the financial sector
  • A target of 33 black people on the board of
    directors by 2008
  • A minimum of 11 black women on the board by
  • A target of a minimum of 25 black people at
    executive level by 2008
  • A minimum of 4 black women at executive level by

Shareholder activism
  • Sector recognises shareholder activism critical
    for growth in the sector
  • Institutions undertake, within parameters of good
    corporate governance, to
  • Promote influence of black owners at board level
  • Encourage training and awareness of shareholders
  • Fund managers and asset consultants commit to
    improve their knowledge and that of union
    trustees regarding BEE transactions and targeted
  • Pension Fund trustees encouraged to promote the
    objectives of the charter in the entities in
    which they have taken significant investments

Corporate Social Investment
  • A target of 0,5 per annum of post tax operating
    profits to corporate social investment (CSI).
  • CSI means projects aimed primarily at black
    groups that will contribute to transformation.
  • Projects may include, but will not be limited to
  • Education
  • Training
  • Development Programmes
  • Environment
  • Job Creation
  • Arts Culture
  • Health
  • Sport

Regulatory issues
  • Regulatory environment must promote the Charters
    empowerment objectives
  • If regulatory environment inhibits compliance it
    is to be changed to allow for compliance
  • This is published as a Transformation Charter in
    terms of BEE legislation
  • Minister requested to publish a Code of Good
    Practice to give effect to the adjudication of

  • Charter Council an independent body to oversee
    the implementation of the Charter
  • Council will
  • Conduct reviews
  • Evaluate and review targets and strategies in a
    changing environment
  • Confirm ratings of financial institutions
  • Issue guidance notes on interpretation of the
  • Evaluate new areas of intervention
  • Accredit agencies to perform audits
  • Promote, along with government, institutions and
    BEE advisory Council, the implementation of the

Implementation cont
  • Reporting and Review
  • Each financial institution will report annually
    to the Charter Council. If a financial
    institution is a member of a group, it should
    report as part of the group in the South African
    holding company.
  • The first annual report will be for the year
    ending 31 December 2004.
  • All financial institutions will publish, for
    general information, an annual BEE report which
    will include the audited scorecard.

The Scorecard
  • The scorecard forms an integral part of the
    financial sector charter
  • The scorecard
  • provides measurement indicators for purposes of
    measuring BEE progress.
  • Will be used by
  • Financial institutions for self assessment
  • Charter Council to measure BEE progress
  • Government in adjudicating contracts awarded to
    financial institutions
  • The private sector in awarding contract to
    financial institutions
  • Financial institutions which are exempted from
    any paragraph in the charter will not be required
    to complete the specific section in the

Scorecard continued
  • measures three core elements of BEE
  • -Ownership and control of enterprises and
  • -HR development and EE,
  • - Indirect empowerment through preferential
  • BEE Ratings
  • 0 to 40 limited contributer
  • 40 to 65 satisfactory contributer
  • More than 65 good contributer
  • Financial Charter uses more complex overall
    weighted average mechanism from an A for more
    than 80 points to an E for less than 40points

Charter signed by
  • Association of Black Securities and Investment
  • Banking Council of South Africa
  • Foreign Bankers Association of SA
  • Institute of Retirement Funds
  • Life Offices Association of SA
  • South African Insurers Association
  • Association of Collective Investments
  • Bond Exchange of SA
  • Investment Managers Association of SA
  • JSE Securities Exchange SA
  • South African Reinsurance Offices Association


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