PRESENTATION TO JOINT MEETING OF THE STANDING COMMITTEE ON FINANCE & PORTFOLIO COMMITTEE ON TRADE AND INDUSTRY – AMENDED FINANCIAL SERVICES SECTOR CODE 15 NOVEMBER 2017

INDEX OVERVIEW OF THE FINANCIAL SERVICES SECTOR RATIONALE FOR SECTOR CODE DEVELOPMENT AMENDED FINANCIAL SECTOR CODE (FSC) CONCLUSION

OVERVIEW OF THE FINANCIAL SERVICES SECTOR Comprises of more than 30 banks, mutual banks, and a number of foreign bank branches and offices. Also include non-banking financial institutions (including state-owned development finance institutions (DFIs), short-term and long term insurance companies, smaller financial intermediaries. The Johannesburg Stock Exchange which is the 19th largest stock exchange in the world in 2015. The financial sector in South Africa manages over R8 trillion assets, contributing 21.6 per cent of the gross domestic product of the economy annually. The sector employs more than 250 000 employees.

RATIONALE FOR SECTOR CODES DEVELOPMENT In terms of Section 9(1)(e) of the Broad Based Black Economic Empowerment Amendment Act (No. 46 of 2013) B-BBEE Sector Codes are a means to address sector specific issues and peculiarities especially those that hinders transformation within a specific sector. Sector Codes should not and is not the means to undermine the Generic Codes.

RATIONALE FOR SECTOR CODES DEVELOPMENT Development and drafting of sector codes is an inclusive process involving entities with common commercial and other characteristics. There are three types of sector codes: section 12 – statement of information; section 9(5) – gazetted for 60 days public comments by the Minister of Trade and Industry; and section 9(1) – Legally binding Sector Code.

RATIONALE FOR SECTOR CODES DEVELOPMENT The Codes of Good Practice stipulate that a Charter can only be gazetted when: - There is evidence that it is compliance with Section 12 of the Act; - It uses same definitions in respect of all beneficiaries as those used in the Codes; and - It adequately and clearly defines its scope of application. The proposed Sector Code may deviate from Targets and Weightings used in the Codes only where those deviations are justifiable based on sound economic principles, sectorial characteristics or empirical research. The proposed Sector Code must clearly define its scope of application.

AMENDED FSC: HISTORY & PROCESS Emanated from the 2002 NEDLAC Summit where stakeholders committed to a sector charter. The aim is to transform the financial services sector. Stakeholders: Government: Department of Finance, Department of Trade and Industry and Presidency; Black Professionals represented by ABSIP; NEDLAC Organised Labour represented by COSATU, NACTU and FEDUSA; NEDLAC Organised Community represented by the Financial Sector Coalition Campaign; and Trade Associations : BASA, ASISA, SAIA, JSE, FIA, SAVCA.

AMENDED FSC: HISTORY & PROCESS The existing FSC was gazetted on 26 November 2012. Amendment of the existing FSC began after the gazette of the Amended Codes of Good Practice in 2013. Draft Amended FSC was gazetted on 17 March 2016 for 60 days public commentary period in terms of the legislation. The code is pending section 9(1) gazette.

FSC: SCORECARD The FSC has 3 (three) different scorecards for entities: a scorecard for Banks and Life Offices, for Short-term Insurers and for other Financial Institutions: Banks and Life Offices have over and above the Generic Codes elements, two sector specific elements- Empowerment Financing and Access to Financial Services; Short-term Insurers have one additional element- Access to Financial Services; and Other financial institutions’ have the same elements on their scorecards as the Generic Codes. Small Enterprises are given an option to be verified should they volunteer to. This differs from the generic codes where they only required to obtain a Sworn Affidavit.

FSC: SCORECARD

OWNERSHIP The Ownership scorecard for the FSC is different from the Generic scorecard because the sector is highly regulated i.e BASEL III. The overall ownership target is 25%. Local branches of foreign banks can do an equity equivalent of 25% of value in SA. Stand alone asset managers and other industry players (companies not subject to regulated capital requirements) will be subject to the Generic Code rules on exit of Empowerment Shareholders.

OWNERSHIP Shareholders in Banks, Life Officers and Short-term Insurers have practical funding options on exit of empowerment partners. Ownership exit rules, in combination with Empowerment Financing rules create a significant potential catalyst for black business growth (R100bn in potential funding).

OWNERSHIP Description Weighting Target Exercisable Voting Rights black people 4 25%+ 1 Vote Exercisable Voting Rights in the hands of black women 2 10% Economic Interest to which black people are entitled 3 25% Economic Interest to which black women are entitled Economic Interest in the hands Designated Groups 3% New Entrants 2% Net Value 6 Formula Total Before bonus 23   Bonus - direct / indirect EI above 15% Bonus - direct / indirect EI and VR above 32.5% 1@32.5&1@40

MANAGEMENT CONTROL Targets aligned to Generic Codes. Specifically target African people as opposed to using EAP Formula. Historical challenges for sector.

MANAGEMENT CONTROL Description Weighting Target Exercisable voting rights of Black board members as a percentage of all Board members 1 50% Exercisable voting rights of Black female board members as a percentage of all Board members 25% Black Executive directors as a percentage of all executive directors 2 Black female Executive directors as a percentage of all executive directors Black Executive Management as a percentage of all executive management 60% Black female Executive Management as a percentage of all executive management 30% Black employees in Senior Management as a percentage of all such employees Black female employees in Senior Management as a percentage of all such employees African Senior Managers as a percentage of all senior managers EAP % Black employees in Middle Management as a percentage of all middle management 75% Black female employees in Middle Management as a percentage of all middle management 38% African Middle Managers as a percentage of all Middle managers Black employees in Junior Management as a percentage of all junior management 88% Black female employees in Junior Management as a percentage of all junior management 44% African Junior Managers as a percentage of all Junior managers Black employees with disabilities as a percentage of all employees 2% Total 20  

SKILLS DEVELOPMENT The FSC has tiered targets ranging from a lower target of 2% for higher levels of Management to 8% for non-management staff. Training spend is weighted towards the lower levels of the organisation, i.e. unskilled and semi-skilled, and junior management, and lesser for higher levels of the organisation, to facilitate progression and benefit the majority of staff members.

SKILLS DEVELOPMENT Description Weighting Target Skills Development Expenditure on Learning Programs specified in the Learning Program Matrix for black senior managers and executives as a percentage of Leviable Amount applicable to salaries on this level 1 2% Skills Development Expenditure on Learning Programs specified in the Learning Program Matrix for black female senior managers and executives as a percentage of Leviable Amount applicable to salaries on this level 0.5 1% Skills Development Expenditure on Learning Programs specified in the Learning Program Matrix for black middle managers as a percentage of Leviable Amount applicable to salaries on this level 3% Skills Development Expenditure on Learning Programs specified in the Learning Program Matrix for black female middle managers as a percentage of Leviable Amount applicable to salaries on this level 1.5% Skills Development Expenditure on Learning Programs specified in the Learning Program Matrix for black junior managers as a percentage of Leviable Amount applicable to salaries on this level 5% Skills Development Expenditure on Learning Programs specified in the Learning Program Matrix for black female junior managers as a percentage of Leviable Amount applicable to salaries on this level 2.5% Skills Development Expenditure on Learning Programs specified in the Learning Program Matrix for black people and non-management staff as a percentage of Leviable Amount applicable to salaries on this level 3 8% Skills Development Expenditure on Learning Programs specified in the Learning Program Matrix for black females and non-management staff as a percentage of Leviable Amount applicable to salaries on this level 4% Skills Development Expenditure on Learning Programmes specified in the Learning Programme Matrix for black people with disabilities as a percentage of Leviable Amount 0.30% Number of black people*(employed or unemployed) participating in Learnerships, Apprenticeships and Internships as a percentage of total employees 5 5.00% Total 15   Bonus Points: Number of unemployed black people absorbed by the ME / industry at the end of the learner-ship program 100% Black employees in Junior Management as a percentage of all junior management 88% Black female employees in Junior Management as a percentage of all junior management 44% African Junior Managers as a percentage of all Junior managers EAP % Black employees with disabilities as a percentage of all employees 20

ENTEPRISE AND SUPPLIER DEVELOPMENT (ESD) The ESD scorecard has been deliberately designed to cater to the core business of the sector and seeks to address the transformation of the entire financial sector value-chain. ESD Funding and procurement targets are phased in over a period of 3 years in the Amended FSC. Specific PP spend targets to increase access to market for Black Owned intermediaries (e.g. stock brokers, fund managers etc.). Specific ESD contribution targets for funding & growth support of Black Owned intermediaries.

ENTEPRISE AND SUPPLIER DEVELOPMENT ESD Spend requirements for Banks and Long-term insurers are included under Empowerment Financing. The beneficiaries of supplier development especially by banks are not limited to those that directly do business with them. For example, if a bank financially supports a Black Industrialist who is in the manufacturing sector, that support would be considered to be Supplier Development.

ENTERPISE DEVELOPMENT Description Companies exempted from empowerment financing Companies not exempted from empowerment financing Targets year 1-3 Targets year 3+ B-BBEE Procurement Spend from all Empowering Suppliers based on the B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend 5 4 75% 80% B-BBEE Procurement Spend from Empowering Suppliers who are QSE’s based on the applicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend 3 2 14% 18% B-BBEE Procurement Spend from Empowering Suppliers who are EME’s based on the applicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend 8% 12% B-BBEE Procurement Spend from Empowering Suppliers that are at least 51% black owned based on the applicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend 7 20% 30% B-BBEE Procurement Spend from Empowering Suppliers that are at least 30% black women owned based on the applicable B-BBEE Procurement Recognition Levels as a percentage of Total Measured Procurement Spend 9% 10% Subtotal 20 15   Annual value of all Supplier Development Contributions made by the Measured Entity 10 2% of NPAT Annual value of all Enterprise Development Contributions made by the Measured Entity 1% of NPAT Total 35 Bonus Points Graduation of one or more Enterprise Development beneficiaries to graduate to the Supplier Development level. 1 For creating one or more jobs directly as a result of Supplier Development and Enterprise Development initiatives by the Measured Entity. B-BBEE Procurement Spend from Designated Group Suppliers that are at least 51% Black owned 2% Enterprise development support of black stockbrokers or intermediaries or asset managers 0.5% (TBD) Procurement from black stockbrokers 5% value Total bonus points 8

SOCIO ECONOMIC DEVELOPMENT The SED element in the FSC differs slightly from the Generic Codes in that it contains a component of Consumer Education. The full value of Socio-economic Development Contribution made to beneficiaries is recognisable if at least 75% of the value directly benefits Black people. In recognition of the current challenges faced in the funding of higher education in SA, the sector has also incentivised support of the innovative Fundisa program in a form of a grant.

SOCIO ECONOMIC DEVELOPMENT DESCRIPTION Target Points SED spend (0.7% For IBA, SAVCA, RE-INS) 0.60% 3 Consumer Education spend* 0.40% 2 Total 1.00% 5 Bonus   Fundisa grants or similar initiatives that contribute to education funding 0.20% Additional CED 0.10% 1 *IBA, SAVCA, Reinsurance exempted from CED

EMPOWERMENT FINANCING This element is unique to the Financial Sector. Empowerment financing includes aspects such as: Transformational Infrastructure Financing (emphasis here is on funding of previously neglected areas such as townships and rural areas); Black Agriculture Funding necessary to assist with the land reform process; Low Cost Housing Funding; and Black Business Growth (including SME) Funding / BEE Transaction Funding. Targets to be revised from time-to-time.

EMPOWERMENT FINANCING Description Weighting Target Targeted Investments 12 As per current FSC (new targets planned for 2018) – R27bn Black Business Growth and SME Financing (BEE Transaction Financing) 3 As per current FSC (new targets planned for 2018) – R15bn Supplier development 7 0.9% NPAT 2016, 1.35% 2017,1.8% 2018 Enterprise development 0.2% NPAT (grants only) Total 25   Bonus points 4 Graduation of one or more Enterprise Development beneficiaries to graduate to the Supplier Development level. 1 For creating one or more jobs directly as a result of Supplier Development and Enterprise Development initiatives by the Measured Entity. Enterprise development support of black stockbrokers and intermediaries 2  0.5% NPAT 30

ACCESS TO FINANCIAL SERVICES This element is unique to the financial sector. Financial inclusion is critical to the broader transformation of the SA economy. Access to financial services includes aspects such as: inclusive banking; access to affordable and understandable long term insurance risk cover; and access to affordable and understandable short term insurance risk cover.

ACCESS TO FINANCIAL SERVICES Description Banks LTI STI Target Penetration of products 3 7 10 As per current FS Code Appropriate Products 0  2 Densification Electronic Access  0 Geographic access 4 Total 12  

CONCLUSION The FSC remains an important sector code of the South African economy. The FSC builds from the Generic Codes and has incorporated elements and targets that are unique to the Financial Sector. The Sector has agreed that within twelve months of gazette the Sector Code shall be reviewed.

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