THE FSC JOURNEY SUMMARY OF THE NEW FSC CODES. 31 January 2017 Sandton, Jhb. Copyright Alternative Prosperity Advisory and Products (Pty) Ltd, 2015

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1 THE FSC JOURNEY SUMMARY OF THE NEW FSC CODES 31 January 2017 Sandton, Jhb Copyright Alternative Prosperity Advisory and Products (Pty) Ltd, 2015

2 Status of the Revised FSC Codes The amended codes has gone through public comment, been approved by the Minister of Finance and is pending 9(1) Gazette. A meeting was held between the council and DTI on 24/1/2017 to resolve some final issues referred to on the next slide, as well as deal with potential issues raised by the BEE Commissioner s office. All guidance notes have been prepared and are pending publication. Revisions to Life and STI access guidelines are well progressed but still to be finalized. Reports for the measurement periods 31/12/2014 and 31/12/2015 have been prepared by council and should be published shortly. 2

3 General Comments (1) Ownership exit rules as well as empowerment financing rules create a significant potential catalyst for black business growth (R100b in potential funding). Shareholders in Banks, Life Offices and Short term insurers have practical funding options on exit of empowerment partners. Exchanges and members thereof still under discussion. Stand alone asset managers and other industry players are likely to be subject to generic code rules on exit of empowerment shareholders. (discussions with DTI ongoing) The revised profit benchmark (previous year profits), has been questioned by DTI and is thus now under discussion. This is unfortunate for beneficiaries of industry programs. 3

4 General Comments (2) A QSFI (small business ) scorecard is included. Relative to the large business scorecard, ownership and SED requirements are much the same; Management Control, Skills Development and ESD are simplified. Sector specific sections are excluded. A voluntary framework for the measurement of retirement funds is also included for the first time. In general the FSC better aligns to the core business of the sector and seeks to properly address the transformation of the entire financial sector value-chain. Generic code commitments are supplemented by a modified set of sector specific commitments. New sector specific commitments both seek to address national priorities (e.g. Provision of financing for Black Business Growth ), and address the transformation of elements of the financial sector value chain on which sufficient focus was lacking in previous code (e.g support of small black stockbrokers and intermediary firms). The sector council continues to provide a very valuable platform to engage with key stakeholders. 4

5 Summary of changes per element Element Published Draft (17/03) Current Draft Ownership Increased weighting points. New entrants moved to main scorecard. Bonus points for Direct EI & VR in access of 32.5%. Increase in Net Value points (3 to 6 pts). Management Control No EAP targets to measure as in Generic codes. Additional recognition for achieving EAP target on African people at each management level. Bonus points for Independent Directors removed. Bonus points for EAP targets removed. Target for disabled employees reduced (3% to 2%). Skills Development No EAP targets to measure as in Generic codes. Skills spend targets per management level. One category target for employed and unemployed learnerships. Only category G training capped. Additional recognition for achieving EAP target for African people removed for Board and Executive Management categories. Bonus points for absorption reduced from 4 to 3. Points for Non-management category increased from 1 to 3. Points for Learnerships category reduced from 6 to 5. Points for disabled spend reduced from 2 to 1. 5

6 Summary of changes per element Element Published Draft (17/03) Current Draft Procurement Phased in targets. Empowering supplier criteria adjusted for FSC. Bonus points for Designated Group suppliers and Black Stockbrokers/Fund Managers Target for procurement from designated group suppliers reduced (3%/4% to 2%). Enterprise & Supplier Development Introduction of Supplier Development. Qualifying beneficiary criteria (51% BO QSE/EME). Bonus points for graduation, creating jobs and support to black stockbrokers, intermediaries, asset managers. Empowerment Financing Introduction of Black Industrialist Funding. Phased in targets for Supplier Development. Included under Empowerment Financing Element for Life/Banks. Phased in targets for Supplier development for Banks and Life offices. Bonus points for support to black stockbrokers, intermediaries, asset managers reduced (3 to 2 points). Black Business Growth funding replaces Black Industrialist funding. SED/Consumer Education IBA, SAVCA, Reinsurance will be granted exemption by council from CED. Bonus point removed for SED. 6

7 The FSC Scorecard Priority Element ELEMENT CURRENT FSC AMENDED GENERIC NEW FSC Longterm & Banks Shortterm Asset manager & Other Bonus Points Main Bonus Points Long-term & Banks Short-term Asset manager & Other Bonus Points OWNERSHIP MANAGEMENT CONTROL EMPLOYMENT EQUITY SKILLS DEVELOPMENT PREFERENTIAL PROCUREMENT ENTERPRISE - & SUPPLIER DEVELOPMENT EMPOWERMENT FINANCING 15 N/A N/A N/A N/A 25 N/A N/A 4 (0) 4 (8) ACCESS TO FINANCIAL SERVICES N/A N/a N/A 0 SOCIO ECONOMIC DEVELOPMENT TOTAL

8 Contributor levels - Amended Generic and FSC Codes Contributor level Points Scored Recognition level Level 1 Contributor >100 (>100) 135% Level 2 Contributor (85-100) 125% Level 3 Contributor (75 85) 110% Level 4 Contributor (65 75) 100% Level 5 Contributor (55 65) 80% Level 6 Contributor (45 55) 60% Level 7 Contributor (40 45) 50% Level 8 Contributor (30 40) 10% Non-Contributor <40 (<30) 0% 8

9 Ownership Description Weighting FSC (New) Voting rights (Black People) 4 25% Voting rights (Black Women) 2 10% Economic interest (Black People) 3 25% Economic interest (Black Women) 2 10% Economic interest (Designated Groups) 3 3% Target Net Value 6 Formula New Entrants 3 2% Bonus points: Direct economic interest in excess of 15% 3 10% Direct EI & VR in excess of 32.50% 2 TOTAL SCORE

10 OWNERSHIP Main differences Weighting points out of 23+5 points (Generic: 25 points) Bonus points if targets on Voting Rights and Economic Interest exceeded (>32.5%;>40%) Increase in Net Value Points 10

11 Management Control Description FSC (New) Weighting Black Board Members as a percentage of all Board Members 1 50% Black Female Board Members as a percentage of all Board Members Target 1 25% Black Executive Directors as a percentage of all Executive Directors 2 50% Black Female Executive Directors as a percentage of all Executive Directors Black Executive Management as a percentage of all Executive Management Black Female Executive Management as a percentage of all Executive Management TOTAL SCORE % 2 60% 1 30% 11

12 Employment Equity Description FSC (New) Weighting Target Black Disabled Employees 1 2% Black Employees in Senior Management 2 60% Black Female Employees in Senior Management 1 30% African Employees in Senior Management 1 EAP% Black Employees in Middle Management 2 75% Black Female Employees in Middle Management 1 38% African Employees in Middle Management 1 EAP% Black Employees in Junior Management 1 88% Black Female Employees in Junior Management 1 44% African Employees in Junior Management 1 EAP% TOTAL SCORE 12 12

13 MANAGEMENT/EMPLOYMENT EQUITY Main differences Weighting points out of 20 points (Generic: 19 points). No bonus points. No EAP targets to measure. Each management level has additional recognition to achieve the EAP target for African people (excluding Board and Executive Management) 13

14 Skills Development Description * As a percentage of Leviable amount attributable to appropriate management level FSC (New) Weighting Target Spend on Black Senior Managers & Executives* % Spend on Black Female Senior Managers & Executives* % Spend on Black Middle Managers * % Spend on Black Female Middle Managers * % Spend on Black Junior Managers * % Spend on Black Female Junior Managers * % Spend on Black People and Non-management staff* % Spend on Black Females and Non-management staff* % Spend on Black Disabled People % Learnerships: Black People in Learnerships (Employed or Unemployed) % Bonus Points: Number of Unemployed Black People absorbed by the ME and industry at end of Learnership programme 3 100% TOTAL SCORE

15 SKILLS DEVELOPMENT Main differences Weighting points out of 15+3 points (Generic: 20+5 points). Bonus points for absorption reduced from 4 to 3. Non-management category increased from 1 to 3. Learnerships category reduced from 6 to 5. No EAP targets to measure. Skills spend target per Management Level. Only one target for Employed and Unemployed Learnerships No exclusion on overseas training & mandatory training / Only Cat G training capped (Generic: Cat F & G) 15

16 Preferential Procurement Description Weighting FSC (New) Target Year 1-3 Target Year 3+ B-BBEE Procurement from all empowering suppliers based on Recognition levels as % of Total Measured Procurement Spend Others Life/Banks % 80% B-BBEE Procurement from all empowering suppliers that are QSEs based on Recognition levels as % of Total Measured Procurement Spend % 18% B-BBEE Procurement from all empowering suppliers that are EMEs based on Recognition levels as % of Total Measured Procurement Spend 2 2 8% 12% B-BBEE Procurement from all empowering suppliers that are at least 51% black owned based on Recognition levels as % of Total Measured Procurement Spend % 30% B-BBEE Procurement from all empowering suppliers that are at least 30% black women owned based on Recognition levels as % of Total Measured Procurement Spend 3 2 9% 10% Bonus Point: Spend from Designated Group suppliers that are at least 51% Black Owned 2 2 2% Bonus Point: Spend from Black Stock Brokers, Black Fund Managers and Intermediaries who are Empowering Suppliers based on the B-BBEE Procurement Recognition Levels as a percentage of Total Value of all Trade with Stockbrokers 2 2 5% TOTAL 16 SCORE

17 PREFERENTIAL PROCUREMENT Main differences Weighting points out of 15/20+4 points (Generic: 25+2 points) Targets phased in over 3 years Priority element for Others ; non-priority for Banks/Life offices Additional bonus points for procurement from Black Stockbrokers / Fund managers Lower targets for procurement from BO and BWO suppliers Empowering Supplier criteria adjusted for FSC 17

18 Empowering Supplier Criteria Large entities need to comply with any three of the five criteria to be deemed an Empowering Supplier: At least 25% of measured procurement spend (including imports) must be from local suppliers; Job creation 50% of new jobs created during the measurement period must be for black people and the total proportion of black people since the last measurement period cannot have dropped; At least 25% of SED contributions must be directed at education activities or at least 25% of ED contributions must be directed at black women owned businesses; At least 85% of leviable amount should be paid to South African employees by service industry entities Skills Transfer - Organisations need to spend 12 days (based on number of employees: >500 = 12 days), in assisting Enterprise Development beneficiaries to increase their operation and / or financial capacity. This process can be outsourced. Number of employees Days >

19 Enterprise & Supplier Development Short Term, Asset Managers & Others Description Weighting FSC (NEW) Target Enterprise Development 5 1% of NPAT Supplier Development 10 2% of NPAT Bonus Points Graduation of one or more of the Enterprise Development beneficiaries to the Supplier Development level 1 Yes For creating one or more jobs as a result of Enterprise or Supplier Development initiatives 1 Yes ED support for Black stockbrokers, Black fund managers and intermediaries 2 0.5% of NPAT 19

20 ENTERPRISE & SUPPLIER DEVELOPMENT Main differences Different targets and weightings for Others & Banks and Life offices Weighting points out of 15+4 (Others) and 10+4 (Banks/Life) points Priority element for both Others and Banks/Life offices Target based on previous year NPAT 20

21 Empowerment Financing Description Weighting Target Targeted Investments 12 BEE Transaction Financing / Black Business Growth Funding 3 As per current FSC. Reviews every 2 years. As per previous target. BEE Transaction funding phased out with Black Business Growth funding Enterprise Development 3 0.2% NPAT (grants only) Supplier Development 7 1.8% NPAT (phased in 0.9% Y1, 1.35% Y2, 1.8% y3) 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. 1 Enterprise development support of black stockbrokers and intermediaries % NPAT

22 EMPOWERMENT FINANCING Main differences Unique element for the Banks and Life offices Priority element for Banks/Life offices Black Business Growth Funding replaces Black Industrialist Financing 22

23 Access to Financial Services Description Banks Long Term Short Term Target Penetration of products Appropriate Products Densification As per current FSC Affordable housing origination Geographic / Transactional access Total

24 ACCESS TO FINANCIAL SERVICES Main differences Access to Financial Services score out of 12 points Target for Market Penetration (number in force policies) increases over time: 85% % %

25 SOCIO-ECONOMIC DEVELOPMENT / CONSUMER EDUCATION 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 Points Fundisa grants Additional CED Total 0.20% % 1 3 *IBA, SAVCA, Reinsurance will be granted exemption by council from CED 25

26 SOCIO-ECONOMIC DEVELOPMENT / CONSUMER EDUCATION Main differences Weighting points out of 5+4 points No changes other than bonus points and NPAT Target based on previous year NPAT 26

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