Transformation of the Financial Sector: Briefing to the Standing Committee on Finance
The briefing presented on 26 November 2019 in Cape Town highlighted the transformation of the financial sector, focusing on the implementation of recommendations, updates to the Financial Sector Code, and the way forward. It included the rebranding to the Financial Sector Transformation Council, the review of the Financial Sector Code, and the progress made in aligning targets and reporting provisions. Challenges such as funding constraints were also addressed.
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BRIEFING TO THE STANDING COMMITTEE ON FINANCE Transformation of the Financial Sector 26 November 2019 l Cape Town
AGENDA 1. Introduction 2. Implementation of recommendations made by SCOF & the PCTI 3. Overview of the Financial Sector Code 4. Highlights of the 2017/2018 Annual Report 5. Review of the Financial Sector Code 6. Way forward FSTC Briefing to SCOF l 26 November 2019 2
1. INTRODUCTION Rebranded and changed name to Financial Sector Transformation Council Amended Financial Sector Code gazetted Financial Sector Code review commences 1 Dec 2017 2017 2018 2019 Feb 2019 Dec 2019 Mandate of the FSTC extended to beyond just monitoring of B-BBEE Access to Financial Services and Empowerment Financing targets updated 2017/2018 Annual Transformation Report to be released FSTC Briefing to SCOF l 26 November 2019 3
2. IMPLEMENTATION OF RECOMMENDATIONS MADE BY SCOF & THE PCTI Nov 2017: SCOF and the PCTI released its 1st Report on the Transformation of the Financial Sector in which several recommendations were made. Apr 2018: Financial Sector Transformation Workshop held under the auspices of Nedlac to discuss recommendations made. Q4 2018: Agreed to hold Second Financial Sector Summit did not materialise. Feb 2019: FSTC commences review of the FS Code. As part of this review process all recommendations made by SCOF and the PCTI are being taken into consideration. FSTC Briefing to SCOF l 26 November 2019 4
2. IMPLEMENTATION OF RECOMMENDATIONS MADE BY SCOF & THE PCTI Creating public awareness of the FSC FSTC has developed a stakeholder engagement strategy of which implementation is underway. Under consideration as part of FSC review process. Proposals include aligning targets to race and gender demographics. Higher FSC targets B-BBEE reporting provisions by financial sector entities have been made in the draft CoFI Bill. This will include the provision of B-BBEE certificates and transformation plans. FSC provides the FSTC with powers to name and shame entities who do not comply with the reporting provisions of the FSC. Reporting by financial entities to the FSTC FSTC Briefing to SCOF l 26 November 2019 5
2. IMPLEMENTATION OF RECOMMENDATIONS MADE BY SCOF & THE PCTI Decisions on once empowered, always empowered - be consistent with the B-BBEE Act FSC is aligned to the dti Generic Code. Approval was requested and granted by the dti for special dispensation relating to dilutions due to regulatory requirements and top up options for dilutions not related to regulatory requirements. Will be reviewed as part of the FSC review process. Recommendations made to strengthen the FSTC but lack of funding remains an impediment to implementing some of the recommendations. The seniorisation of the Council to include top leaders of the Constituencies was implemented in 2018 along with a broadened mandate that looks beyond the FSC. The FSTC is in the process of introducing performance assessments for its governance structures and for the individuals in those structures. FSTC to be effectively capacitated and resourced and held accountable for its performance FSTC Briefing to SCOF l 26 November 2019 6
2. IMPLEMENTATION OF RECOMMENDATIONS MADE BY SCOF & THE PCTI Sector is still not meeting targets. Discussions are underway in the review committee to understand mechanisms of unlocking the barriers. Management Control Element - Financial institutions should seek to exceed the targets in the FSC for management and boards Empowerment Financing Element - Prevent cherry-picking of the easiest sub-elements and that there is a focus on funding black SMEs, rural and township entrepreneurs, and new industries and find A specific target has been set for SME funding. Discussions are underway in the review process to better structure Empowerment Financing targets. Targets to facilitate improved access to markets for black SMEs and procurement from black suppliers be increased to 50% by 2021. Appropriate targets to be set for asset managers and asset consultants. Procurement and Enterprise and Supplier Development Asset Management FSTC Briefing to SCOF l 26 November 2019 7
2. IMPLEMENTATION OF RECOMMENDATIONS MADE BY SCOF & THE PCTI Financial education Give greater attention to the financial education and literacy of customers and the public in general Under review currently as part of the review process. Cooperative Banks FSC to set effective targets for the strengthening of the co- operative subsector To be considered as part of the review process. FSTC Briefing to SCOF l 26 November 2019 8
3. OVERVIEW OF THE FINANCIAL SECTOR CODE POINTS Banks and Long-Term Insurers Other Financial Institutions ELEMENT Short-Term Insurers JSE and Members Ownership 23 23 23 25 To increase ownership rights and economic interest in the hands of black people. Management Control 20 20 20 20 Ensure fair representation of black people including black women across management positions. Skills Development 20 20 20 20 Ensure training and development of black people employed, upskilling those that are unemployed and those with disabilities. FSTC Briefing to SCOF l 26 November 2019 9
3. OVERVIEW OF THE FINANCIAL SECTOR CODE POINTS Banks and Long-Term Insurers Other Financial Institutions ELEMENT Short-Term Insurers JSE and Members Procurement and Enterprise and Supplier Development Ensure support of large and small black suppliers, black-women owned suppliers and black designated groups. Socio-Economic Development and Consumer Education Ensure that social impact contributions by companies are made for black and disadvantaged communities and that SMEs and consumers in general are given the necessary knowledge and skills to enable them to make better financial decisions. 15 35 35 35 5 5 5 5 FSTC Briefing to SCOF l 26 November 2019 10
3. OVERVIEW OF THE FINANCIAL SECTOR CODE POINTS Banks and Long-Term Insurers Other Financial Institutions ELEMENT Short-Term Insurers JSE and Members Empowerment Financing and Ent 25 N/A N/A N/A Availing finance for black-owned businesses including SMEs, agriculture, infrastructure for under-developed areas and low-cost housing. Access to Financial Services Ensure financial inclusion for those previously excluded by developing appropriate products and services for them and ensuring that those products are accessible. 12 12 N/A N/A Total 120 115 103 105 FSTC Briefing to SCOF l 26 November 2019 11
4. HIGHLIGHTS OF THE 2017/2018 ANNUAL REPORT 167 50% Number of certificates and scorecards submitted by financial sector entities Percentage of reported entities with a B-BBEE contribution level of between 1 and 4 Mixed Perf. Dec 2019 Larger entities scored better in some areas and underperformed in others whereas smaller entities largely underperformed on most areas of the scorecard Report to be published FSTC Briefing to SCOF l 26 November 2019 12
4. HIGHLIGHTS OF THE 2017/2018 ANNUAL REPORT Ownership - Still Below Target Management Control - Still Below Target 90% 79% 80% 70% 57% 70% 62% 60% 51% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 2015 2017/2018 2015 2017/2018 Procurement, ED, ESD - Still Below Target Skills Development - Still Below Target 70% 62% 62% 85% 90% 60% 80% 80% 50% 70% 60% 40% 50% 30% 40% 30% 20% 20% 10% 10% 0% 0% 2015 2017/2018 2015 2017/2018 FSTC Briefing to SCOF l 26 November 2019 13
4. HIGHLIGHTS OF THE 2017/2018 ANNUAL REPORT Empowerment Financing - Target Exceeded in ZAR SED, Consumer Education - Still Below Target 90% 90% 82% 76% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 2015 2017/2018 2015 2017/2018 Access to Financial Services - Still Below Target Make financial institutions aware of their obligation to submit their B-BBEE performance to the FSTC annually. Improve reporting processes to allow for measurement improvement or decline and identify bottlenecks. 90% 78% 80% 70% 58% 60% 50% 40% of 30% 20% 10% 0% 2015 2017/2018 FSTC Briefing to SCOF l 26 November 2019 14
5. REVIEW OF THE FSC The process to review the FS Code commenced in February 2019. Eight committees were established in line with the various elements in the sector code. The process was halted in May to allow both Organised Labour and Organised Community to have their members capacitated on the Codes so that they can participate meaningfully. The committees resumed in October 2019 and a final draft is anticipated to be submitted in May 2020. Some of the key proposals that have been made include: Reporting by retirement funds should be made compulsory. Proposed targets in all elements should, where possible, be aligned to race and gender demographics. Supporting black suppliers through financing, access to markets and other initiatives be considered as key for transformation. Suppliers to be encouraged to provide locally produced goods. Increasing support for black women-owned businesses. Job creation also to be used as a measure of transformation progress. Penalties be imposed for failure to meet targets. FSTC Briefing to SCOF l 26 November 2019 15
6. WAY FORWARD Financial Sector Summit Must Be Held Compliance by Government on Funding the FSTC Simplify the FSC and Provide Guidance Improve Stakeholder Engagement Make financial institutions aware of their obligation to submit their B- BBEE performance to the FSTC annually Clarify the Link Between Transformation and Economic Growth to Get Buy-In FSTC to Host a Strategic Planning Session in Early 2020 to Map a Vision for the Future Improve FSTC Governance and Accountability FSTC Briefing to SCOF l 26 November 2019 16
