PERSPECTIVE OF THE B-BBEE COMMISSION ON THE FINANCIAL SECTOR CODE 08 March 2017
Background B-BBEE Fronting Practices Commission Misalignment s13B Inconsistent interpretation Constitution B-BBEE 1 May 2015 24 October 24 October of South B-BBEE Act Amendment Codes of 2015 6 June 2016 2014 Africa 1996 53 of 2003 Act 46 of Good Trumping Regulations Amendment 2013 Practice Provision Bill of Rights Redress = Equity – Equality – Inclusive Economy 2
Challenges experienced Once Once Emp Empow ower ered ed, Alw Always ays Empowe Empowere red principle principle cre create ates reg regressi ression on of of transform sformati tion Must not be allowed in any of the sector codes Sector tor Codes that are not not finali lise sed create ate confu fusio sion in in the markets kets Some entities denied benefits arising from revised generic codes Acce Access ss to to fun funding co continue tinues to to be be a ch challe lenge for for bla lack ck people le cre creati ting a fertil fertile ground nd for fronting nting Most vendor-financed deals impact net value realisation/economic benefits Lack ack of of imp implementatio ementation by by Gove Governm rnmen ent and and its its en entities tities affects affects pa pace ce of of transform sformati tion Abuse of of B-BBEE BEE Arrange angeme ments nts and and Concep epts ts in in the implemen mentatio tation Such a definition of black person, modified flow through principle, and collective ownership schemes Lack of of integrity rity in in the verifi ifica catio tion process ss and and conduct ct of of profe fessi ssionals ls Recognition process mired with flaws resulting in invalid certificates
Ge Gene neral al con once cerns rns on on se sector ctor cod odes es Deadline for for finalisa isatio tion of of sector or codes necessar sary • – Confusion created in the market as old codes are still applicable Disc iscon onne nect ct bet etwe ween en th the tr transf nsfor orma matio ion cha hall llen enges ges in in th the sect sector or and and th the • interv rventi ention ons in in the the sector or codes – Lack of progress report from previous implementation and link to how revised targets in sector code will advance B-BBEE Lack of of consiste stency ncy in in the the approach ch and and draftin ting of of sector or codes • – Loopholes, regulatory nightmare and open for litigation Reasons for for deviatio tions ns not not substa tantia ntial enough enough to to warrant nt a sector code • – High barriers, lack of competition, no black suppliers 4
Ge Gene neral al con once cerns rns on on se sector ctor cod odes es Changing or or introdu ducin cing new new principl iples es contra rary ry to to State teme ment nt 003 003 • – Exemptions, automatic approvals to deviate, equity equivalent App pplic licati ation on of of sector ector cod odes es to to or organs ns of of st stat ate and nd publi blic entiti ntities es co contr ntrary ry to to • sectio ions ns 10 10(2) and and 9(6) – Organs of state and public entities must set high targets in relevant areas Overarc archi hing ng and and confusi using ng role of of Sector or Councils ls • – Ultra vires powers to exempt, revise thresholds Recognitio ition of of ordinary ry course transa sactio ctions ns or or activi vitie ties • – Points awarded for ordinary business, bonus points allocated 5
Fi Financial nancial Se Sector ctor Co Code de Application and Principles Introduces exemptions and exclusions for multinationals Creates automatic approval of equity equivalent without legislative mandate Application to organs of state and public entities – specialised score card and sections 10 (2) and 9(6) compromised No timelines set for review of the targets – despite them being already very low 6
Fi Financial nancial Se Sector ctor Co Code de Priority Elements (000) Introduces compulsory compliance with skills development for EMEs and QSEs with enhanced recognition status Results in verification requirements and discounting principle applicable to exempted entities Creates monitoring and compliance challenges for entities and the regulator No substantial motivation for this deviation from the exemption 7
Fi Financial nancial Se Sector ctor Co Code de Ownership (100) Despite worrying ownership patterns in the sector, target of 25+1% set in generic code is retained Further diluted by introduction of equity equivalent through empowerment financing and access to financial services in lieu of ownership Bonus points for exceeding already low and diluted targets based on black industrialist funding and empowerment financing Multiple application of modified flow through, meaning 51% black owned entity can be recognised more than once 8
Fi Financial nancial Se Sector ctor Co Code de Management Control (200) Sector avers that management control has an element of creating quotas contrary to the Solidarity vs SAPS – reference drawn to SAPS vs Solidarity obo Barnard (2014) ZACC 23 to address this Targets set deviate from generic codes, but do not show how the address the existing challenges of low percentage of top and senior management within the sector Grants exemptions to branches of multinationals and external companies from board representation 9
Fi Financial nancial Se Sector ctor Co Code de Skills Development (300) Segments grouping into senior management (2%), middle management (3%), junior management (5%) and black people (non-management) (8%) Targets do not align to challenges in financial sector where white people occupy 68.4% of top management, 60.6% of senior management, 46.7% of professionally qualified and 26.9% of skilled work force Motivation for categorisation and deviation not convincing given the lack of transformation 10
Fi Financial nancial Se Sector ctor Co Code de Preferential Procurement and Supplier Development (400) Deviates downwards with 75% (not 80%) all procurement spend from empowering suppliers, 14% (not 15%) from empowering suppliers that are QSEs, 8% (not 15%) from empowering suppliers that are EMEs, 20% (not 40%) from suppliers that are at least 51% black owned, and 9% (not 30%) from suppliers that are black women owned. Further deviation from skills transfer and multiplying recognisable spend resulting in multiple dipping with rights for entities to claim over a three year period. Recognition is made for attempts to empower black stockbrokers, fund managers and intermediaries. 11
Fi Financial nancial Se Sector ctor Co Code de Socio-economic Development (500) Target is 1% NPAT but split into 0.60% SED and 0.40% for consumer education Consumer education is already a requirement under the National Credit Act, Consumer Protection Act and the legislation administered by Financial Services Board This is ordinary course business and entities should not be recognised for such activities. 12
Co Conclusion nclusion Financial sector code in its current form does not advance radical economic transformation, but rather regresses it Additional elements referred to are Empowerment Finance and Access to Financial Services, but not expressed provisions are outlined to highlight how these are not ordinary business activities for this sector Sector code appears to compromise the incentive for financial sector players to compete by subjecting products on which they should compete on to transformational interventions Financial sector impacts a number of sectors from the perspective of financing, and if lending is to be recognised for points, it must be at seriously preferential rates or conditions for black people Concerns raised must be addressed before the sector code can be approved for gazetting, failing which generic codes must apply 13
Contact ntact Details tails B-BBEE Commission Private Bag X84 Pretoria 0001 Telephone: +27 12 394 1535 Facsimile: + 27 12 394 2535 Email: mramare@beecommission.gov.za Website: www.bbbeecommission.co.za 14
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