Amended B-BBEE Financial Sector Code effective from 1 December 2017

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On 1 December 2017, the Department of Trade and Industry published the long-awaited amended financial sector code of good practice on broad-based black economic empowerment (B-BBEE) (Amended FSC) . The Amended FSC is effective from 1 December 2017. There is no transitional period applicable to its implementation.

Some of the key amendments now applicable to the financial sector in respect of B-BBEE measurement and compliance are set out below.

The scorecards for measuring the B-BBEE compliance of different types of large financial institutions are as follows:

Element Banks and Life Offices Short-term insurers Stock Exchanges and Stock Exchange members Other financial institutions
Ownership 23 points 23 points 23 points 25 points
Management Control 20 points 20 points 20 points 20 points
Skills Development 20 points 20 points 20 points 20 points
Procurement and ESD 15 points 35 points 35 points 35 points
Socio Economic Development and Consumer Education 5 points 5 points
5 points 5 points
Empowerment Financing and ESD 25 points 0 points 0 points 0 points
Access to Financial Services 12 points 0 points 0 points 0 points
Total 120 points 115 points 103 points 105 points

The scorecard for measuring B-BBEE compliance of qualifying small financial institutions (QSFIs) is as follows: The qualification criteria for achieving B-BBEE status and recognition levels have also been amended as follows:

Element Weighting
Ownership 25 points
Management Control 15 points
Skills Development 25 points
Enterprise and Supplier Development 30 points
Socio-economic development 5 points
Total 100 points

The qualification criteria for achieving B-BBEE status and recognition levels have also been amended as follows:

B-BBEE Status % Qualification B-BBEE Recognition Level
Level One Contributor >=100/109 135%
Level Two Contributor >=95/109 but <100/109 125%
Level Three Contributor >=90/109 but <95/109 110%
Level Four Contributor >=80/109 but <90/109 100%
Level Five Contributor >=75/109 but <80/109 80%
Level Six Contributor >=70/109 but <75/109 60%
Level Seven Contributor >=55/109 but <70/109 50%
Level Eight Contributor >=40/109 but <55/109 10%
Non-Compliant Contributor <40/109 0%

The formula used to calculate the number of points required for each level of recognition is as follows - number of points achieved ÷ 109 x the total points of the scorecard applicable to the relevant financial institution.

There are a number of other issues to note:

There are sub-minimum requirements for the following priority elements: ownership, skills development, enterprise and supplier development and empowerment financing. Non-compliance with sub-minimum requirements will result in the measured entities B-BBEE status level and corresponding B-BBEE recognition levels being discounted by one level.

Financial institutions with annual revenue of up to ZAR 10 million qualify as Exempted Micro-Enterprises (EMEs). Financial Institutions with total annual revenue of more than ZAR 10 million but less than ZAR 50 million qualify as Qualifying Financial Institutions (QSFI). EMEs and QSFIs that are more than 50% black owned (where there is an existing equity deal in place) or at least 51% Black Owned (but less than 100%) they qualify as Level two B-BBEE contributors. If they are 100% Black Owned they qualify as Level one B-BBEE contributors.

All verification agencies verifying a financial institution must submit the financial institution's B-BBEE certificate and full verification report to the Financial Sector Charter Council within 30 days of the certificate issue.

In terms of the previous financial sector code, a dilution of black ownership, which occurred on or after 1 January 2011, as a result of black participants electing to sell their shares and realising net value did not result in Black Ownership for purposes of the scorecard. Under the Amended FSC, only a portion of diluted black equity can be recognised if black participants elect to sell their shares. This is akin to the provisions in the generic B-BBEE Codes. However, Banks and Life Offices now have the option to top up the shortfall in its ownership points through the provision of Black Business Growth Funding, as an equity equivalent on the exit of black owners. Other financial institutions can top-up the shortfall on the exit of black owners through additional enterprise development contributions or by way of an equivalent value to support black students studying at post school education and training institutions.

The Management control element of the scorecard measures the extent of participation of Black People on the Board of a financial institution and at executive management, senior management, middle management and junior management levels against pre-defined targets for each of those categories. The extent of participation of African people (as a category of Black people) is also separately measured for senior, middle and junior management levels.

Different skills expenditure targets have been set for Black People in Senior Management roles (2%), Middle management roles (3%), Junior management (5%) and non-management (8%) of the leviable amounts applicable to each of those different levels.

Higher targets have been set for procurement from empowering suppliers that are at least 51% Black Owned and empowering suppliers that are at least 30% black owned.

The Amended FSC introduces a voluntary dispensation for the top 100 retirement funds, including umbrella funds. The Amended FSC proposes that large retirement funds compile and publish annual scorecards for the preferential procurement and management control elements of the scorecard. It is also suggested that although retirement funds cannot be scored on ownership (given that the Trustees have little or no influence on membership demographics) they should report annually on the proportion of fund liabilities attributable to black male and black female members.​​