Transcript Slide 1

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SOUTH AFRICAN INSURANCE ASSOCIATION
FINANCIAL SECTOR CHARTER
presented by
Leila Moonda
Introducing the
Financial Sector
Charter
Key Outcomes
• Sectoral Transformation strategy
• Interventions on targeted areas of
the economy
• BEE financing strategy
• A basis for engagement with
stakeholders
Principles
• A commitment that is voluntarily
developed by the Sector
• A transformation framework that
establishes mechanisms for BBBEE
• A balanced scorecard approach to
measure achievements in broad
transformation and BEE objectives
• Growth & development of the sector
integral to BEE
• Provisions subject to sound business
principles
Context
• Very low levels of black participation
– Black senior management accounts for less
than 10%
– Diminished black ownership in the Sector
• Low levels of investments in areas of
national priority
– Infrastructure, Low income Housing, Black
SMEs, BEE Transactions
• High number of un-banked / uninsured
persons
– Dismal provisions of effective access to
financial services and products (LSM 1-5)
Vision
“…promoting a transformed, vibrant
and globally competitive sector that
reflects the demographics of SA, and
contributes to the establishment of an
equitable society by effectively
providing accessible financial services
to black people and by directing
investment into targeted areas in the
economy”
Signatories
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Association of Collective Investments (ACI)
Banking Association of South Africa
Bond Exchange of South Africa
Foreign Bankers Association
Institute of Retirement Funds (IRF)
Investment Managers Association of South Africa (IMASA)
JSE Securities Exchange
Life Offices Association (LOA)
South African Insurance Association (SAIA)
South African Reinsurance Offices Association (SAROA)
Association of Black Securities and Investment
Professionals (mandated by the Black Business Council)
(ABSIP)
Government
NB – no labour / community involvement
Who is Subject to the Charter
• Applies to all institutions active in
the financial services sector:
– Banks
– Long-term insurers
– Short-term insurers
– Re-insurers
– Managers of collective investments
– Listed entities …
• Any other institution may opt-in
Exemptions
• Less than 50 employees – human
resource development provisions
• Less than R10m designated investments
– empowerment financing
• Both of the above – totally exempt, but
may opt-in
• Companies subject to global policy –
certain Board member provisions
• Companies subject to global policy –
ownership provisions
• Wholesaler – access provisions
The pillars
1. Human Resources
Development
2. Access to Financial Services
3. Empowerment Financing
4. Procurement & Enterprise
Development
5. Ownership & Control
6. Corporate Social Investment
HR Development
• Building a diverse, non-racial, non-sexist
and sustainable intellectual pool
• Un-quantified commitments to:
– Mentorship, Career Path programs
– Cultural Diversity and Gender sensitivity
programs
– Where possible, support Educational
Institutions
– Skills Audit to be undertaken to identify black
skills shortage
Skills Development (5 points)
Para. 5.2
• Skills spend
– Additional skills spend to address black
skills
– 1.5% of the financial institution’s
payroll (5.5)
• Learnership programs (5.7)
– Black matriculants up to an equivalent of
4.5% of staff to be enrolled in the 1st
learnership cycle (3 years – which ended on
the 31st December 2006)
– Charter Council to investigate the feasibility
of a 2nd learnership cycle
Employment Equity (15 points)
Para. 5.3
2008 Employment Equity targets
• Black Senior Management from 2002
estimate of 9.9% to a minimum target
range of 20% to 25%
• Black Middle Management from 2002
estimate of 17% to a minimum of 30%
• Black Junior Management from 2002
estimate of 28% to a minimum target range
of 40% to 50%
Targets for women
Para. 5.4
Black women targets (including exec level) to be
reviewed in 2007 but aim for 33% of black
targets in all categories
• Black Women Senior Management from 2002
estimate of 1.6% to a minimum target of 4%
• Black Women Middle Management from 2002
estimate of 5% to a minimum target of 12%
• Black Women Junior Management from 2002
estimate of 12% to a minimum target of 15%
Procurement & Enterprise
Development
Para.’s 6 & 7
• To support the development of
sustainable black enterprises, 3rd
tier financial institutions & black
SMEs
• BEE Accreditation to reflect the
Sector’s transformation strategy and
its approach to empowerment
Procurement
Para. 6
• Procurement from BEE accredited
companies:
– 50% by 2008
– 70% by 2014
• Suppliers currently have to be
rated on a broad – based
methodology. Though this
continues to be a problem as
there are no accredited
verification agencies as yet.
Enterprise Development
Para. 7
• Objectives
– Foster new BEE companies
– Develop existing BEE companies
• Mechanisms
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–
Skills transfer
Secondment of Staff
Infrastructure Support
Technical and Administrative support
and assistance
Procurement & Enterprise
development
• Premium scoring to be awarded to
Black Owned, Black Women-owned,
Black SMEs or excellent performers
in Sectoral Charters
• Un-quantified Commitments
– Promote early payment to Black SMEs
– Encourage existing suppliers to become
BEE accredited
Access (6 points
)
for short –term insurers
Para. 8
• Broadening the effective provision of
financial services to LSM 1-5
• To ensure that majority have access to
basic affordable financial services
• Defining Effective Access:
- Affordability – cost effective services to LSM 1-5
- Innovative, user friendly products/services; and
- Non-discriminatory practices.
• Mzansi insurance standards finalised
Defining LSM 1- 5
LSM =Living Standards Measure
LSM is a unique means of segmenting the South African
market. It cuts across race and other outmoded techniques
of categorising people, and instead groups people
according to their living standards using criteria such as
degree of urbanisation and ownership of cars and major
appliances.
This category of people are generally recognised as:
• Living mostly in rural areas
• Earning less than R3000.00 per month
• Having limited formal education
• Having a low levels of financial literacy
• Having limited access to services
• Mostly the unbanked and uninsured
Access targets
Para. 8.3.1
• Transactional Banking products & services
– 80% (LSM 1-5)
• Bank Savings products & services
– 80% (LSM 1-5)
• Collective Investments products & services
– 1% (LSM 1-5)
• Life Assurance products & services
– 23% (LSM 1-5)
• Short term Risk Insurance products & service
– 6% (LSM 1-5)
• Consumer and financial education
– 0.2% of each institution’s post tax profits p.a.
– SAIA programme to assist insurers / others
Empowerment Financing
Para. 9
• Mobilising resources for investment in socioeconomic transformation
• “Affected Institutions” – those taking
“designated investments”
• “Designated investments” – deposits, savings,
investments, risk insurance premiums
• “At least” R75bn originally targeted
• R123.5bn currently targeted
– BEE transaction financing (5 points)
– Targeted investments (low-income housing,
transformational infrastructure, agriculture, black
SMEs) (17 points)
Designated Investments
2.18 … means any form of
statutory or voluntary deposit,
saving, investment or risk
insurance placed or made by the
South African public (whether of
a wholesale or retail nature, but
not by one financial institution in
another)
Designated Investments
Designated Investments are defined to
include all assets on the balance sheets of
institutions included under the Financial
Sector Charter. This means that the capital
of financial institutions (equity or otherwise)
is also regarded as part of Designated
Investments. Assets not on an institution’s
balance
sheet
(e.g.
assets
under
administration) also qualify as Designated
Investments for that institution.
Designated Investments
Sector
Estimate of DI at
31/12/2003
(Rbn)
Retirements funds
720
Banks
774
Life Offices
456
Collective Investments
136
Short-term insurers
Gross DI
34
2 120
Empowerment Financing
2.21 … means the provision of
finance for or investment in:
– Targeted investment; and
– BEE transactions
Empowerment Financing
9.1.5 The total amounts to be invested in BEE
transaction financing and targeted
investments in terms of 9.1.3.2 will be
calculated as percentages of the total
designated investments in the financial
sector as at 31 December 2003, and
currently estimated to be in the order of
R2,000bn. Those percentages of designated
investments in each financial institution will
constitute the targets for BEE transaction
financing and targeted investments
respectively
Implications
• Target for short-term insurers:
– R34bn / R2,120bn of R122.5bn
– 1.6% of R122.5bn
– R1.96bn (over 5 years)
– R1.96 bn / R34 bn = 5.6% of
designated investments
Targeted investment / BEE
Transaction Financing targets
BEE Transaction Financing
R50bn
Low-income housing
R42bn / R32bn
Black SME finance
R5bn
Agriculture
R1.5bn
Transformational
infrastructure
R25bn
Total Target
R123.5bn
Ownership & control
Para.’s 10 & 11
Enable genuine participation in the holding
and strategic direction of the Sector
• Black ownership to be aimed at:
– Promoting productive and sustainable
participation by black people
– Encourage involvement of broad based
constituencies in BEE transactions
– Encourage ownership that is likely to add
value to the financial institution
– Encourage funding structures that facilitate
transfer of economic interest
Ownership targets
Para. 10
• 25% total black ownership in 2010 (14 + 4 points)
– A minimum of 10% must be Direct ownership
– A maximum of 15% may be Indirect ownership –
subject to the institution first achieving its Direct
ownership target and promoting shareholder
activism
– Direct ownership above the minimum 10% can
earn a maximum addition of 4 points
• Foreign banks may achieve an equivalent score
through
– An additional BEE Transactions target equivalent
to 25% of the local institution’s value; &
– JVs and partnership with Black companies in
terms of paragraph 10.3
Control targets (8 points)
Para. 11
• Black people in Boards of Directors to be a
minimum target of 33% by 2008
• Black Women in Boards of Directors to be a
minimum target of 11% by 2008
• Black people in Executive Management from the
current % to a minimum target 25% by 2008
• Black Women in Executive Management from
the current 2% to a minimum target of 4% by
2008
Shareholder activism
Para. 12
• Shareholder activism is a critical component to
the continued confidence and long term growth
of the sector
• Financial Institutions (including Pension Funds
and Fund Managers) commit to undertaking
various programs to promote shareholder
awareness and encourage activism
• Indirect ownership points in the scorecard are
subject to financial institutions reporting on
their support for shareholder activism
Corporate social investment
(3 points)
Para. 13
• Projects aimed at black people, have a
strong developmental approach &
contribute toward transformation
• Promote investment by the sector in
areas specific to the needs of the
majority
Target
- 0.5% p.a. of post tax operating
profits
Application
• Targets apply from 1st January 2004
until 31st December 2014
• Principles embodied in the Charter
are perpetual
• Comprehensive review of Charter
achievements in 2009 and 2015
Monitoring
Ensuring a result-orientated and
effective implementation
• Establishment of the Charter Council
representative of the Sector and
Stakeholders to oversee
implementation
Charter Council
Para. 15.1
• The Charter Council will establish an Executive
with the delegated mandate to:
– Receive, consider and approve Annual Audits
from Financial Institutions
– Issue guidance notes on the interpretation
and application of Charter
– Conduct reviews identified in the FSC
– Engage Govt., DFI’s, Regulatory Agencies &
BEE Advisory Council to promote
implementation of the FSC
• Independent Body
Charter Council
Industry Associations
6
ABSIP
3
Labour
4
Community
4
Government
4
Charter Council Executive
• Principal Officer appointed 01st
October 2005 – Enoch Godongwana
• Chairman rotates every year amongst
the constituencies, currently Kennedy
Bungane from ABSIP
• Council offices established at 66
Marshall street, Jhb CBD
Reporting and Review
Para. 15.2
• Annual Report
– Reporting period is January to December
– Reports to be submitted by 31st March each
year
• Members of a group should report as
part of the group, unless they are listed
or opt to report separately
• Each institution annual BEE report:
– Audited scorecard and supporting
documentation
Scorecard
• A basic and objective framework against
which Transformation and
Empowerment can be measured
• Provides a balance between imperatives
for sector transformation and black
economic empowerment
• Points scoring in the various areas only
starts from specific thresholds of
performance
Scorecard
Component
Points
Human Resource Development
20
Procurement and Enterprise Development
15
Access to Financial Services
18 *
Empowerment Financing
22
Ownership and Control
22
Corporate Social Investment
* Short term industry = 6 ( 4 Products + 2 consumer
education)
3
The Scorecard & Rating
Year
2004
2005
2006
2007
2008
Interim
rating
40%
55%
70%
85%
100%
Rating
< 16%
< 22%
< 28%
< 34%
< 40%
E
16 –
22%
22 –
30.3%
30 –
38.5%
34 –
46.8%
40 –
55%
D
22 –
28%
30.3 –
38.5%
38.5 –
49%
46.8 –
59.5%
55 –
70%
C
28 –
32%
38.5 –
44%
49 –
56%
59.5 –
68%
70 –
80%
B
> 32%
> 44%
> 56%
> 68%
> 80%
A
Status
• Charter was gazetted as a
Transformation Charter by the
DTI on the 09th February 2007.
• As the Charter has not yet been
gazetted as a Sector Code,
government may still choose
have its financial sector suppliers
rated against the DTI Codes
Outstanding matters
Regulations Review with
Government
• Gazette FSC as a sectoral code
of practice for public sector
procurement
• Review of certain targets ?
SOUTH AFRICAN INSURANCE ASSOCIATION
www.saia.co.za
www.saia.co.za