IRFA Information Session Amended Financial Sector Code Retirement - - PowerPoint PPT Presentation

IRFA Information Session

IRFA 09 July 2020

Amended Financial Sector Code – Retirement Funds Scorecard

The session is aimed at sharing information about:

§ the role of the FSTC; § inclusion of retirement funds in the reporting framework; § retirement funds needs reporting requirements; § retirement and umbrella funds scorecard; § FS Code review process.

Objectives

§ About the FSTC; § The Amended FSC; § Overview of Elements of the FSC; § Retirement Funds Scorecard.

Structure of the presentation

.

About the FSTC

§ The 2002 Nedlac Summit agreed on the need to transform the financial sector; § To achieve transformation, the sector committed to establishing a sectoral transformation charter; § The Charter was negotiated and signed on 17 October 2003; § To ensure achievement of the goals set in the Charter, the Financial Sector Charter Council (FSC Council) was established in 2004; § The FSC Council was established with a mandate to oversee all matters relating to the Charter and its implementation; § The FSC Council is now established in terms of the B-BBEE Act, Act number 53 of 2003 as amended by the B-BBEE Act 46 of 2013; § In 2018 FSC Council changed its name to FSTC.

Establishment Of The FSTC

FSTC Structure

Council Secretariat Reporting Working Committee Board of Directors

§ Financial sector trade associations

• ASISA
• SAIA
• BASA & IBA
• JSE Limited and Association
• FIA
• SAVCA
• Batseta

§ Association

• f

Black Securities and Investment Professionals (ABSIP) - representing Black professional organisations Parties to the Development of the FSC

• Government
• The Presidency, National Treasury and the Department of Trade,

Industry and Competition (the dtic);

• NEDLAC Organised Labour

Congress of South African Trade Unions (Cosatu); National Council of Trade Unions (Nactu); Federation of Unions of South Africa (Fedusa);

• NEDLAC Organised Community

Financial Sector Campaign Coalition; Disabled People South Africa; National Co-operatives Association; The Women’s National Coalition; SA Youth Council; SA Civics Organisation.

Parties to the Development of the FSC

How the Council Operates § Negotiations are facilitated through a reporting working committee; § Final decision taken by the full Council; § All decisions require consensus; § Council is also supported by a full-time secretariat § Council funded by Trade Associations (business constituency). About the FSTC

Governance and Oversight § Provide oversight through governance structures; § Publish annual Transformation Report; § Continued monitoring of legislation; § Produce technical guidance notes; § Evaluate exemption and compliance applications; § Review and agree targets for Access to Financial Services and Empowerment Financing elements; § Periodically review the Financial Sector Code.

§ Facilitate funding and execution of transformation infrastructure; § Facilitate rural development and the funding of black agriculture; § Facilitate capacity development and funding for local government; § Facilitate improved governance and funding of state owned companies; § Ensure support for SMME through ESD and Preferential Procurement; § Assist with job creation; § Facilitate funding for Higher Education; § Increase financial inclusion and consumer financial literacy levels; § Identify and address potential transformation blockages and challenges.

The Council’s Extended Role

Regulatory Environment

General Principles

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The Amended FSC

• Banks
• Long-term insurance
• Short-term insurance
• Re-insurance
• Retirement fund administration
• Management of Collective Investment Schemes
• Financial services intermediation and brokerage
• Public entities in financial sector (DBSA, Land Bank)
• Asset Management, consulting and administration
• Private equity, venture capitalist and impact investors
• Investment managers including, but not limited to, private equity managers
• Underwriting management agents
• Industry Trade Associations
• Retirement Funds (voluntary)

Amended FSC Scope of Application

Eligibility

Generic = R50m+ turnover Qualifying Small Enterprise (QSE)

• R10m – R50m turnover
• 100% Black Owned - Level 1
• 51% Black Owned – Level 2

Emerging Micro Enterprise (EME)

• Less than R10m turnover
• Level 4
• 100% Black Owned - Level 1
• 51% Black Owned – Level 2

Start-Up = First year following commencement treated as an EME

Key Principles

Each financial institution, irrespective of the fact that it is a member of a group, must be measured and reported on its own ü A financial institution that is a member of a group may be measured and reported on as part of the South African group provided that such group reporting is approved in advance by the Financial Sector Charter Council. Each financial institution to report annually to the Council ü Failing to do so will result in a level discount in the next rating (the Council “reserves the right” to name institutions as well). Verification agencies required to submit full certificate and report within 30 days of the issue date.

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Overview of the Elements in the FS Code

The BEE Landscape Entity categories

• Turnover > R50

million

• 7 Elements
• Total Scorecard 112

points

Elements

• Ownership
• Management

(including Employment Equity)

• Skills Development
• Enterprise & Supplier

Development (including Preferential Procurement)

• Empowerment

Financing

• Socio-Economic

Development

• Consumer

Education

• Access to Financial

Services

Priority Elements

• Ownership
• Skills Development
• Enterprise & Supplier

Development (including Preferential Procurement)

• Empowerment Financing

FS Charter to FS Codes

Retirement Funds Scorecard

Key principles

• Many

aspects

• f

the FSC are not relevant to retirement funds as they are not for profit entities;

• The
• bjective
• f

the Scorecard is to encourage retirement funds to provide for fair and equitable treatment of suppliers and employees;

• The Scorecard consists of two elements only,

viz., Management Control and Preferential Procurement.

Retirement and Umbrella Funds Scorecard

ELEMENT Weighting Requirement to report

OWNERSHIP Disclosure Fund liabilities attributable to black people MANAGEMENT CONTROL 20 Board and management SKILLS DEVELOPMENT Disclosure Training for trustees and executive managers; Member education initiatives PREFERENTIAL PROCUREMENT 80 Procurement from suppliers ENTERPRISE & SUPPLIER DEVELOPMENT N/A N/A EMPOWERMENT FINANCING N/A N/A ACCESS TO FINANCIAL SERVICES N/A N/A SOCIO-ECONOMIC DEVELOPMENT N/A N/A TOTAL 100

Reporting Principles

Fund liabilities attributable to Black People B-BBEE Scorecard Management Control; Preferential Procurement Training Trustees and executive management; spend Member education initiatives Future plan on improving the B-BBEE scorecard

FSC reporting requirements

• “Ownership”
• Proportion of fund liabilities attributable to black male

and female members;

• Apply measurement principles enshrined in FS Code

100 (Ownership) – Independent Competent Person’s Report for Mandated Investments

Fund Liabilities

Management Control Scorecard

Description Weighting Target

Board Participation Exercisable Voting Rights of Black People on Board 8 50% Exercisable Voting Rights of Black Women on Board 4 25% Black Executive management Principal Officer, executive and senior management 8 50% TOTAL SCORE 20

Measurement of Skills Development

• Disclose details of training to:-
• Trustees
• Executive Managers
• Principal Officers
• Other Staff
• Disclose value, average training per staff member, number of

staff trained, examples of key interventions

• Member education initiatives
• Number of members trained
• Amount spent relative to size of membership (Rand per

member)

Preferential Procurement Scorecard

Description Weighting Target

Year 1-3 Year 3+

B-BBEE Procurement from all suppliers based on B- BBEE Recognition levels as % of Total Measured Procurement Spend

35 75% 80%

B-BBEE Procurement from all suppliers that are QSEs / EMEs based on B-BBEE Recognition levels as % of Total Measured Procurement Spend

10 15% 25%

B-BBEE Procurement from all suppliers that are at least 51% black owned based on B-BBEE Recognition levels as % of Total Measured Procurement Spend

25 15% 25%

B-BBEE Procurement from all suppliers that are at least 30% black women owned based on B-BBEE Recognition levels as % of Total Measured Procurement Spend

10 7.5% 12.5% TOTAL SCORE 80

Compliance Categories

Exempt Micro Enterprises (EMEs) & Start-ups Turnover<R10m

• Only require a sworn

affidavit stating;

• Annual turnover less

than R10m; and

• Level of black ownership
• If 100% black ownership;

Level 1 status

• If at least 51% black
• wnership; Level 2 status
• All other EMEs; Level 4

status

• Automatically recognised

as Empowering Suppliers

Qualifying Small Enterprises (“QSE”) R10m<Turnover<R50m

• Must report on QSE scorecard

(to be published), unless at least 51% black ownership, then;

• Only require a sworn

affidavit stating;

• Annual turnover less than

R50m; and

• Level of black ownership
• Subject to Priority Element

provisions

• If 100% black ownership; Level

1 status

• If at least 51% black
• wnership; Level 2 status
• All QSEs subject to

Empowering Supplier criteria

Generic (Large) Enterprises Turnover>R50m

• Comprehensive 5

element scorecard

• Subject to Priority

Element provisions

• Subject to

Empowering Supplier criteria

Reporting Requirements

• Amended FSC provides for a “Voluntary Dispensation” for Top

100 Retirement Funds (incl. Umbrella Funds) to report on B-BBEE annually;

• B-BBEE annual reporting should include a narrative on the B-BBEE

score achieved and plans for improving the score;

• FSTC will measure transformation on an annual basis – may

include relying on surveys;

• “If sufficient disclosure by pension funds does not materialise then

consideration will be given to revising this dispensation”;

• The process to review the FS Code commenced in February 2019;
• Eight committees were established in line with the various elements in

the code;

• A final draft is anticipated to be submitted in November 2020.
• Some of the key proposals that have been made include:
• The Scorecard requirement must be made compulsory for all pooled

funds and form part of the main part of the FS Code;

• Make disclosure requirements compulsory to ensure that all

retirement fund members have equal access to information and can take action as desired;

• Disclosure in the Verification certificate and or website of member

asset value by population and gender demographic must be compulsory;

• Reporting to the FSTC and the Pensions Regulator should be

standardised and the same format allowing for submission to both authorities;

• The principle of explaining the failure to meet the targets should

apply.

FS Code Review Process

THANK YOU.