Who does it apply to?
The Amended B-BBEE Financial Sector Code was gazetted on 01 December 2017 with immediate effect.
This Amended FSC applies to any natural or juristic person conducting a business, trade or profession in the South African financial sector including, but not limited to, the following:
- Long-Term Insurance
- Short-Term Insurance
- Retirement Fund Administration
- The Management of Collective investments scheme Assets
- Financial services intermediation and brokerage
- Public entities involved in the financial sector e.g DBSA, Land Bank
- Asset Management, consulting and administration
- Private Equity, venture capitalist and impact investors
- Management of investments on behalf of the public, including, but not limited to, private equity, members of any exchange licensed to trade equities or financial instruments in South Africa and entities listed as part of the financial index of a licensed exchange
- Underwriting Management agents; and
- Industry Trade Associations operating in the sector.
Exempt Micro Enterprises (EMEs)
Companies are eligible as an EME if they their annual revenue is up to R10million, or if they categorised as a start-up – in their first year of operation.
An EME is deemed to have a B-BBEE status of level 4 contributor with a recognition level of 100%, however the enhanced B-BBEE recognition level for an EME is as follows:
- An EME which has 100% black owned qualifies for elevation to Level 1 contributor with a B-BBEE recognition level of 135%.
- An EME which is more than 50% black owned (where there is an existing equity deal in place) or at least 51% black owned (for all deals concluded after the 01 December 2017), but less than 100% black owned, qualifies for elevation to Level 2 contributor with a recognition of 125%.
An affidavit or verification certificate from a Verification Agency or accountant is acceptable as proof of an EME.
Qualifying Small Enterprises (QSEs)
Companies are eligible as QSE if they their annual revenue is between R10 million, but less than R50 million.
- A QSE which has 100% black owned qualifies for elevation to Level 1 contributor with a B-BBEE recognition level of 135%.
- A QSE which is more than 50% black owned (where there is an existing equity deal in place) or at least 51% black owned (for all deals concluded after 01 December 2017), but less than 100% black owned, qualifies for elevation to Level 2 contributor with a recognition of 125%.
- For the above two instances, either an affidavit or a verification certificate from a Verification Agency is sufficient proof.
- For all other QSEs, the following scorecard applies:
Generic Scorecards and Elements
In general, companies need to be aware of the concept of “Priority elements” where 40% of the points for Ownership (net value), Skills Development (excluding bonus points) and Enterprise & Supplier Development (excluding bonus points) – each of the 3 broad categories. Should this not be met on any one of them, the certificate level will be discounted 1 level down from the level scored. Hence, the importance of tracking this aspect within the financial year to avoid disappointment at time of verification.
The key differences in the elements are as follows:
- Targets and Scorecard is the same as per the previous Financial Sector Code.
- Bonus points are available for high levels of black ownership (Direct/Indirect Ownership in excess of 15% and Economic Interest/Voting Rights above 32.5%)
- The 40% subminimum is required to be met to not be discounted a level (40% of 6 net value points)
- The demographic representation of black people is defined in the Regulations of the employments Equity Act and Commission on Employment Equity Report are not applicable for this element.
- Points available for African employees in Management which is based on EAP %.
- The reporting of Employment Equity to the Department is not a pre-requisite to obtain points on this element.
- The Codes allows for non-South African citizens at Board/management level who are imposed on the local operation or Black people who are seconded abroad to reduce the negative impact on this element scoring.
- The annual submissions to the SETA by 30 April every year is a pre-requisite to earning any points on this element however it must be approved by the time of verification – a very important aspect to be adhered to.
- Skills Development Expenditure is broken down to point allocation for black employees in Senior, Middle, Junior and Non – Management.
- Informal training (Category G only) has a limitation of 15%
- Mandatory training cannot be included in the skills spend.
- The demographic representation of black people s defined in the Regulations of the employments Equity Act and Commission on Employment Equity Report are not applicable for this element, although not specifically stated. Once again, there is specific points for African people in the management levels.
- The 40% subminimum is required to be met in order to not be discounted a level (40% of 20 total points)
Enterprise & Supplier Development:
- Targets are staggered – for first 3 years, and then increased thereafter.
- The Banks and Life Officers have a different scorecard to the others due to the elements of Empowerment Financing and Access to Financial Services being applicable.
- The requirement for Empowering Supplier status has some different options – blanket approval is being applied to every company at this stage. It is important to take note of the requirements as most aspects must be applied in the financial year.
- The points and targets for spend on ≥51% black-owned suppliers are lower than other amended codes.
- Additional bonus points are provided for – specific for this industry.
- The 40% subminimum is required to be met in order to not be discounted a level.
- Imports of Goods and Services where is not sufficient local production must have developed and implemented and enterprise development or supplier development plan. There are additional allowances for exclusions.
- Qualifying Enterprise and Supplier Development Contributions will be recognised as a percentage of the previous year’s annual Net Profit after Tax (NPAT).
Socio-Economic Development & Consumer Education:
- Socio Economic Development includes an additional concept of Consumer Education [CE] (financial awareness of customers) – to be defined by the Financial Sector Council.
- Bonus points are available for additional CE Contribution and Grant contributions to the Fundisa Retail Fund.
- Qualifying Socio Economic and Consumer Education Contributions will be recognised as a percentage of the previous year’s annual Net Profit after Tax (NPAT).
Recognising the unique position that financial institutions holds in the development of South Africa, two additional elements exist in the FSC scorecard over and above the five elements in the CoGP. These are Empowerment Financing and Access to Financial Services.
Empowerment Financing targets local banks. This is measured as total balance sheet exposure for new loans written. The target for the banking sector is based on an increment of R80bn additional Empowerment Financing between 01 January 2012 and 31 December 2017. Local banks will be responsible for R78.4bn of the increment and International Bankers Association (IBA) member will be responsible for R1.6bn of the increment.
The Access to Financial Services element is relevant to Banks and Long- and Short-term Assurers to promote the reach of relevant financial offerings, using the appropriate infrastructure to those who historically would not have the benefit of these services.
The total scoring falls within 1 of the ranges below, which then dictates the resultant BEE Level and Recognition Status. Since the different industry groupings shown in the Generic Scorecard table above have different scoring, the manner in which the points are normalised is provided in the Codes
The Amended Codes can be downloaded off our website www.xcelbee.co.za/downloads. As there are many specifics within the element scorecards and principles, it is important to understand the fine print. Xcelerate Verification Agency has many years of expertise in the Financial Industry, and can assist companies with training, tracking of scoring during the financial year, interim audits, EME/QSE supplier verifications, SANAS verification and certification, and advisory (to non-verification clients).