BANK CHARTER 2.0

Ownership is just one of five key issues, and not necessarily the most important, in the recently gazetted financial sector code of good practice

The original financial sector charter, dating back to 2003/2004, was a famously amicable agreement. If it did not do too much for the poor or the general public, the big winners were the members of the Association of Black Securities & Investment Professionals (Absip), whose career opportunities grew fast.

The financial sector talks have always been more genteel than, say, negotiations around the mining charter. And, increasingly, the top management at the country’s financial institutions have been Absip members, as the sector slowly normalises.

But the cosy days of self-regulation, in which the process was run by banking and insurance top management alongside Absip colleagues, are over. The charter council is to be renamed the transformation council.

The old charter has been fully aligned with the department of trade & industry code of good practice in the latest financial sector code and was gazetted last month.

Trevor Chandler, the negotiator for the Association for Savings & Investment SA, which represents life assurers, fund managers and unit trusts, says there were some tough debates on issues such as prior recognition (a less inflammatory version of “once empowered, always empowered”). The code says that if a consortium winds up voluntarily, as with Old Mutual, Absa and Standard Bank, the business should not be penalised.

Banking Association SA MD Cas Coovadia says it does not make sense to expect a fixed percentage of black shareholding, as banks and insurers continuously go to the market for both debt and equity finance.

“In a free market we can’t force black shareholders to sell only to other previously disadvantaged investors,” he says.

Chandler says there has been a big refocus in this code on procurement funds, enterprise funds and black-controlled private equity funds. Any financial services player with a hope of decent BEE accreditation will have to set aside money for a black business growth fund.

Rory Ord, head of unlisted assets at

27four Investment Managers, says R75bnr110bn could be raised in these growth funds over five years. The funds will play a role in the creation of black industrialists.

“The thinking behind the black industrialist programme comes from South Korea, where preferential financing turned the country from an agrarian to an industrial economy and, more recently, into a knowledge-based economy,” Ord adds. Banks have supported the black industrialist programme, provided it offsets demands for higher black shareholding.

But Coovadia says ownership is just one of five key issues, and not necessarily the most important. The other four are: increasing procurement from small and medium-sized enterprises; ending the virtual closed shop of white service suppliers in lists of attorneys and conveyancers; increasing diversity in senior and executive management; and improving access to services.

However, Absip president Sibongiseni Mbatha says the codes make it difficult to establish if targets are meaningful or not. He adds that the targets set by the financial sector have been shockingly poor.

One feature of the new code is that it brings retirement funds into the net.

But with more than R4.6 trillion under their stewardship, retirement funds can rally significant resources for the BEE project. And pension funds can influence the ethnic composition of their suppliers, such as benefit consultants. No less than 80% of the retirement fund scorecard will be taken up by preferential procurement and just 20% by management, looking at the racial composition of trustees and principal officers.

The “ownership” of each fund will not be considered. Instead, trustees will need to report annually on the proportion of liabilities attributable to black male and female members.

Viresh Maharaj, marketing actuary at Sanlam Employee Benefits, says the code commits all participants, not just companies, to promote a transformed, vibrant and globally competitive sector. But, he adds, as retirement funds are facing a number of short-term challenges, such as the default investment regulations, the new voluntary code may not be a priority.

In a free market we can’t force black shareholders to sell only to other previously disadvantaged investors Cas Coovadia