Financial Sector Charter Council on the status of transformation of the financial sector

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Finance Standing Committee

10 August 2010
Chairperson: Mr T Mufamadi (ANC)
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Meeting Summary

The Financial Sector Charter Council briefed the Committee on the objectives of the Financial Sector Charter, the participants, and transformation commitments. It also gave an overview of the financial sector, regulation, and charter transformation areas. The Council indicated achievements for 2008 in human resource development, skills development, targeted investment, black economic empowerment financing and access to financial services, procurement, ownership, management control, and corporate social investment. Challenges were highlighted such as low targets, under achievement on some existing targets, and the gazetting of the Charter as a sector code. Other challenges included geographic concentration, regulatory impediments in housing, and retirement funds institutions. The Council explained conversion to the sector code. Areas peculiar to the financial sector included access to finance, empowerment financing, and targeted investment. Areas which would align with slight variances included procurement and enterprise development, the definition of “black”, skills development, corporate social investment, employment equity, black women, and management control. Ownership was an area under discussion. The Council looked forward to gazetting in November 2010 the areas already agreed to, and gazetting in February 2011 of the revisions and updates of the remainder of the Charter. A process of review was already underway.  

Members appreciated the presentation, noted that this was the first interaction between the Council and the Committee, and asked about participation, black suppliers, the issue of transformation in the broader sense,  whether the structural arrangements of the Council related to local structures in the provinces, and observed that there was no indication that the local people were the beneficiaries. It was apparent that the black people did not succeed in achieving access to the economic status that would make them equal “to the previous owners of this world”. Members said that it must not be the same people who gained every time, and asked whose responsibility poverty was, and who did oversight in the financial sector. The Committee needed more information on state-owned enterprises. A Member assumed that the Charter’s objective was actively promoting a viable financial sector, but asked the Council if it had forgotten its mission. She repeated her question of the previous day about procurement from black suppliers. She said that the Council had to adhere to the priorities of the country, and noted that institutions looked for public money when they collapsed. A Democratic Alliance Member observed that the Department of Trade and Industry codes made provision for pension funds, and asked why pension funds were not participating. He asked about the black members of pension funds, and the matter of risk. He said that black economic empowerment was necessary but it needed to be broad based and not just benefit a few. He asked if the Council reviewed such unintended consequences. He noted that some black partners were given shares, but the shares had lost value and the holders were in debt. South African society was not yet normal, and it was necessary to ensure that the intended beneficiaries were not left behind. The Chairperson said that the growth in the sector, even though it was the fastest growing, might not be in the best interests of the broader economy. It might be in the stock market. Some sense of the flow of money was needed. It was important to invest in SMME programmes, because that was where quality jobs were located. There was a need to review targets, low or high, and the time frames. There were also micro issues with which the Council should be seized. It was very difficult for young people to enter the financial sector.


Meeting report

Introduction and welcome
The Chairperson welcomed Members and delegates, and remarked that the meeting would be almost a continuation of the previous day’s proceedings. The briefing from the Financial Sector Charter Council would be the Committee’s first interaction with the Council. He complained that Members had not received the necessary documentation in time.

Mr Ismail Momoniat, Deputy Director-General, Tax and Financial Sector Policy, National Treasury, said that the National Treasury was the department responsible for facilitating the Charter in 2003/04. The Charter followed the Mining Charter and was the second such charter. It was therefore important to note that it preceded the black economic empowerment (BEE) codes. What the Committee would consider in this meeting would be the product of 2004. Mr Momoniat said that he was present in the meeting to represent the National Treasury.

Mr
Nkosana Mashiya, the Chairperson of the Charter Council, who was one of two representatives on the Council from the National Treasury, asked those members of the Financial Sector Charter Council (FSCC) who were present to introduce themselves. He said that the Annual Review of the Financial Sector Charter Council, 2008, listed all the members of the Council. Although not all were present, all participants in the Charter Council were represented.

Mr Mashiya apologised for the late arrival of the presentation.

Financial Sector Charter Council
Mr Mashiya noted that his presentation was based on Annual Review of the Financial Sector Charter Council, 2008. He conceded that some of the figures might appear to be outdated compared with the information that the Committee had received the previous day. He also noted that the figures to be presented were sector-wide or industry-wide figures. He gave an overview of the financial sector. This sector was the largest sector, accounting for 21.5% of the gross domestic product (GDP), in the South African economy. It was followed by manufacturing and then mining. The financial sector was the second fastest growing sector, growing at 5.5% from 1994-2009, after construction, which grew at 5.7%. It was internationally active, central to the growth of the rest of the economy, and intensive of capital with high levels of concentration.

Mr Mashiya noted that it was always a problem if the financial sector grew faster than goods and services, since this might lead to asset bubbles. One had to be aware of where the money went. People might prefer to buy derivatives if there was too much credit.

Mr Mashiya noted that South African companies were commercially viable in the rest of the world. Other sectors were reliant on the financial sector; therefore the Charter was very important. He noted that it was one of the most capital intensive sectors of the economy, with market capitalisation of [R554 449 billion], and employment of 275 965. He noted the importance of the big four banks, whose assets totalled R3.109 billion. He also gave figures for long-term insurance, retirement funds, collective investments, and short-term insurance.

Mr Mashiya explained that the sector was highly regulated. He noted that before entrusting any institution to take money from members of the public it was necessary to ensure that the institution was licensed and regulated. Entry and participation was licensed. There was risk-based prudential and market conduct regulation to ensure stability, efficiency, consumer and investor protection, and market confidence. He explained the role of the South African Reserve Bank, the Registrar of Banks, the Supervisor of Cooperative Banks, the National Payment System, and exchange control. He spoke of the role of the Financial Services Board, with regard to pension funds, insurance, collective investments, financial advisory and intermediary services, market abuse, and consumer education. He spoke further about the Cooperative Bank Development Agency, the Financial Intelligence Centre, and the National Credit Regulator.

The financial sector had committed itself to the Financial Sector Charter in August 2002 at the National Economic Development and Labour Council (NEDLAC) Financial Sector Summit. The parties had committed themselves actively to promoting a transformed, vibrant, and globally competitive financial sector that reflected the demographics of South Africa, and contributed to the establishment of an equitable society by effectively providing accessible financial services to black people and by directing investment into targeted sectors of the economy. This Financial Sector Charter was voluntarily developed by the sector; was a Transformation Charter as contemplated in the Broad-Based Black Economic Empowerment (BEE) legislation; constituted a framework and established the principles upon which BEE would be implemented in the financial sector; represented a partnership programme as outlined in Government’s Strategy for Broad-Based BEE; provided the basis for the sector’s engagement with other stakeholders including Government and labour; established targets and unquantified responsibilities in respect of each principle; and outlined processes for implementing the Charter and mechanisms to monitor and report on progress.

Mr Mashiya explained that the Financial Sector Charter’s objectives were to establish a framework and underlying principles for BEE implementation in the sector; provide a basis for engagement with other stakeholders; establish targets and other responsibilities; and to define the processes for implementing the Charter and monitoring progress.

Mr Mashiya explained participation in the Financial Sector Charter Council. The affairs of the Charter Council were managed by a Board, which consisted of 21 people. The entities constituting the Board of the Charter Council were listed. From Government, there were four representatives comprising two representatives from the National Treasury; one representative from the Department of Trade and Industry; and one representative from the Presidency. From the Association of Black Securities and Investment Professionals (ABSIP) there were three representatives; from the NEDLAC labour constituency (COSATU, NACTU and FEDUSA) there were four representatives); there were also four representatives from the NEDLAC community constituency; and there were six representatives from the member Trade Associations. These associations were the Association of Savings and Investment South Africa (ASISA), the Banking Association of South Africa, the South African Insurance Association (SAIA), and the Johannesburg Stock Exchange (JSE) Securities Exchange.

The Chairperson was elected from amongst the members of the Charter Council each year on a rotating basis amongst the different constituencies. The current chairperson was Mr Mashiya, representing the National Treasury.

Mr Mashiya indicated transformation commitments: accelerating equity of employment and development of skills within the sector; increasing procurement from BEE-accredited enterprises; improving access to financial services; increasing investment in low-income housing, black-owned small and medium enterprises (SMMEs), agriculture, and transformational infrastructure; increasing funding for BEE transaction financing; and achieving targets for BEE ownership and control.

Mr Mashiya gave an illustrated overview of Charter transformation areas (slide [9]), and reviewed achievements in 2008 in human resource development. At senior management level, 25.37% were black people. 8.05% were black women. At middle management level, 38.88% were black people. 17.64% were black women. At junior management level, 53.14% were black people. 31.25% were black women. In skills development R854 million had been spent on training black staff. A figure of 1.71% was given for training of black staff, and a figure of 1.46% for learnerships, against a target of 1.5%.

Achievements in 2008 in targeted investment included R17.69 billion in transformational infrastructure; R31.14 billion on low-income housing; R11.37 billion on SMEs; and R4.44 billion on agricultural development, with a total of R64.64 billion. R101.20 billion had been invested in BEE financing. Access to financial services included, under the heading of transaction savings products and services, a figure of 74.72% for service points, against a target of 80%; a figure of 74.72% for full services points, against a target of 80%; a figure of 97.91% of target for bank savings products and services; and 2 308 466 million active Mzansi accounts.

Achievements in 2008 for procurement were demonstrated by the spending of R59.5 billion on black suppliers. This was 59.42% of procurement in the sector. Direct black ownership in the sector was 11%. As to management control, there was a figure of 28.41% for black executives; 12.06% for black women directors; 7.64% for black women executives; and 40.92% for black directors. Corporate social investment represented 0.088% of profit after tax.

Mr Mashiya reviewed challenges. There was much uncertainty. There had been under achievement on some existing targets. Other challenges included geographic concentration, regulatory impediments in housing, and retirement fund institutions. Not enough had been achieved in infrastructure and housing. There was a lack of participation by the retirement funds. The biggest challenge was the gazetting of the Charter as a sector code. All of the original targets had now expired. There remained one major dispute on whether the financial sector should retain a target of 10% for direct ownership.

Mr Mashiya reviewed conversion to the sector code and alignment of the ownership element. He noted areas peculiar to the financial sector – access to finance, empowerment financing, and targeted investment. He noted areas which would align with slight variances – procurement and enterprise development, the definition of “black’, skills development, corporate social investment (CSI), employment equity, black women, and management control. An area under discussion was ownership.

Mr Mashiya looked ahead to gazetting in November 2010 of the areas on which agreement had already been reached and gazetting in February 2011 of the revisions and updates of the remainder of the Financial Sector Charter, and said that a process of review was already underway. 

Discussion
Mr Momoniat noted that the financial sector was regulated. It was important to ensure that the sector remained financially sound, since it held money entrusted to it. He explained the implications of owning capital in a bank; if one owned more than 15% in a bank, one was a shareholder of reference. In case of financial difficulty for the bank, if the shareholders of reference could not provide funds, the Government had to intervene. It was important to make sure that the shareholders of reference were rich. He noted that one could not borrow money from a bank to buy its shares, for this would cause the bank to be impaired. About 40% of the targets in the codes related to BEE. One realised that it was a special sector, and it affected every other sector. He noted that the targets had been set in 2003, and perhaps needed to be tightened. He thought that the transformation issues had been lost, and it was the view of the National Treasury that this was a great pity. Although the sector had achieved many of the targets, it could surely do more in this regard. It had to be asked if the bar had been set too low. This was a legitimate issue that needed to be considered. Because the Charter preceded the codes, which had been compiled in 2007, the issue then was whether Government should compel the sector to fall into line with the new policy. However, as to matters of ownership, this would be hard to achieve. The codes specified 15% direct ownership and 10% indirect. The codes, however, did not deal with any transformation or access targets. There had been a consensus, as Mr Mashiya had indicated, was to ask what the ownership equivalent was. This was the grand compromise when one had the Financial Sector Charter between ownership and transformation.  
   
The Chairperson asked about participation (slides [6-7]), and to what extent were agreements of the Council itself binding upon affiliates of the Council. He also asked about the issue of transformation in the broader sense, and about progress in transformation in matters besides equity. 

Dr Z Luyenge (ANC) appreciated the presentation and asked whether the structural arrangements of the Council related to local structures in the provinces. He noted that the Council had reflected on its achievements. With regard to its BEE and black suppliers, it was necessary to be sufficiently rigorous. He asked this because he expected a report in future to say that BEE had been of assistance. However, he was concerned that once an individual had graduated, that individual was no longer there to plough back what had been invested in his or her education. With regard to the representatives, there was no recommendation to say that the locals were the beneficiaries. It was clear that the black people did not access the economic status that would make them equal “to the previous owners of this world”, because of various requirements. He asked especially about black suppliers and transformation, and noted that it must not be the same people who gained every time.

Mr M Motimele (ANC) followed up on the Chairperson’s question, and asked about the legislative mandate of the Charter Council.

Ms Z Dlamini-Dubazana (ANC) referred Mr Mashiya to the Annual Review of the Financial Sector Charter Council, 2008, page 35. She assumed that the Charter’s objective was actively promoting a viable financial sector. She asked if the Council had forgotten its mission. She repeated her question of the previous day (Standing Committee on Finance. Meeting held on 10 August 2010) about procurement from the black suppliers. She asked about social responsibility, and referred to what Mr Ismail had said. The sector had to adhere to the priorities of the country. She was concerned that financial institutions looked for public money when they collapsed. She asked how much of the 89% was ploughed back. With reference to the Annual Review of the Financial Sector Charter Council, 2008, page 32, she asked if that was fair to the community especially the poorest of the poorest. 

Dr D George (DA) said that the codes of the Department of Trade and Industry made provision for pension funds. Why were these funds not participating? What about the black members of pension funds? He asked about the matter of risk. He noted that BEE was a massive intervention in the economy and was necessary, but it needed to be broad based and not the empowerment of just a few.  In any intervention one saw unintended consequences, and asked if the Council reviewed such consequences. There were cases where black partners had been given shares, but the shares had lost value and the shareholders were in debt. Finally, on the issue of once empowered, always empowered, one noted that South Africa had a mixed economy in which BEE partners could sell their shares whenever they wanted to. One could not expect a company to undergo a process time and time again that might not be financially beneficial. He understood that BEE intervention was necessary until such time as South African society normalised. South Africa was not yet a normal society and it would take a long time, but one could not keep repeating the process of making a few people rich while leaving the intended beneficiaries behind. He asked what was being done to stop that “crazy” cycle.

Mr Mashiya said that the trade associations would respond to questions which pertained to them especially.

Mr Cas Coovadia, the Managing Director, the Banking Association of South Africa, responded to the Chairperson’s question as to what extent agreements of the Council itself were binding upon affiliates of the Council, given that the Banking Association was a voluntary one. He said if an issue was discussed by the board of the Banking Association, and a consensus or majority decision was reached, then banks would implement that. If a particular bank did not decide to implement, the Banking Association could not force it to do so. However, one of the roles of the Financial Sector Charter Council was actually to rate institutions. These ratings were public. If decisions were taken by the Financial Sector Charter Council, a bank would be expected to implement such a decision, but if it did not, this might be reflected negatively in the ratings that it received. 

Mr Coovadia said that there had been a series of questions on performance on targets, and whether the performance was actually good enough, and whether there had been potential unintended consequences.  With reference to this process which had been agreed to with the two ministers until November 2010 to March 2011, it was necessary to look at these observations. There had been agreement with the Ministers to say that there should be a review of what has happened in the past two years. It should then be asked if things should be done differently.

Mr Coovadia said that, in respect of targets, there had been agreement to align all the targets with the exception of ownership. It was still necessary to consider if there had been unintended consequences on which parties to the Charter Council could agree.

Mr Coovadia said that, if these unintended consequences were related to policy, then the Council would refer to the National Treasury. This was useful in the process in which the Council was engaged until the end of November 2010 under the direction of the two ministers. It had to be admitted that the world had changed, especially in the financial sector in the past two or three years. The Council had some experience in the past two or three years on how it had performed. It had gained some experience about the codes. He proposed putting all that together and having a discussion on how to move forward. Therefore this next process was a critical one.

Mr Coovadia declined to comment on information that Members of the Committee had requested on geographic urban versus rural concentration, but conceded that there was much work still to be done. There was no doubt that there was still an urban concentration in a range of areas.

Mr Coovadia had said the previous day that there was need to look at a smarter partnership between Government and the financial sector. It might not be financially viable to expand into particular areas.

Mr Coovadia said that, with regard to the once empowered, always empowered issue, the Council had put forward a number of reasons, but he was not sure if time permitted elaboration. However, the Council did not feel that it could review the deals in 2015. The reasons had to do with the regulation of the industry, and the need to reserve capital with the Reserve Bank. It had also to do with the international banks which had branches in this country, and whose head offices had agreed to particular processes of empowerment. They would be reluctant to return and discuss the matter again. However, he was reluctant to enter now into the debate which would later take place in the Charter Council on these issues.

Mr Leon Campher, Chief Executive Officer, the Association of Savings and Investment South Africa (ASISA), told the Committee which institutions his organisation represented. It also represented the investment managers. It had 151 members altogether. It was also a voluntary association. The Charter came into being in 2004; it was voluntary and the members conformed. Subsequently, the codes had come into being. All the Association’s members had subsequently been rated, and their ratings would assist or hinder them according to their empowerment credentials. So there was also self-interest involved in an organisation’s meeting the requirements of the codes. 

Mr Campher said that Mr Momoniat had done well to indicate that there were two points in the Charter which were absolutely vital for the country. These points did not form part of the generic codes. These were targeted investment and BEE financing and access to basic services. From the perspective of the Charter’s being gazetted as a sector code, this could be very positive.

Mr Campher said that in the context of deployment of capital, it had to be admitted that there was an urban concentration. Putting money into places where it was needed would require cooperation with Government.  

Mr Campher said that the industry was unbelievably highly regulated. Regulation 28 was highly prescriptive as to where one could invest money. It also had to be considered that, for example, money invested in Old Mutual did not belong to Old Mutual, but to the private individuals who had invested their savings. It was necessary to take account of those needs. There was a pool of savings and specific rules how it could be invested on behalf of those savers. That was the challenge. Deployment of funds had to be considered versus the protection of the people who were saving.

Mr Campher noted that South Africa’s financial system had survived the economic crisis very well. Its institutions were, by and large, in good shape, and had not had to ask the tax payers to bail them out. This was partly because of good management, good exchange control, and an element of luck. 

Mr Barry Scott, Chief Executive Officer, the South African Insurance Association (SAIA), which looked after the interests of the short term insurance industry, said that his was a voluntary association but once an organisation joined much of what the Association did was compulsory upon its members. The Association provided free of charge alternative dispute mechanisms to the consumer. The most successful compulsory programme was a consumer education programme. Something like R54 million had been invested in consumer education. Much of this was in the rural areas, for example, programmes in the Eastern Cape, Mpumalanga, Limpopo, rural KwaZulu-Natal, and the Northern Cape. In fact, wherever possible, the Association tried to run programmes in the rural areas.

Mr Scott said that, in terms of a national rather than a local footprint, short term insurance was very specific as to where money could be spent. Most money spent by short term insurance was in fact on claims expenditure. So if a consumer had a claim, the expenditure would be where the policy holder lived. So there was no concentration other than where the policy holders lived.

Mr Scott said that the financial sector had withstood the global crisis. No single short term insurer failed in this period. No single short term insurer sought funding from the state.

Mr Scott said that after 2014 a different capital management regime might apply. This created some uncertainty.

Mr Scott said that his Association would be happy to interact with the Committee in future on issues related to the short term insurance industry. 

Mr Isaac Ramputu, Assistant General Secretary, SASBO Finance Union, said that his organisation could join the queue and say that it was a voluntary organisation. A worker had the choice whether or not to join a union.

Mr Ramputu said that his organisation had raised the issue of narrow black economic empowerment’s benefiting only a few and had pressed for broad based black economic empowerment, because of the unintended consequences that had been raised by Dr George.

Mr Ramputu said that labour and the community were outside when the Charter was introduced in 2003. When the targets were set, labour and the community were not part of the process. However, labour and the community were involved in implementing the charter. Many hours had been spent in committees to determine those mechanisms.

Mr Ramputu said that a challenge had arisen when there were disputes around the issue of ownership. The last report was in 2008. It would be appreciated that the targets themselves had expired.

Mr Ramputu said that his organisation had raised the issues of urban concentration, and had reached some tentative agreements on some of those areas. Labour had always said that the poor, black majority that were members of the funds should not benefit through money being invested in the areas from which they came. This money was always invested in areas where they did not live, because of the impediment of Regulation 28. 

Mr Ramputu said that if there were to be an institution representing the retirement funds, it should broadly represent the members of the funds themselves. The NEDLAC constituency had to come to the board. There was a need to have a trustee body to represent the majority. Funding of such a body was also an issue.  

Mr Ramputu said that the issue of housing for low income groups was an issue that had been grappled with in the Charter. Part of the issue was the impediments that existed. There were many stakeholders involved.

Mr Ramputu said that the issue of once empowered, always empowered was an issue that was now on the table. It had been agreed that it was necessary to resolve that issue. The codes did not address the issue.

Mr Solly Mapaila, Principal Officer, Financial Sector Charter Council (FSCC) agreed with Mr Ramputu from labour that the Council had led the sector in transformation: it had been a moribund sector in this regard. He was glad to note that Members had called the sector to engage with them. It was a very difficult sector and he hoped that such engagements would be more frequent.

Mr Mapaila said that when the Council had launched its campaign, which it had taken to NEDLAC, its slogan had been “Make banks serve the people”. Banks still did not serve the people, in many instances. One of the few victories had been the Mzansi accounts. Some called these the Red October accounts. These accounts had been opposed by the banks, which had said that these masses were unbankable. It would be too costly to offer banking facilities to them.

Mr Mapaila said that members of the FSCC were present as a single entity and it was important to be aware that on 30 July 2010 the FSCC had presented its framework report to the Ministers of Finance and Trade and Industry. Agreement had been reached on many issues except the issue of once empowered, always empowered. If Members read that report they would see that the sector had been characterised into two parts. The first part was the collective; this part of the collective would represent the Government, and the constituencies such as labour. Only one institution, the trade associations, had not agreed with the collective. It was crucial for Parliament to appreciate this. Unless this was appreciated there would continue to be skewed development.

Mr Mapaila noted that members of communities in the Free State had to spend huge amounts on transport to use banking facilities since bank branches had been closed down, but the sector did not care. He was glad that the Committee had begun to address such questions. It was important that Members of Parliament had discussions with the National Treasury, because there was sometimes an impression that the National Treasury represented business interests.

Mr Mapaila said that it might be the case that in a few years South Africa would not even have “a bank” that it could call its own. Standard Bank’s market share on the continent was vastly increasing; such institutions thought that this country was too protective of labour and found cheap labour on the African continent. Such institutions were keen to set up bases outside this country. Other countries were beginning to offer them a sense of stability and were tempting them. Lack of transformation after so many years of democracy would not be acceptable to the ordinary people. He said that the FSCC had wondered why it had not been called before. He referred to Mr Mashiya’s presentation which had indicated the crucial nature of this sector, a sector which should be kept under close observation. 

The Chairperson said that it was not the intention of the Committee to provide a forum for a dialogue between FSCC members. This they could do in their own time and at their own expense.

Mr Thabo Masombuka, Director: BEE Division, Department of Trade and Industry, which was the custodian of the broad based black economic empowerment (BBBEE) codes, said that his role was to provide support to ensure that the Financial Sector Charter was aligned to the codes, and that all the objectives espoused in the BEE policy were fulfilled. He noted significant developments such as the establishment of the Presidential BEE Advisory Council, which would take detailed stock of the process in the migration from narrow BEE to broad based BEE. There had been recognition when the codes were developed that there were some oversights, which, as a Member had noted, had resulted in some unintended consequences, including diluted ownerships. What the codes had attempted to do was to mitigate the extent to which this would cause confusion in the markets. That perhaps was not the most effective way. There was recognition that the state must actively participate in ensuring that there were radical and progressive measures to make sure that the poorest of the poor were benefited by substantive reforms. This is why the voluntary nature of BEE always arose. Members would be interested to know that there were similar outcries in the agricultural sector.

Mr N Koornhof (COPE) asked when Members could expect the Annual Review of the Financial Sector Charter Council, 2009, and about a publication, early in 2010, on chief executive officers’ (CEOs) salaries. This publication indicated that trade unions were the real culprits in paying very high salaries to CEOS. He asked if the FSCC was prepared to take on its members to set guidelines for remuneration of boards of directors in trying to curb these high salaries.  

Mr E Mthethwa (ANC) asked about how the code should be implemented. Should the Government intervene and enforce the alignment of this code and Charter? If yes, how should this be done?  

Mr D Van Rooyen (ANC) said that low targets had been cited as one of the challenges. He asked how the FSCC would deal with this challenge differently from how it had been dealt with in the past. He asked when Members could expect the Annual Review of the Financial Sector Charter Council, 2009. Did the Council follow any reporting cycle? It was important for Members to be given these agreements, since Members used the information for official purposes. It was important, when the Council reported to the Committee, to ensure that what the Council reported was the result of collective effort to avoid inconsistencies. 

Ms Sibhdla (ANC) said that she had not noticed a response on the non-participation of retirement funds. Secondly she asked if the Council was aware of why the empowerment partners were selling their shares, and if there was any tracking system of ownership after these shares had been sold. She asked the Council to elaborate further on the triple BEE codes as to whether they had had any effect in the industry on transferring the ownership.

Ms N Balindlela (COPE) said that this meeting had been long overdue. She said that Members had sought for long to define poverty. Now they could hope to answer the question of whose responsibility poverty was. How could it be addressed?  She said that Members knew what was going on in the rural areas. She asked who conducted the oversight in the financial sector, and if the Committee could learn more about what was being done in the state-owned enterprises (SOEs).

The Chairperson said that there were certain issues that he regarded as central and critical to the day’s discussion. The first was the issue of unintended consequences. Members had not obtained a clear picture. He acknowledged that the codes existed. The total asset base in the banking sector was about R3.5 trillion. One would understand the sensitivity that surrounded the industry.

The Chairperson asked if all transactions were threatened by this once empowered always empowered notion. One must not generalise this problem.  It was not a challenge only for the financial sector; it was part of a broader problem. Narrow BEE had not helped.

The Chairperson asked what the progress registered in the area of BEE was in terms of the large banks which represented 86% of the asset base.

The Chairperson asked how much social community investment represented in monetary terms. Why 0.5% of CSI and not 5%.

The Chairperson asked if there was progress in issues of research and development to which the above was related.

The Chairperson noted that community and labour was not part of the Council in 2003 so had not been involved in setting this target. He said that a minimum agreement existed now with Government. He asked what the time frames of these issues that had been agreed were.

The Chairperson asked for figures of the size of the resources in the sector and in what sector of the economy those BEE transactions were taking place. If they were in the financial sector, he wanted to know to what extent those transactions were helping in achieving objectives. The growth in the sector, even though it was the fastest growing, might not be in the best interests of the broader economy. It might be in the stock market. Some sense of the flow of money was needed. It was important to invest in SMME programmes, because that was where quality jobs were located. 

The Chairperson said that there was a need to review targets, low or high, and the time frames. There were also micro issues with which the Council should be seized.

The Chairperson said that it was very difficult for young people to enter the financial sector.

Mr Mashiya said that most of the targets had expired, and hence there would not be a 2009 review. The 2008 review was the latest information in terms of the Charter that the Council could provide. In the absence of this Charter there was nothing to which the trade associations could be held. The trade associations complied with the codes. The figures from the Banking Association were not audited either by the National Treasury or by the Department of Trade and Industry. He noted that the Charter Council was a non-governmental organisation; it was voluntary and had no legal standing. He could not sub poena the trade associations to provide information. The Charter needed to be converted into a sector code.

Mr Mashiya said that it was not possible for a company to lend money to someone to buy capital in that company. This would undermine the company. Banks might create a special purpose vehicle (SPV), which was a shell company. Mr Mashiya explained this process at length. He noted that when interest rates were high, banks faced difficulties because clients were reluctant to borrow, and thus bank profits fell. This affected the stability of banks. 

Mr Mashiya said that when shareholders sold their shares, they did not usually re-enter the sector, because shares in the financial sector were not always looked at as an issue of wealth. Other sectors were viewed more favourably. 

Mr Mashiya said that the ceiling for corporate social investment had been set too low.

Mr Mashiya said that the Council should put pressure on the banks to give importance to SMMEs. This would put money into the hands of people who produced work on a daily basis. This money would be working for the economy with a multiplier effect.

Mr Mashiya said that the Council had set itself a timeframe of November 2010.

Mr Mashiya said that price of houses had increased in recent years three times faster than the average income. He referred to the National Credit Act which made it impossible to obtain a loan if one could not afford it. He said that priorities had been wrong. It was important to shift resources to SMMEs, agriculture and housing.

Mr Mashiya said that the Government was involved in aligning the codes to the Charter.

Mr Mashiya said that the Council planned to raise the targets, but the question of how much remained. The targets could not be enforced in law.

Mr Baba Mashologu, President, Association of Black Securities and Investment Professionals (ABSIP), said that his organisation’s approach was pragmatic. Its primary objective was economic growth. This could be achieved by transformation of the sector. Without transformation the financial institutions would not be able to drive the economic growth that the country needed.

Mr Mashologu’s organisation’s aim was also to leverage the black professional community, and to act as an informal watchdog. His organisation had inside knowledge on some of the information that it obtained. ABSIP had a number of concerns: the first of these was concentration; the second was the risk of dilution. If one wanted growth within our financial industries, there would of necessity be dilution of BEE shareholding.

Mr Mashologu said that it was necessary to balance idealism of a transformed and progressive society against the cold and hard realities of capital. His organisation noted that there was not always traceable reinvestment into the economy by virtue of ownership. Therefore, although the organisation would want maximum ownership, and ownership which reflected the demographics of the country, the organisation recognised that that ownership should not be at the expense of economic growth and fundamental investment in the economy and society. Therefore the organisation wanted maximum ownership, but not at the expense of other elements of the Charter.

Mr Mashologu noted that statistics could be made to say whatever one wanted to say. An empirical method was needed of measuring those statistics.

Mr Mashologu could say that the achievements noted in the 2008 Review were not mirrored by his own experience. All present would recognise intuitively that the numbers given did not reflect reality on the ground.
He said that the funding of the Council by the trade associations might have influenced the way in which the statistics had been compiled.

Mr Mashologu said that one of ABSIP’s submissions had been the reallocation of funds to infrastructure in both rural and urban areas.  

Mr Mashologu said that the principles of the codes were sound but the problems were behavioural. The legislation was sound but needed more policing.

Mr Isaac Ramputu said that the views of labour on levels of pay for the lowest paid and the highest paid were clear, and need not be elaborated.

The Chairperson said that the National Assembly was about to hold a plenary session, and Members needed to prepare themselves.

Mr Masombuka said that the Department of Trade and Industry would not endorse a Charter that deviated from the codes unless those deviations were properly motivated. There was a robust process to ensure that there would not be inconsistencies. The codes had been gazetted in 2007 after a robust countrywide process. The codes represented progress from a narrow interpretation of BEE. 

Mr Momoniat said that National Treasury had not appeared before the Committee for the past two years. It was important to look at the positive achievements. He noted that the previous Committee had had a workshop on SVPs which had been quite fascinating. His only issue was why it had been a closed workshop. 

Mr Momoniat noted that Mr Mashiya had summed up the issues very well. He remembered that Governor Marcus, of the Reserve Bank, had said to the Committee that the regulators should interact with the Committee on the regulatory issues and the risks which they had had to deal, and why, after the financial crisis, one was considering even tighter regulations. This had implications for transformation.

Mr Momoniat noted that he did not want the FSCC to align with the BEE codes, because the BEE codes were set too low. They were not demanding enough for the financial sector. The paralysis over the ownership issue had occupied the board; it was a devastating criticism of the FSCC over the past three years that it had missed the big picture. All the charters should push for the creation of jobs.

Mr Momoniat noted that it was important to achieve balance, with regard to taxation of the sector, since capital was mobile. The financial sector was too important not to have an annual discussion; and the regulators should be included. 

The Chairperson thanked participants, and said that the sector was a permanent “matters arising’.

The meeting was adjourned.




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