Transformation of the Financial Sector: public hearings

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Finance Standing Committee

14 March 2017
Chairperson: Mr Y Carrim (ANC) and Ms J Fubbs (ANC)
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Meeting Summary

The Finance and Trade and Industry Committees held joint public hearing on Transformation of the Financial Sector. The bank submissions gave reports on their transformation and admitted it was not as good as hoped but Members believed that there was little progress in transformation, especially in terms of ownership. NEDLAC and the Financial Sector Charter Council noted that a Summit would be held in June/July 2017 due to the poor progress in the 13 agreements made at the 2002 Summit. It was hoped that the BBBEE Commission established in 2016 would provide more teeth.

The Committee had a robust engagement with the financial services sector representatives who were asked to clarify in which areas the sector was dragging its feet on transformation. DTI was asked which government agency was tasked with collating data and information on transformation, and to state its position on the status of transformation in the sector based on the objectives set by DTI. The Financial Sector Charter Council was asked to clarify if its responsibility towards transformation was only the collation of information and reports or if it included enforcement of transformation targets. National Treasury was asked to propose models that would encourage ownership in deposit taking institutions and ensure deracialisation in SA. NEDLAC was asked to state if the model for the formation of co-operative banks was a sustainable model for transforming the financial services sector (FSS).

Members suggested that the revised Financial Sector Charter should include proposals that incentivised access to finance for black shareholders by increasing the bonus points received on this target. Members agreed with Treasury that the fundamental goal was to move the SA economy from being concentrated in a white minority into the hands of black people. Members asked DTI to give recommendations and state the key strategic areas in training needed to drive transformation. Treasury was asked how it envisaged further direct black ownership in banks and economic inclusion of black shareholders when the dividend tax was being increased. Members asked why there was no government data available since the 2002 Summit on the extent of transformation. Members suggested that to reverse economic exclusion and apartheid repression, Parliament had to legislate in favour of black shareholders. Members suggested the banking sector could work collectively with government to create nine provincial co-operative banks to service poor people. Members asked the banks about the extent of complex fronting transactions. Members asked the FSS agencies how the established banks could assist SA to build co-operative banks and increase black ownership of these banks, Members requested a full picture of racial employment in banks, specifically black employment in top management. Some Members questioned the statistics used by BASA, the banks and ASISA that stated that 49% of the top six banks was owned by foreign investors, 34% was owned by institutions such as pension fund investors and 17% by other categories of investors, mostly individuals and black ownership on the JSE was 23%. Members noted the submissions by banks on black ownership and recommended legislating for black component ownership. The Committees resolved that the FSS agencies provide a response in writing on all questions asked within 14 days. Public hearings would be held on 15 and 22 March 2017 before April recess and would carry on until May as the response had been overwhelming.

The Centre for Competition, Regulation and Economic Development (CCRED) stated that transformative finance is inclusive and rules of the game should be changed, not to favour insiders only. CCRED has showed that entry and rivalry bring benefits to consumers. Barriers to entry remain high. Entry brings benefits in lower fees, more dynamic products, and competition for low income customers. Barriers include limited transparency and comparability of bank offerings. Obtaining a banking licence is difficult without a tiered structure. The infrastructure is costly and there are limits to using alternative technologies. Requirements affect small banks disproportionately. Failure to encourage and support entry through a flexible, adaptive, risk-taking, permissive regulation has the same effect as high barriers to entry. Comparative studies on Mobile Money demonstrate the role of regulation in stifling such growth in South Africa. There has been slow progress in implementing the banking inquiry recommendations. It is important to introduce better monitoring and publishing of commercial lending to SMEs and black-owned businesses. Developmental finance is not enough. South Africa requires a long-term, risk-taking, patient funding for new investments. Provision of services to SMEs and black-owned entrants should be incentivised. Licensing should be opened up to promote the diversity of offering.

The Black Business Council (BBC) aims to voice and ensure problems unique to black business and professionals are addressed in a meaningful sense. It is in the interest of business to work with the government, labour, churches, women, youth groups and other stakeholders to ensure that all South Africans participate and benefit from the development and growth of our economy. The BBC said radical economic transformation must be legislated. All new licences must have a minimum black ownership of 51%. There must be set-asides of up to 35% for black entrepreneurs and that should be a condition for licencing. At least a minimum of 30% of financial services should be allocated to black asset managers to manage as part of black enterprise development. There should be skills development and progression of black professionals to deracialise the sector, and BEE ownership must be a JSE listing requirement.

The Association of Black Securities and Investment Professionals (ABSIP) believes that while transformation of the sector has been slow, some progress has been recorded and much more could still be done at a faster pace. Legislative and regulatory support are key to advancing transformation. Transformation in sectors also must be measured in terms of real leadership and decision-making roles within the large established, dominant, majority white-owned players. There simply is not enough change in black professionals playing a leading role in these firms. ABSIP recommended compulsory disclosure is required for all participants in financial sub-sectors, particularly in asset management, to determine the state of the market structure and whether transformation is meaningfully occurring.

The Actuaries Lekgotla said that black actuaries are very frustrated with the slow pace of deracialisation and transformation in the financial services sector and challenged the industry to explain why white male actuaries get higher salaries than black and female actuaries. There was no action from senior actuaries and management despite being aware of this. It proposed that companies should justify pay discrepancies by gender and race by means of a standard statutory submission, and there must be a salary audit every year

Firstsource Money stated that banks are not “financial intermediaries” as government, Treasury and Reserve Bank officials think they are. One of the key reasons we had the global financial crisis is because of the erroneous understanding of what banks do. Banks do not consider or even care about the macroeconomic and related economic and social implications of their power to create and allocate money. The state does not know it has abrogated its responsibilities and rights to banks, and it does not even know how much poverty and unemployment including crises are caused by banks. Banks shape the economy whether we like it or not. We either choose to leave it that way or do something now urgently.

The South African Development Foundation (SADF) proposed that banks, trusts and insurances companies must be asked to place R5 billion with DTI for start-ups development and industrial programs. This R5 billion would fulfill black people’s ‘start-up’ needs which the financial sector is avoiding. The majority of bank accounts are held by black people. But the money rarely gets back to black people. Banks and insurance companies lend to existing businesses only. Black people are unable to access the money because banks and insurance companies say you must start the business first and run it for some time to qualify and very few black people have running businesses. So, black people get nothing. Banks and insurance companies channel money to lend to 2% of the population who are industrialists or property owners. This means they take the money back to white people.

Members remarked that the BBC and ABSIP are right when they say government must compel transformation in the financial sector and agreed a discussion is needed between the private sector and government to engage on the BBC proposal of raising the R50 billion injection from the financial sector. Members asked CCRED to provide a suggestion to help lower the barriers to entry. They suggested BBC should be encouraged to meet more with ABSIP and explore possibilities of having black participation in JSE listed companies. They asked Firstsource to explain its statement that “banks are not doing what we think they are doing”. Certain Members caused stakeholders to become heated when asked about a favourable reference to the Zimbabwe economy and a fake PhD. The Committee requested the public stakeholders remain dignified. The Chairperson concluded that financial services transformation is critical for our country. Transformation in this sector would only be successful if the private and public sectors take a decision to accelerate transformation. It has been 23 years and nothing of substance has been achieved.

Meeting report

The Chairperson for the morning session, Mr Yunus Carrim, emphasised that the two Committees were both committed to the greater transformation of the financial sector which was in the interest of the banks, the financial sector and the country as a whole. However the terms of transformation – the contents, the way, when and manner it would be implemented – were up for review. The Committees would hold hearings until every stakeholder had been heard. Due to this, an additional date of 22 March had been set. The Committees would meet before rising at the end of March and dates had been proposed in May to continue the hearings. Since Parliament was an organ of state, the Executive would still deliberate on the Transformation of the Financial Sector but the outcome would be shaped collectively by the Committee, with comments from the public as well as NEDLAC included. The real discussions would occur when the Committee Report would be prepared but the Committees wanted to have the views of industry and civil society as well.

Ms J Fubbs (ANC), Chairperson of the Portfolio Committee on Trade and Industry, believed that, the transformation of the financial sector is integral to the success of the Committee’s mandate. She thanked the Standing Committee on Finance Chairperson for organising the hearings.

Mr D Maynier (DA) asked Mr Carrim to clarify the purpose of the hearings and the outcome he hoped to achieve at the end of the hearing because the advert placed about the hearings was not discussed with the Committee and the opposition had not agreed on the purpose of the proceedings. He asked Mr Carrim to confirm that at no time Members were summoned to the hearing and that Members appeared voluntarily.

Mr Carrim remarked that the purpose had been discussed. He stated that Mr Maynier might decide to be present or leave. The hearings arose because at the end of October 2016 when the Finance Sector Regulation Bill was being finalised, the discussion arose about whether the regulations assisted in the transformation process fully. However, the Democratic Alliance had refused to vote for that Bill. Mr Maynier might not have been present although his party members were present. Mr Maynier was referred to the minutes of meetings. The advert had been placed and nobody had been forced to appear at the hearings. The only people invited were the statutory bodies and adverts were placed as the norm for such processes. He asked Members if they had been forced to appear – to which, Members replied that they had not.

Mr G Hill-Lewis (DA) said that the Trade and Industry Portfolio Committee had the practice of being thoroughly prepared for meetings. He raised two concerns which were the documents and agenda for this meeting were circulated to the Standing Committee on Finance on Friday which allowed it to be adequately prepared but he had not received those for the meeting yet and requested them. The official notification received stated that the meeting would continue on 15 March, 2017 but the Committees had just been informed that the hearings would continue on 22 March 2017. He asked for clarity on the 15 March meeting and objected to the organisational confusion.

Mr Carrim remarked that the delay occurred because of his ill health and Co-Chairperson Fubbs having to deal with family issues. He clarified how announcements had been made and documents sent. He invited Ms Fubbs to address the issue but allowed Mr Shivambu to speak first.

Mr F Shivambu (EFF) said that he did not understand why Mr Carrim had to explain the purpose of the meeting and had to apologise for things beyond his control because the Members were invited to a meeting that would discuss transformation of the financial sector therefore the meeting would focus on that and high level monopolies. Any Member who was not interested could leave but the meeting could not be de-legitimised because the transformation of the financial sector had to be discussed and the meeting must proceed. The deliberations were legitimate and it would give directives about legislation for transformation or recommend how the transformation of the financial sector would be handled.

Mr P Mabe (ANC) remarked that the deliberations to drive the transformation of the financial sector had been raised continually in the Standing Committee on Finance, hence the meeting was long overdue, and being questioned on the agenda of the meeting exposed certain motives on the part of individuals on why the DA wanted to frustrate the transformation of the financial sector. Anyone not interested was free to leave because the people of South Africa were eagerly awaiting the outcome of the deliberations on transformation of the financial sector and the Committees needed to proceed.

Ms Fubbs stated that the Trade and Industry Portfolio Committee had resolved that it would link up with the Standing Committee on Finance after an extended discussion. During the discussion held in Parliament on Transfer Pricing in the first term with at least one of the opposition members present, her committee had scheduled a programme change from 14 to 23 March. Both Chairs had expected only 12 organisations to show interest but over 40 organisations did. She asked Members to state if it wanted Parliament to say no to these organisations or if Members genuinely wanted transformation to take place in the South Africa beginning with the financial services sector.

Mr Carrim resolved that the Committees would not entertain any more objections about the meeting. Since Friday 10 March, the Committees had continually received mails from organisations who wanted to participate in the public hearings. The Committee Secretaries had been overwhelmed by requests and it had been resolved that the Committees would include contributions from any individual or organisation that wanted to participate until the middle of May 2017.

Mr Maynier stated that he wanted to put it on record that the DA had campaigned to ensure the transformation of the financial sector and build a people's economy through the Mzansi Account, financial service regulation and institutional enforcement, the National Credit Act and the National Credit Regulations.

In response to Mr Hill-Lewis stating he had still not received documents, Mr Shivambu said the documents had been circulated to senior DA Members already and asked the DA to stop distracting the meeting.

Department of Trade and Industry (DTI) presentation
Mr Liso Steto, DTI Acting Chief Director: Broad Based Black Economic Empowerment (B-BBEE) said that his brief would show a clear framework of what empowerment was in SA and how Government has intervened to improve empowerment generally and in the financial services sector. He reported that the financial services sector (FSS) in South Africa included more than 30 banks as well as non-banking financial institutions such as state-owned developmental finance institutions, short- and long-term insurance companies and smaller financial intermediaries. In addition, the sector has the 19th largest stock exchange in the world in 2015, the Johannesburg Stock Exchange, which manages more than R8 trillion in assets. The FSS contributes 21.6% of SA’s GDP annually and over 15% of corporate income tax. It is one of the fastest growing employers in SA, with more than 250 000 employees in the sector.

He reported that the Financial Sector Code (FS Code) was developed in terms of Section 9(1)(e) of the B-BBEE Amendment Act. The B-BBEE Sector Codes were a means to address sector specific issues and peculiarities especially those that hinder transformation within a specific sector. The amendment of the FS Code first emanated from the 2002 NEDLAC summit where stakeholders committed to a sector charter with the aim to transform the FSS. The stakeholders were government; black professionals; NEDLAC organised labour and organised community and trade associations. The existing FS Code was gazetted on 26 November 2012. The existing FS Code is going through a process of review but the draft has not yet being finalised as it is going through public comments, to promote a more radical approach and to discuss some of the questions that have been raised. He emphasised that the FS Code had not being finalised however on 13 March 2017 the FSS Charter Council (FSSC Council) met and considered some of the inputs to ensure black people had more access to capital and stimulate economic transformation.

He highlighted that the B-BBEE policy unit of DTI did not feel that it had adequate data and information that could be used to measure transformation. However the B-BBEE Commission had been set up in 2016 to receive reports and to evaluate the level of transformation in SA. Hence in a few years, such reports would be completed and presented to Parliament. The B-BBEE Commission would be presenting areas of concern to the Committees on 22 March 2017 and he hoped that the B-BBEE Commission would assist in more compliance on transformation. Although the FS Charter Council would be presenting its 2015 figures to the Committees, the status in 2013 and 2014 showed a regression in transformation in the financial services sector. It was not at the required level mainly in the sector codes of ownership and management control. Although access to financial services has improved, a lot still needs to be done. The challenges facing transformation include: low level of transformation; lack of establishment or development of Black industrialists as the next phase of empowerment; lack of access to affordable and reliable financial services and insurance products; lack of establishment of enterprises per sub-sector to properly measure B-BBEE compliance. Despite the monitoring indicators of the FSSC Council there was very little response from the industry.

Mr Steto explained that three different scorecards are proposed for the different types of FSS entities. Banks and Life Insurance Offices have over and above the Generic Code elements, two sector specific elements; Empowerment Financing and Access to Financial Services. Short-term insurers have an additional element: Access to Financial services. Other financial institutions have the same elements as the Generic Code. In addition to the reduction in ownership, there is a reduction in skills development and there is no motivation for black industrialists. DTI had identified that in general to get transformation in SA, black ownership was critical in each sector of the economy. The other priority elements of the FS Code were skills development; diversification of value chains and development of suppliers that could access markets and opportunities in each sector. However in the FSS there had been a reduction in black ownership and skills development but enterprise and supplier development (ESD) funding was available.

Mr Sipho Zikode DTI Deputy Director General (DDG): Special Economic Zones and Economic Transformation, spoke on the FSS scorecard. Scorecards allowed each sector to be unique based on the peculiarities in each sector, for instance the FSS was highly regulated by systems, such as Basel III. Hence the laws that govern the FSS inform what the scorecard looks like. For the Ownership element of the scorecard the target was 25% which aligns with the Generic Code. However the element was different for banks due to the regulations in the banking sector; but for assets managers and intermediaries the Ownership target is 25%. The Sector Codes could change depending on the economy and the targets could change depending on what the monitoring figures in the priority elements indicate. For instance Management Control principles were aligned to what was in the Generic Code but the empowerment of black professionals had historical challenges however BEE proposed that black professionals should be in top management positions of financial institutions. The principles for Skills Development were the same except that the targets set included establishing Management Control that ensured that low level employees were considered for top management positions. The key scorecard for ESD was to ensure access to finance for banks and other institutions. The B-BBE had proposed that the ESD scorecard be broadened to include direct suppliers and create opportunities to support black industrialists. The targets for Socio Economic Development provided for consumer education about financial products by financial institutions so customers know their rights. The proposed element Empowerment Financing included: Transformational Infrastructure Financing which emphasises funding of previously neglected areas such as townships and rural areas, Black Agriculture Funding necessary to assist with the land reform process, Low cost housing funding and Black business growth (including SME) funding / BEE transaction funding.

Financial Sector Charter Council presentation
Mr Isaac Ramotshudi, FS Charter Council CEO, reported that a review on the transformation of the South African FSS had been done in 2014/2015 and the report indicated that many companies in the FSS had started implementing the B-BBEE Code. A FSS comparison between 2014 and 2015 indicated that there was an improvement in reporting although the rate of reporting was not up to the level desired and there was reduction in average ownership scores between 2014 and 2015. Ownership levels of Black Entrepreneur Shareholding reduced from 26% to 23% and Black Women Shareholding ownership levels reduced from 10% to 8% in the same period. The Management Control levels remained almost constant, Executive Women Members of the Board that had Management Control moved up slightly (11% to 13%). Employment Equity increased slightly and positively impacted Black Senior Management and Black Women Senior Management. A reduction was observed in average scores for Skills Development. The figures for average expenditure on Preferential Procurement with B-BBEE Suppliers showed an upward trend which surpassed the targets set. The Socio-Economic Development, Access to Financial Services and Consumer Education Scores (consumer understand products and there is financial literacy) showed a slight upward trend.

NEDLAC submission
Mr Madoda Vilakazi, NEDLAC CEO, said based on the failure of the 2002 FS Charter Council Summit to transform the sector, NEDLAC had taken the decision to conduct another summit in June/July 2017 to review the 13 Financial Sector Summit Agreements (FSSA) of 20 August 2002 which were: ensuring access to basic financial services and improve the quality of life of South Africans; jointly research the economics of basic financial services; develop sustainable institutions to serve poor communities; parties agreed to new enabling legislation for second and third tier deposit-taking financial institutions; parties agreed to make proposals on ways to enhance the developmental impact of the regulatory framework; seek to support financial co-operatives and micro-credit providers; propose appropriate regulations for micro-lenders to minimise the negative effects of usurious practices; regulation of credit bureaux; eliminate discrimination; end unfair discrimination against people with HIV/AIDS and develop appropriate services for them; increase capital markets and investment; make proposals for improved development finance institutions (DFIs) and other state-owned financial institutions and savings initiatives.

Mr Vilakazi reported that the general findings on the 13 agreements were that there had been changes in the environment in which the 2002 agreements were taken, promulgation of new financial regulations and Acts which have tightened up how financial support and aid is provided. Although more people have access to financial products and more cooperation exists between the public and private sectors on financial matters, there is difficulty in measuring some of the 13 agreements.

Findings on some of the 13 agreements were: service charges for basic financial services were high; rural areas still seem to be neglected in accessing basic financial services; the Dedicated Banks Bill for second tier financial institution was never promulgated for companies that were interested in entering the banking system (savings and loans firms) and the co-operative banks in SA are not well understood; most financial institutions still discriminate by using codes of conduct, special products are fashioned for poorer people, financial institutions / infrastructure less available in historic townships or rural areas and poorer people more likely to be unfairly treated by finance institutions; although the situation around HIV/AIDS is completely different now than in 2002 because insurance products (including life insurance and credit life insurance on outstanding credit ) are now available to persons with HIV however stringent criteria are set out for insurance products and premiums are higher than normal with the general negative stigma within communities still high; developmental investment initially seen as only government driven, the private sector seems to need incentives rather than committing to developmental investment but there is no single database from government showing all developmental projects/investment opportunities; banks have created specialised savings products including the tax free savings account, statistics from Finscope studies in 2016 suggested that 33% of South Africans are saving and 15% of this is through formal banks and consensus is that savings is very difficult when disposable income is low.

He concluded that the 2017 Financial Sector Charter Council NEDLAC Summit would have measurable deliverables, clear time frames, regular meetings to access progress on deliverables, a high political view from all stakeholders and ensure that there are consequences for non-delivery.

National Treasury submission
Mr Ismail Momoniat Deputy Director-General: Tax and Financial Sector Policy, said that Treasury welcomed the public hearings on transformation in the financial sector and these hearings were an opportunity to deal with the real issues and ask why transformation has not been successful after 20 years of freedom. The FSS was three times the GDP of the country. He emphasised that economic transformation, deracialisation and reducing inequality were critical to political stability. The priority for Treasury was mass-based and sustained transformation rather than transformation for few people. Treasury aimed for mass transformation by introducing tax incentives to promote empowerment and employee stock ownership plans (ESOPs), creating financial services that worked for all and generated more asset wealth for more South Africans.

Annexure F in the 2017 Budget Review provided the perspective of Treasury on transformation and the Minister of Finance spoke about transformation in his budget. Treasury would respond to the issues raised at the hearings. He highlighted key questions about the transformation process which were: what transformation meant, its achievement and what would be achieved by transformation, its extent, obstacles and challenges and the lessons learnt from the process. Financial services needed higher standards for transformation. Financial services comprises of banks and non-bank financial institutions. Financial services connected savers to borrowers and facilitated economic growth. Deracialised financial services was reflected by ownership and management that was more reflective of black South Africans; enterprise development and procurement services that involved black households and effective use of financial services; promotion of asset wealth for black households and providing better access to funding for small businesses.

Transformation included developmental and competitive objectives such as funding infrastructure and capital projects that promoted growth and jobs and ensuring a more competitive and less concentrated financial sector. He suggested that a holistic approach was needed to achieve transformation by evaluating if the current targets set in the FS Code where the right targets to ensure transformation; ensuring that the current BEE codes are refined to allow mass-based transformation, addressing structural changes to ownership transformation in listed companies and reviewing the policy framework for the financial sector.

Treasury proposed a multi-pronged approach to transformation that addressed areas such as FS Code commitments, market conduct, market development and financial inclusion. He noted why bank BEE deals were different options to accelerate transformation in the sector, proposed a market development framework for banks and proposed financial inclusion policy proposals. In conclusion he stated that:
• Financial institutions must do more to transform and be transformative.
• The asset management sub-sector needs to be transformed more than others since it had made little progress in its transformation.
• The FS Charter Council needs to engage more to refine its targets.
• BEE Codes need to take account of regulatory obligations.
• Mass-based transformation objectives such as access and inclusion and debt-free access to wealth Treasury was interested in the submissions and the Financial Sector Summit was an opportunity to review the FS Code to ensure that the FS Code was more relevant.

Discussion
Ms J Fubbs (ANC) observed that a negative trend was shown in FSS transformation by the DTI/FS Charter Council presentations.

Mr A Williams (ANC) remarked that the World Bank and the International Monetary Fund had stated on many occasions that fundamental economic transformation is needed in SA and he believed that the targets were very low, as Treasury had suggested, and should be increased across the board. He asked the presenters how it perceived the attitude of the banks towards FS Charter and asked them to state if there was any area that the financial sector was dragging its feet with regards to transformation.

Mr S Buthelezi (ANC) observed that DTI had reported that there was lack of adequate data and information on transformation. He asked DTI which agency was supposed to collate the data and information. He asked DTI to state its position on the status of transformation in the financial sector based on the objectives set by the Department. He asked FS Charter Council to clarify if its responsibility towards transformation was only collation of information and reports or if it included enforcement of transformation targets. The FS Charter Council reported achieving a weighted average of 24% ownership in black shareholding in banks in 2015. He asked how it achieved that percentage. The percentage was too generous as suggested by Treasury, because the percentage might include geared structures which collapse when the net equity flow to BEE companies are calculated because it results in much lower figures due to interest rates and dividends that affect the BEE deal.

Ms T Tobias (ANC) said that the average transformation target for Management Executives was 23%. She asked the FS Charter Council to state its next average transformation target for Management Executives and which year that target can be met. The average transformation target for preferential procurement was about 14.9% and asked the FS Charter Council to state its next target in the next five years. NEDLAC had reported that one of its objectives was to enhance deposit taking institutions. She asked NEDLAC to make proposals on how it would achieve this objective because as Treasury had stated it did not make sense to borrow from one bank to establish another financial institution. She asked Treasury to propose models that would enhance deposit taking institutions and ensure deracialisation in SA. She asked NEDLAC to state if the model for the formation of co-operative banks was a sustainable model for transforming the FSS.

Mr Hill-Lewis said that there had been a great deal of discussion that focussed on the concept of financial inclusion and he hoped the banks would focus more on the concept of financial inclusion in their submissions. The current design of the scorecard had loopholes. For instance, examining how companies are currently incentivised to the present targets of the FS Code scorecard, it was understandable why banks did not focus on access to finance for black shareholders. He suggested that the revised FS Code should include proposals that incentivised access to finance for black shareholders by increasing the bonus points received on that target for access to finance for black shareholders as opposed to the present situation where that target had zero bonus points and other targets had high bonus points.

Mr B Mkongi (ANC) agreed with Treasury that the fundamental national goal for transformation of the economy of SA was to move it from being concentrated in the hands of the white minority to the general hands of the black people in SA because through history the structure of the economy had been faulted. He noted that Treasury had stated that financial sector was three times the GDP which showed why there was a resistance in totally transforming the financial sector. The FS Charter Council showed that since the FS Summit in 2002, there had been a decline in the financial sector achieving its targets especially in the ownership target. The motivation why ownership has been declining is because the financial sector is highly regulated and therefore there should be a kind of compromise in terms of the speed and the pace of transformation. He asked financial sector organisations to explain what this meant because he did not understand why South Africans had to wait for people to be taking on board. For instance, why does the FS Code have to incentivise banks to do the ‘right thing’ and include black people and open access to finance services, skills development and education if the banks are sympathetic to the plight of black people. He asked DTI to give recommendations and state the key strategic areas in training that is needed to drive transformation.

Mr D Macpherson (DA) said that at the 8 March 2017 meeting of the Trade and Industry Portfolio Committee the B-BBEE Commissioner, Ms Zodwa Ntuli, reported that the private sector could not be expected to lead transformation and implement B-BBEE when government entities were failing to embrace transformation. He was uncomfortable with the Department of Social Development (DSD) awarding contracts to Cash Paymaster Services (CPS) a firm that was not complying with the B-BBEE Codes. He asked DTI to state what steps had been taken to address the non-compliance by DSD. He asked Treasury to state how it envisaged further direct black ownership in banks when the dividend tax is considered because it certainly deincentivises people from owning direct shares in companies if the taxes were going to be increased as much as they are under the new dividend tax. What was the rationale to achieve economic inclusion of black shareholders when the dividend tax was being increased?

Mr Shivambu said that the advert had requested that interested and affected members of the public give inputs on deracialisation, high levels of monopoly and progress in the implementation of the Financial Sector Charter however the DTI had reported that since the 2002 FS Summit 15 years ago, there was still no data on the extent transformation. It was problematic if the DTI, a department charged with the mandate of dealing with BEE transformation, could not provide data on the extent of black ownership in the financial sector. If the B-BBEE Commission, the FS Charter Council and NEDLAC appear at the hearings and do not have any data or information and do not give a directive on how deracialism of the FSS can be achieved, what could be done to ensure black ownership of banks, asset management companies, equity firms and insurance companies.

He suggested the Committees could address this by performing Parliament’s two roles of legislating and oversight. The Committees could legislate the transformation commitments of the FSS, agree that 50% of banks should be owned by black shareholders and create enabling environments for black owned banks to operate. He said this without any apology because BEE was designed to make black shareholders have no say on the board and the running of banks, and they end up being indebted because the loans received from the Public Investment Corporation (PIC) only allowed black shareholders to own shares for some time, sell them off to other black shareholders, and end up indebted without control over any sector of the economy. Parliament had the obligation of transforming the economy by legislating that a certain component of all financial institutions must be black owned because apparently during apartheid the legislation ensure that black shareholders were excluded from owning shares in banks, the JSE and other financial institutions. Therefore, to reverse economic exclusion and repression during apartheid, Parliament had to legislate in favour of black shareholders.

Mr Mabe agreed with Mr Shivambu that when the Committees dealt with the progress made on the FS Charter it should not miss out on the question of inclusivity in the financial sector. He thought that the briefs would address the inclusivity of previously marginalised people of SA especially people from the rural areas who should be able to know that co-operative banks which are owned by locals exist in the rural areas. Hence the Committees should mandate agencies that brief it to update the Committees on efforts made to address inclusivity in the rural areas. Information sent on the sms portals should interact with rural dwellers in their local language and it should not be about modernising the financial institutions. The African National Congress which he represented would be having a policy conference in June and the recommendations from these deliberations on transformation would serve as feeders for the ANC policy conference in June.

Mr Carrim said the Committee expected replies to be in writing as well and should be received within two weeks of the meeting. The draft Committee Report would be sent to FSS agencies to comment within ten days but the hearings would probably continue until May 2017. He asked the presenters to be concise in their oral responses due to time constraints.

Mr Steto reported that the DTI had given the financial sector the freedom to transform itself. Although some progress was noticed initially, however in the past five years there had been a decline. However, there are still some issues around the sector code. On the data on the status of transformation there was a lot of data that could provide the DTI with reliable data but it was just because the data was not collected by the agency that had the mandate to collect the data. However, the DTI did not question the reliability of the surveys. The DSD and Cabinet would review the involvement of CPS in the South Africa Social Security Agency (SASSA) grant payments. He made a commitment to give written answers as well.

Mr Ramotshudi, FS Charter Council CEO, replied that the banks would respond to the question about their attitude towards the FS Charter. They did not have any legislation that empowered the FS Charter Council to enforce BEE on the FSS, but the B-BBEE Commission would assist in how the BEE codes would be enforced. Until 2010, black ownership was above 25%. However when BEE partners sold their shares and took their money, the levels declined. Although with the FS Code there was an agreement of continuing consequences i.e. once empowered always empowered, that the bank retained the percentage of the shares in terms of ownership points when the BEE partners left. However with the new BEE codes when BEE partners sold their shares, the banks would make funding available to fund new entrants in other sectors to start new business but not to do new deals to ensure inclusivity of the majority of South Africans. Hence, the FS Charter Council believes that with the financial services industry’s plan for a Black Business Growth Fund would increase the spread and encourage more people to start new business. In the case of dilution, when people bought shares with loans and the dividends were used to off-set interest payments, black shareholders did not receive dividends. However; when the black shareholders sold their shares, the black shareholders received substantial funds. The targets for Directors would be reviewed, because financial inclusion is vital. Access to finance would be reviewed. The issue of languages has been addressed for instance the Automated Teller Machines (ATMs) convey messages in several languages and if people need certain documents in their local dialect it can be made available. The disputes between the DTI and the FS Charter Council have been resolved; documents are being sent to DTI and there are no outstanding issues with DTI.

Mr Vilakazi remarked that NEDLAC would answer a few questions now and would forward the remaining answers in writing. He remarked that stakeholders were aware that NEDLAC was a social partner driven agency and it has put forward a proposal for the next FSS summit because the FSS agreements of 2002 were not implemented and it could not depend on the benevolence of the FSS to implement the agreements. During the next summit NEDLAC would formulate a means of enforcing the implementation of the agreements. Hence NEDLAC has mandates for the FSSC Summit slated for June/July 2017.

Mr Momoniat remarked that looking at the turnout of FSS stakeholders at the hearings, the attitude would be better because of the enthusiasm displayed by the shareholders since the FSS works on trust and stability and engaging on the targets, all the players would look forward to meeting the targets. Treasury intends to start publishing an Ownership Monitor as indicated in Annexure F of the Budget because data is available. For instance if a retirement fund owns a share in a company it would be difficult to figure out if the shares are owned by white or black shareholders, but it’s important to review this. He invited Members to be present during the discussion of the current Rates and Monetary Amounts and Amendment of Revenue Laws Bill to find out more about the dividends withholding tax. Even though every increase in tax had a negative impact, the tax was not the problem but how black shareholders access funds. This lack of access affected inclusivity hence a review of the funding model was vital.

Banking Association of South Africa (BASA) submission
Mr Cas Coovadia, BASA Managing Director, introduced his team Mr Khulekani Mathe, Head of Financial Inclusion, Mr Yacoob Abba Omar, Head of Strategy and Communications and Mr Thabo Tlaba-Mokoena, who represents BASA on the FS Charter Council. BASA had appeared before both Committees in the past and it took the oversight role of the Committees seriously. BASA and its member banks believe that the deliberations South Africa was going through on transformation was as crucial as the process which led to the ushering in of a democratic order based on one of the finest constitutions in the world. He referenced the certain realities of low GDP growth and the prospect of this continuing for some time, high unemployment, growing levels of poverty and increasing inequality in the context of an uncertain global environment. The FSS in South Africa has made much progress across sectors however any indication of non-transformation is incorrect, data from BASA reflects that some level of transformation has occurred and BASA stands by the data. It did not mean that BASA was satisfied with the current situation but was very keen on engaging in dialogues on FSS transformation to improve the performance and size of our economy in an inclusive manner. He mentioned some statistics such as the investments made by the industry and the number of transactions the banking sector facilitates such as FSS comprises 36 banks licensed by the SA Reserve Bank (SARB), 34 of the banks are members of BASA but the two co-operative banks are not BASA members; the FSS manages R4.8trn in assets; enabled customers to make 446 million ATM transactions per annum; invested R58 billion (64% of locally sourced debt finance) in the Renewable Energy Independent Power Producer Programme; employed 153 846 people; contributed upwards of R20 billion in corporate income tax since 2005, invested R993 billion in 1.2 million property transactions since 2007 and has generated R57 billion in value accruing to BEE shareholders.

Mr Coovadia cautioned Members to be “mindful of certain monopoly myths” and reported that the banking sector displays patterns similar to ownership patterns of the Johannesburg Stock Exchange (JSE). He explained how banks listed on the JSE were owned in SA: the largest share (49%) of the top six South African banks was owned by foreigners, 34% by institutions such as pension funds, and the remaining 17% by other categories of investors, including individuals. The 2016 figures showed that black ownership on the JSE (23%) surpassed white ownership (22%) which dismissed the ‘white monopoly capital myth’. He said the banking industry is not resistant to transformation; a careful analysis will show that compared to other sectors it has performed very well. The sector voluntarily signed a transformation charter in 2003 before the transformation was promulgated in black economic empowerment legislation. Black people constituted the majority of all managers in the banking industry although most of the gains have occurred at the junior to middle management levels. He however acknowledged that positions for black people at the top management level remained a challenge but training programs are being used to fast track junior managers to top managers. Progress has been slow on black board members and black women make up 8% of the total women in senior management positions in the banking industry, which is below the target of 10%. Employment equity remains a critical area despite the many initiatives undertaken by various banks. The FSS outperformed the current target on preferential procurement with a combined R200 billion expenditure on black-owned and black women-owned enterprises. Although the development of SMEs is a critical challenge for SA because it contributes to job creation, the banking sector financing of Black SMEs rose from R5 billion in 2012 to a high of R15 billion in 2014, but fell to R9 billion by 2016, due to the current tough business environment. He welcomed the upcoming Financial Sector Summit in mid 2017 and BASA believed that the Summit would provide a platform for deep reflection on what had been achieved, and what remains to be done, as well as an opportunity to agree on the way forward.

Association for Saving and Investment South Africa (ASISA) submission
Mr Thabo Dloti, ASISA Chairman and Liberty Holdings CEO, noted that ASISA represented 127 member firms which include asset management, life insurance firms and collective investment industry and is a custodian of savings. He stated that countries that instilled regulation in the savings industry have seen the industry prosper in the increase in the savings purse. The role of ASISA was to ensure that private and public resources were well guarded, mobilise both local and foreign capital so that needs are met in the long term, ensure that pools of assets accumulated are deployed appropriately to ensure investments are made in the economy so that it create jobs, increases the number of savers and supplements the public purse to actually invest in the development of the country. It was crucial that the insurance industry should be able to compete favourably and attract both local and foreign capital for investment.

ASISA believes that the long term sustainable increase in black ownership of the sector was dependent on the growth in the proportional resubmission of money by blacks in the savings pool that supports the collection of savings that the industry manages. The local accumulated savings are deployed as investment capital that ultimately owns a huge part of the economy presently. Approximately 40% of the locally owned sector of JSE is owned collectively (16 million pension fund members). Ultimately sustainable ownership can be achieved through collective savings. The industry protects people ownership as reflected in the retirement fund and related sector and in recent times deracialisation trends have been observed in the retirement fund schemes through the increase in black people that save in these schemes. The industry’s credibility rests on the generation of returns, the average manager returns for global fund against inflation showed that over a period of 20 years the returns have been over three times inflation rate and this shows that the collective savers have owned a portion of the broader economy for 20 years. The statistics of actual ownership of JSE top 100 companies indicates progress for black shareholders at 23% within 20 years, indirect ownership through retirement funds was about 13% and if well nurtured would be indicative of the future ownership of the economy. The transformation of the FSS over time has shown good steady progress in black ownership management and control. For instance in the life insurance industry, ASISA statistics show an increase of SA black ownership from 16% in 2005 to 31% in 2015 (surpassed target of 25%), management and control in boards increased from 30% to 49%, black executive directors increased from 22% to 47%. In terms of employment equity, black senior management increased from 16% to 35% while black middle management increased from 32% to 48%; although the target was not met appreciable progress was observed in this sector which is highly capitalised. The target for Skills Development was 3% but over the ten year period there was an increase from 1.2% of the profits of the industry to about 4.9%.

Clearly ASISA has not made enough progress and transformation has not yet happened however the progress made has been steady in terms of deployment and control in the industry but ASISA needs to continue applying the collective savings principle and find ways to regulate the FS Code. The monopolistic long term part of the industry requires that large sums of capital needs to be held for the duration of the policy. At present this kind of capital is not in the hands of black shareholders, the industry is concentrated because of the promise that it makes and this is required but the industry is not monopolistic but competitive and concentrated; a consolidation of the industry would lead to holding such long term capital.

It was important that the FSS continues to focus on the transformation of the industry as whole and how it affects other industries. ASISA believes that the active participation of individuals in the industry is vital for transformation, hence, a large part of enterprise development in ASISA focuses on ensuring that the industry value chain is transformed and there is an increased participation of individuals because it has a direct impact on the inclusivity of black shareholders to ensure that more people are exposed to financial services and the benefits it provides.

Barclays Africa Group Ltd submission
Ms Maria Ramos, Barclays Africa CEO, gave context on how Barclays Africa operated. Barclays Africa contributes in the form of direct and indirect employment, taxes, provides access to financial services to millions of people and contributes to inclusive growth and development. Barclays Africa is a multinational shareholder that includes Barclays PLC that trades as ABSA in SA which spans all the provinces with a diversified portfolio of businesses that includes retail, business, corporate and investment and wealth, investment management and insurance banking. In 2016 the total lending in SA comprised of R387bn to retail clients, R124bn for mortgages, R71bn to SMEs, R192bn to corporate and investment banking and all this contributes growth and development.

In its approach to transformation, ABSA is driven by a philosophy of shared growth by using its core assets (financial, expertise and infrastructure) to develop solutions that enable communities in SA to participate in the economy in a meaningful and sustainable manner. The three focus areas chosen to achieve transformation were education and skills, enterprise development and financial inclusion because it believed that these three pillars were critical to sustainable growth and inclusive development. These focus areas assisted in supporting economic growth, competitiveness, entrepreneurship, job creation, reduction in poverty and inequality. In 2016, ABSA committed R1.4bn to education and skills. In achieving its target on the focus area of enterprise and supplier development, ABSA believed that establishing successful and sustainable SMEs required both financial and non-financial support. ABSA implemented this through preferential procurement access to markets, financing infrastructure and training. ABSA’s scorecard reflected its focus on transformation. Progress to date this included improvement in its B-BBEE contribution status from level 3 (2015) to level 2 (2016), being the first of the major banks to allocate 10% ownership to black partners through the Batho Bonke empowerment consortium in 2004 and it intended to conclude another BEE transaction to which Barclays PLC has already committed about 1.5% of Barclays Africa market capitalization (around.R2.1bn) as at 31 December 2016.

She highlighted statistics of management control in ABSA and stated that 88% of promotions in 2016 were black people motivated. It was committed to transformation and the reduction of poverty, unemployment and inequality, grounded in the philosophy of ‘shared growth’ and its efforts in education and skills development will help beneficiaries find employment. Improvements in its FS Code scorecard show our determination to transform however she acknowledged that much more needs to be done. She stated that at Barclays Africa transformation was beyond compliance with the scorecard but its task was to create a truly transformed organisation where its people were empowered to fulfil their purpose. Its major shareholder, Barclays PLC, intends to sell-down its shareholding in Barclays Africa and give black South Africans an opportunity to increase their direct and indirect shareholding in the group. She concluded that much progress had been made in building a strong pipeline of black talent that, together with our focus on promotions and recruitment, would assist ABSA to close the employment equity gaps at top and senior management levels.

FirstRand submission
Mr Johan Burger, FirstRand CEO, remarked that Members needed to understand that the banking sector was the custodian of the savings of South Africans and did not make the rules but must play its role. The strength of SA’s banking system is a national asset (consistently ranked in the top 10 in the world for its developed, sophisticated financial systems. Banks understood its role in ensuring a sustainable future for the country and banks were very important tools to deliver transformation and inclusivity. The FirstRand BEE deal resulted in R23.5bn of value transfer to broad based black shareholders and FirstRand’s black ownership amounted to 36.5% of the Group, which a real commitment to transformation. He highlighted the statistics for progress made in transformation by FirstRand. He pointed out that a commercially sound and profitable banking system remained a non-negotiable for the country therefore the right policy decisions should be taken to avert devastation that could occur from banking crises. He warned that examples from around the world had demonstrated the devastation that resulted from banking crises as job losses, recession and social unrest have all played out throughout the world following the global financial crisis. He concluded that the maintenance of a sound banking system whilst driving transformation and inclusivity were fundamentally complementary objectives and the achievement of inclusivity would accelerate a strong economy.

Standard Bank submission
Mr Sam Tshabalala, Standard Bank CEO, introduce the members of his team, highlighted the statistics showing progress made in transformation by Standard Bank. He reported that in 2004 over 6 000 black employees at the bank received shares in the institution, which amounted to R3.1bn as at December 2014. All these beneficiaries could have remained in the share scheme but most of them decided to sell. Standard Bank had made progress in diversifying the black management structure but admitted Standard Bank had not done as much as it wanted to do. Although banks have been criticised for not lending money to small businesses in case they did not honour the repayment obligations, Standard Bank went ahead and lent more than R500m in 2016 to small black enterprises under the enterprise development program while keeping within its risk limits. Standard Bank provided free training to support 6 000 SMEs in the last two years. Standard Bank explored ways to partner with government funding entities to provide breach funding to black owned entities that had secured government contracts. He suggested that engagements with NEDLAC and Standard Bank social partners could lead to innovative ways to access credit and increase financial inclusion. He remarked that the banking industry could only declare victory on transformation when the needs and burdens were shared to reflect the demographics of SA.

Discussion
Mr Shivambu asked the Barclays Africa CEO for the total component of black ownership at Barclays Africa.

Ms Maria Ramos, Barclays Africa CEO, replied that it was over 6%. She stated ABSA was the first major bank in SA to negotiate a BEE deal in 2012 and due to Barclays divestment it has the opportunity implement another economic empowerment deal.

Mr Shivambu asked Standard Bank CEO to state the total component of black ownership at Standard Bank outside ICBC and institutional investors

Mr Sam Tshabalala, Standard Bank CEO, replied that in terms of the financial sector the shareholding of Standard Bank amounted to 15%.

Mr Shivambu remarked that this figure included institutional investors and pension funds (PICs).

Ms T Tobias (ANC) said that the Standard Bank CEO had suggested that engagements with social partners such as BASA were innovative ways to come up with regulations to access credit and increase financial inclusion. She asked Standard Bank to state the way forward in terms of legislation to assist with regulations to access credit and increase financial inclusion because the ruling party had decided to increase black ownership of banks. There were inconsistencies in terms of growth over time in the Barclays Africa submission, especially in terms of average percentage management control over time in slide eight. She stated that Ms Ramos must accept that there was no growth in the figures on management control in slide eight because the figures show an actual reduction. She pointed out to BASA that the Committee was not particular about numbers but was more interested in the developmental agenda of banks in increasing economic growth. She suggested that if her colleagues from the Democratic Alliance would agree, an increase in economic growth from 1% could only be achieved by increasing the players in the economy because the FSS had a limitation presently.

As a result of Ms Tobias request for more time to ask questions, Mr Carrim asked Members if the questioning time could be increased.

Mr Williams replied that the earlier agreed two minutes should be maintained.

Based on the Member’s reply, Mr Carrim resolved not to increase the time to ask questions because of time constraints. However, he pleaded that in fairness to Members that had not spoken before and the minority political parties an extra minute would be added to their questioning time. He asked Ms Fubbs for her view on the questioning time.

Ms Fubbs replied that less time wasted on arguments the better for the Committees to complete deliberations.

Mr Williams observed that from the DTI presentation, the FSS had declined in financial sector transformation in the last five years. Based on this, government could either disengage transformation or compel the financial sector to conform to transformation through radical legislation. He however suggested that the way forward could be extending the number of banks specifically co-operative banks since the co-operative banks were not enough. The banking sector could work collectively with government to create nine provincial co-operative banks that would be controlled by the people that lived in those provinces (in particular the black people that lived in those provinces) and in this way the banks could service poor people of SA and people earning minimum wage. Members were in Parliament to represent poor people and give poor people access to financial services and the opportunity to own co-operative banks.

Mr Mkongi said that it was clear from the submissions that if there was a progress in transformation then the progress was disappointing. His concern was that when banks spoke about sound market and competitiveness they were insincere because recent developments show serious allegations in the collusion of banks yet issues of transformation have not being addressed. He asked the banks to state the extent of complex fronting transactions that were happening in its banks such as where a mother white company establishes a black company and the funds are transferred back to the white mother company within four hours of the BEE classification levels having been given to the white mother company. The banks have not addressed this situation because it was not affected in any way. He asked the banks to state the benefits of ordinary black people from such a transaction which benefitted only banks in the long run. He asked banks to state the material benefits achieved by the country and ordinary black South Africans from such deals targeted under the transformation agenda.

Mr Maynier said that prior to 20 April 2016, ABSA refused to cooperate with government’s Inter Ministerial Commission (IMC) on the closure of Gupta Foundation accounts but cooperated with the African National Congress investigation on the Gupta accounts and answered to allegations of collusion with the closure of the Gupta family accounts. He asked ABSA to state why it cooperated with the ANC’s investigation on the Gupta account and clarify if it was an undue political interference.

Ms Tobias interjected and asked if Mr Maynier was present when ABSA cooperated with ANC on the investigation on the Gupta account

Mr Carrim invited Mr Koornhof to ask his questions.

Mr Maynier remarked that his time was not exhausted and he had not finished asking his questions.

Mr Carrim interjected and remarked that Mr Maynier had a few seconds remaining to ask his questions and added that he should not be interrupted by other Members.

Mr Maynier remarked that Standard Bank had answered to allegations of collusion with the closure of the Gupta family accounts. He asked Standard Bank to state why it cooperated with the ANC investigation on the Gupta account and clarify if it was an undue political interference.

Ms Tobias interjected with a point of order that the deliberations were about the transformation of the financial sector not transactions of a specific party with a specific bank. She added that if such discussions were to be tabled that the Committees should entertain deliberations on how the DA got funded.

Mr Carrim remarked to Ms Tobias that Members had agreed that except if questions were against the Rules of Parliament and were completely extraneous, the Committees would allow it. He asked Members to move on since the question had been asked.

Mr Maynier remarked that what made it worse in the case of Standard Bank was that Standard Bank admitted that in its view it regarded the summons as impermissible political influence in being subject to political pressure by the ANC. Hence he asked Standard Bank why it did not have the courage to say no and refuse to co-operate.

Mr Carrim resolved that ABSA and Standard Bank were not compelled to answer the question. He added that Mr Maynier’s time was exhausted and resolved that the Committees could continue with the agenda.

Mr Maynier made a point of order stating that the Committee advert read transformation and other related matters.

Mr Carrim resolved that the deliberations on transformation should continue.

Mr N Koornhof (ANC) said that the Committees had to admit that the financial sector had made progress in certain areas of transformation in the banking sector that was why the four banks picked by BASA could tell good stories about their success and that was why SA was three times better than other banks in sub-Saharan Africa in terms of access to financial services. BASA had picked the four major banks that had made some progress on transformation in the FSS. However there were two challenges which were: top management which did not have progress in transformation and the banking sector needed to address this and senior management had not had much progress but there were already strategies in place to change the situation. However, on bank ownership, which was complex, he suggested that the banks must do joint work on ways to ensure that more blacks owned stakes in banks, such as the suggestion by Mr Williams on co-operative banking.

Mr Buthelezi appreciated the CEOs of the banks for appearing at the Committee deliberations for the first time. He asked the CEOs if they were aware that when BEE companies were awarded loans they were given conditions about which law firm, construction and audit companies to work with and in most cases these firms were white owned firms. This was unacceptable as the BEE company might want to empower other start-up black professionals. The banks must reverse the trend. He asked the Barclays Africa CEO to brief the Committees on how much of the funds allocated to procurement expenditure (R16.1 billion) would be expended on black companies.

Mr N Matiase (EFF) said that SA was a pretentious society when it came to black ownership. During the FSS submissions, the presenters were stating minor achievements in transformation. BASA had stated that the percentage of black ownership out of the R4.3 trillion assets owned by the banking sector, only 1% of the banking was owned by black entrepreneurs. Similarly in the insurance sector, which had assets of R517 billion, only 1% of the assets were owned by black entrepreneurs. ASISA stated that black ownership in the JSE was 23% with 13% of it from retirement and pension funds. These figures were nothing to celebrate hence black people were just being patronised by white people and were not taken seriously. Parliament should legislate so that this type of banking would stop.

Mr D America (DA) said he was quite impressed by the submissions, acknowledged that there was more employment of black people according to the statistics, and stated that the FSS should ensure that the statistics were consistent because it would ensure transformation. He asked the FSS presenters how the established banks could assist SA to build co-operative banks, increase black ownership from the co-operative banks and what the FSS could do to ensure that the established banks would not buy the co-operative banks. He suggested that the Committees needed to bring legislation to ensure that level one companies made progress on transformation. The targets for transformation could be reviewed to align with what SA wanted.

Adv A Alberts (FF+) asked BASA to give a full picture of racial employment in banks in total, specifically stating the figure of black employment in top management. However, all the banks had good submissions. For instance FirstRand employment equity statistics showed that from 2001 to 2016 it moved from 51% to 76% African, Coloured, and Indian (ACI). Fewer white people owned shares and fewer white people worked in banks. He asked DTI if it did not want white people to work in banks anymore. He asked the banks to state what constraints it faced in growing the economy.

Mr Shivambu said that the narrative of BASA claiming 49% of the top six banks was owned by foreign investors, 34% was owned by institutions like pension funds (PICs) and 17% by other categories of investors, mostly individuals, and the claim of 23% JSE black ownership was dishonest because ASISA reports that this percentage included retirement savings. The figures did not address the component of black ownership. Hence Parliament recognises the levels of dishonestly and the deliberate ways the financial sector is misleading Members which is a crime and is punishable by a two year prison term. He noted that from the submissions the correct component of black ownership minus institutional investors and PICs was Barclays Africa (6%), FirstRand (5%), Standard Bank does not state its correct percentage but claims that its 15% which minus 12% from institutional investors and PICs gives a black component ownership of 3% for Standard Bank. The Committees could not pretend that there was progress in FSS transformation therefore the Committees need to recommend legislation of black component ownership and enforce the legislation.

Mr Carrim remarked that this was Mr Shivambu’s view and there was no evidence of dishonest information from BASA. He asked the BASA MD to clarify if he was misleading Parliament.

Mr Cas Coovadia, BASA MD, agreed that more players needed to come into the FSS to develop the FSS, both the banks and the CEOs need to engage about inclusivity but without putting in the structure, the FSS would not reach the growth levels, sustain these growth levels and reduce inequality. In addition, the legislation for the creation of co-operative banks was supported by BASA and BASA had interacted with SARB to find out how the co-operative banks could be assisted to grow. In the case of the 4.8 trillion assets that banks own, a significant part of this is held as a deposit for the customers in trust and the full racial profile would be given in writing. The ownership debate is important but the structure of banks should be understood. For instance, the founder of one of the major banks in SA only has a shareholding of 0.6%. Therefore individuals do not own banks. He remarked that the Committees should know that when banks were in crises it was only the foreign investors that had huge capital that could bail out the banks.

Mr Thabo Dloti, ASISA chairman, stated that ASISA was not asked any specific questions. ASISA can stand by its figures as collaborated by other industry players. Statements on the total figures for the sector are in the written submission given to the Committees.

Ms Maria Ramos, Barclays Africa CEO, replied that a lot of the issues were covered in their submission. She made it clear that as stated earlier Barclays Africa had made progress but admitted that it still needed to improve on its transformation statistics. She clarified that the improvement addressed on slide eight was a year to year improvement but over the period; there was a change in the Generic Codes in 2012, the measured targets changed, within the period of the deal to acquire Barclays Africa shares, the board changed, black people were empowered but there is still a lot of progress to be made. She emphasised that fronting was a crime therefore she suggested that if there was an evidence of fronting it should be brought forward and prosecuted. She stated that the philosophy of Barclays Africa was to deal with anything that was wrong in their conduct and report it without thinking of its consequences. The time frames for the meeting at Luthuli House and the IMC were actually different as seen from the affidavit and Barclays Africa was precluded from discussing any client of the bank past, present and future as stated in the affidavit. She stated that the preferential procurement figures on black shareholders could be confirmed in writing.

Mr Johan Burger, FirstRand CEO, replied that any evidence on fronting could be brought forward and investigated because it was criminal, the ownership numbers were audited and progress on employment equity are as stated in the submission but there are known challenges in the targets for black top managers.

Mr Sam Tshabalala, Standard Bank CEO, replied that the leadership needed to take responsibility and sort out the trade-off because trade off is faced by policy makers and law makers. The trade-off was that not enough institutions had enough funds to own the financial institutions (funds are owned by foreign investors). Also these foreign financial institutions need to provide funds when it is needed. Recently, Deutsche Bank made a huge financial call because of the financial challenges it was facing. Hence banks needed huge funds to bail them out during crises because the financial institution is based on risk taking. Mr Maynier got his facts wrong; Standard Bank has never stated that it would not meet the ruling party. Standard Bank attended the meeting out of respect, the meeting discussions were quite different and he invited Members to read the affidavit of Standard Bank.

Ms Fubbs remarked that although a number of figures were presented by the FSS, the Committees were not sure of the assumptions that informed these figures. There appeared to be some anomalies in the black empowerment figures and she could not understand if there was uniformity in the figures and unfortunately the uniformity of the figures could not be confirmed during the meeting. Hence, she asked that the FSS agencies provide a written submission that stated what informed the decisions in reaching these figures.

Mr Carrim gave the FSS agencies 14 days to respond to the questions in writing. After which the Committee support staff would compose a draft of these written submission and would ask the FSS agencies to view the draft before the comments were sent to the relevant stakeholders to be included in the transformation document.

Afternoon session
Financial Sector Campaign Coalition submission
Mr Tebello Radebe, National Coordinator: FS Campaign Coalition, highlighted that total transformation means change in form, appearance, nature and character. The FS Campaign Coalition saw very minimal change in form; there were some cosmetic efforts aimed at effecting change; the nature of the sector remains largely unchanged; while the character of the sector was not in alignment with the needs of majority of the country. The FS Charter considered that the financial sector plays a role in the growth, development, empowerment, and the Charter spelt a list of changes which were not implemented. In the view of the FS Campaign Coalition there was minimal change despite the Financial Sector Summit. The two most crippling factors in the sector were the ‘once empowered, always empowered’ comment in transformation and the inadvertent omission of government development financial institutions (DFIs) at the Summit which could have assisted in the transformation. There was a whole lot of Corporate Social Investment done in the FSS that was not reported and the consequences of such non-reporting affected growth in the FSS. Mr Radebe promised to send the full submission rather than the two page document that the Committees had.

COSATU submission
Mr Matthew Parks, COSATU Parliamentary Coordinator, welcomed the interventions and supported the transformation agenda, appreciated the government for the Financial Sector Regulation Bill, the SARB for its early warning signals on the FSS, the efforts of the Standing Committee on Finance to tighten the Financial Intelligence Centre Amendment Bill and to find an amicable solution to crime and money laundering. He stated that COSATU understood that government was preparing a Bill to better regulate charges set by the financial sector. However, it needed to be biased towards the needs of ordinary consumers and empower government to deal with banks who consistently overcharge consumers. He highlighted concerns on the side of COSATU in terms of monopoly capital, lack of transformation (deracialisation, wage gap, outsourcing, rising casualisation), need to save and create jobs and the need to nationalise the SARB. The areas of intervention were support for lower income workers savings; the auctioning off of small business farms, houses and assets, the proposed Debt Relief Bill, loan sharks and role of the National Credit Regulator.

South African Communist Party (SACP) submission
Mr Solly Mapaila, SACP Second Deputy General Secretary, stated that the challenges of transformation could be traced back to non-adherence to the agreements of the 2002 NEDLAC Summit. Legislation on insurance policies needed to be tightened so that insurance paid out would help people retain their houses even if they lost their jobs. The marketing strategy in the FSS could not eliminate racial issues, the over 200 FSS regulations should be streamlined, the FS Charter was a failed promise that needed to be reviewed and judging from the comments from FS Charter Council the performance of the sector is unsatisfactory. Although the commitments of banks on management control have been strategized they have not been met. The SACP supported the FS Charter Council Summit and suggested that the Committees monitor it to ensure that transformation would be achieved. In addition, he stated that trade-off transactions were not always opened up to the public and banks in SA took advantage of the closed nature of these transactions. Access to empowerment financing for black shareholders was low hence the trade-off transactions and access to empowerment financing for black shareholders must addressed. The SACP supported the licensing of the Postbank.

Microfinance South Africa (MFSA) submission
Mr Israel Noko, MFSA board member, stated that MFSA was a non–governmental organisation that represented 150 micro lenders in SA. There was a reality that transformation was low, there were signs that exciting things were coming up.

Centre for Competition, Regulation and Economic Development (CCRED) submission
Mr Thando Vilakazi, Senior Economist: CCRED, stated that banking transformation is only part of a broader set of measures to shift the economy towards greater inclusion. Transformative finance is inclusive and rules of the game should be changed, not to favour the insiders only. CCRED has showed that entry and rivalry bring benefits to consumers with consumers saving up to R20 billion a year. Barriers to entry remain high. Entry brings benefits in lower fees, more dynamic products, and competition for low income customers. There are natural and strategic barriers. There is limited transparency and comparability of bank offerings. Obtaining a banking licence is difficult without a tiered structure. The infrastructure is costly and there are limits on using alternative technologies. Requirements affect small banks disproportionately. Failure to encourage and support entry through permissive regulation has the same effect as high barriers to entry.

Collusion by banks is part of the story. It is important to recognise the collusion case as part of global cartel arrangement and it highlights the limited transparency and flaws in supervision. It also demonstrates that competition law is not enough to correct harm. Harm from cartels is generally larger than the penalties allowed by law. Cartels arise and are fighting off entrants and are sustained by high barriers. Comparative studies on Mobile Money demonstrate the role of regulation in stifling the growth of MM in SA. The benefits of Mobile Money in Zimbabwe and Kenya arose from a flexible, adaptive, risk-taking regulatory environment. There has been slow progress in implementing the banking inquiry recommendations. It is important to introduce better monitoring and publishing of commercial lending to SMEs and black-owned businesses. Developmental finance is not enough. SA requires a long-term, risk-taking, patient funding for new investments in productive assets. Provision of services to SMEs and black-owned entrants should be incentivised. Licensing should be opened up to promote the diversity of offering. Bank regulations should be viewed as contributing to the goals of industrial policy.

Black Business Council (BBC) submission
Dr Danisa Baloyi, BBC president, stated it is time to create new banks and businesses. We must work, create and grow the economy. We must create new wealth to create a bigger cake. The aim of BBC is to be a successful voice and make sure problems unique to black business and professionals are addressed in a meaningful sense. It is in the interest of business to work with the government, labour, churches, women, youth groups and other stakeholders to ensure that all South Africans participate and benefit from the development and growth of our economy.

Dr Baloyi said when they talk of radical socio-economic transformation, they mean fundamental change in the structure, systems, institutions and patterns of ownership, management and control of the economy in favour of all South Africans, especially the poor and the majority of whom are African and female, as defined by the governing party which makes policy for the democratic government.

The 2017 Budget was an opportunity for government to concentrate on addressing South Africa’s radical economic transformation to deal with the youth aged 15-34 who remain vulnerable in the labour market with an unemployment rate of 37,1% which is 10,6 percentage points above the national average.

Mr George Sebulela, BBC Secretary-General, stated that the 2017 Budget does not address the needs of black business. He stated the following need to be addressed:
• Procurement
51% should be set aside for black businesses, the Preferential Procurement Policy Framework Act (PPPFA) should be repealed, and the current procurement regulations reviewed.
• Black Industrialist Development Programme (BIDP)
The transversal contract should be ring-fenced to facilitate BIDP. At minimum of R30bn should be made available to fund BIDP and private sector funding should match government funding.
• New banking licence
All new insurance licence holders must have a minimum black ownership of 51%.
• Payment of suppliers
30 day payment of suppliers should be non negotiable. Non-payment should be punishable as part of performance agreement for accounting officers and this should be enforced by the National Treasury.
• ‘Once empowered, always empowered’ needed to be dealt with.
• Dividend withholding tax
An exemption should be made for BEE transactions since there is reliance is on dividends to repay the debt or funding.
• Budget for SMMEs.
All financial assets in relation to GDP amounted to trillions of rands while very little was spent on SMME development. At least a minimum of R50bn for black SMMEs should be funded by the sector.

Mr Sebulela said radical economic transformation must be legislated. There must be set-asides of up to 35% for black entrepreneurs and that should be a condition for licencing new insurance licence holders. At least a minimum of 30% of financial services companies should be allocated to black asset managers to manage as part of black enterprise development. A Financial Sector Commission should be set up to monitor performance and progress of the sector. There should be skills development and progression of black professionals to deracialise the sector, and BEE ownership must be a JSE listing requirement. The BEE rating agencies and audit firms for insurance should be totally reviewed.

In conclusion, he said SA now needs to vigorously promote economic transformation to ensure growth is sustainable and continues to improve the lives of the many. In addition to faster economic growth, key elements of transformation are:
• funding
• diversifying production and exports
• becoming more competitive on international markets
• increasing the productivity of all resource inputs (especially labour)
• upgrading technology in production and exports
• ensuring that growth increases formal employment and results in shared prosperity.
He said we are witnessing the birth of a new politics of legislative activism. We are witnessing the birth of radical economic transformation. Only radical change can save our country.

Association of Black Securities and Investment Professionals (ABSIP) submission
Mr Sibongiseni Mbatha, ABSIP president, said that ABSIP believes that while transformation of the sector has been slow, some progress has been recorded and much more could still be done at a faster pace. Legislative and regulatory support are key to advancing transformation, as is a collaborative, supportive and inclusive effort by both large established and small emerging players. Transformation, which must be both quantitative and qualitative, must be mass-based and ought to be characterised by mass access to financial services and opportunities, instead of narrow capital interests.

ABSIP believes the central issue at play is that of “market structure”. The structure of a market (with monopoly being one type of such a structure) is determined by the nature and degree of competition and market concentration. The market structure does not exist in a vacuum but is intrinsically linked with assessing factors such:
- barriers to entry (both endogenous and exogenous)
- the degree of countervailing (buyer) power
- vertical integration and the extent to which firms are able to differentiate themselves from one another.

A consideration of the characteristics that make certain types of market structures (such as monopoly and oligopoly) more likely to prevail and which provide current incumbents with an enduring competitive advantage over newer entrants is an important precursor to assessing why the financial services sector together with its various sub-sectors is characterised by a highly concentrated market structure.

ABSIP acknowledges that transformation in sectors also must be measured in terms of real and wide scale transformation of decision-makers within the large established, dominant, majority white-owned players. There simply is not enough change in terms of black professionals playing a leading role in these firms. This is especially true in leadership and relevant key decision-making roles.

With regard to the asset management/investment management sector, Mr Mbatha reported that black investment management firms in the sector are listed as 42 players. However, the lack of transformation, as a result of the highly concentrated market structure in this sector, is evident in that while majority black-owned investment management firms account for 35% of the players by number, the assets they manage account for less than 5% of the total assets under management in the industry. Black firms also derive the majority of their assets from institutional funds with their share of retail assets being under 2%.

The major obstacles for real growth amongst black asset managers are threefold:
- Asset owners are not supporting black asset management firms. Prescription is required.
- A few large firms through vertical integration own the entire value chain. Large firms own the full distribution channel from asset consulting to asset management to administration to risk to employee benefits to wealth management to linked investment service providers to life companies to collective investment scheme management companies to stockbrokers. This level of scale allows big business to cross-subsidise and makes it impossible for small business to compete on price.
- The government is setting high compliance requirements without the necessary support to new entrants and this contradicts all policy directives to enable deracialisation of the FSS. For example:
• There are fewer than 5 black hedge fund managers in South Africa.
• A black player that submitted applications to the FSB for approval was rejected with no guidance provided. This was done twice. The result of this was that the pipeline of deal flow was then passed on to a white business with black people once again being at the losing end.
• Given that black players do not have the vast capital and legal resources of big white players, the lack of support by the regulator to enable black business to gain the necessary tools to compete against white business does not exist.
• It is the view of many black participants that the regulator is disabling to black participants within the industry and is regarded as being anti-transformational.

When it comes to the market share of black stock-broking firms, the number of black-owned stock brokerages remains disproportionately low and the number of practicing majority black owned and majority black managed stock-broking firms remains very limited and is confined to a few firms (Legae Securities, Afrifocus Securities, Vunani Securities, Sinayo Securities, Thebe Stock-broking, Atisa Securities, Lefika Securities). These firms collectively have a low market share of approximately 1.62% (based on total value traded on JSE in 2016). These challenges, amongst others, are faced by black stock-broking firms:
No legislative support: due to BBBEE legislation remaining voluntary and only applicable to those who wish to comply, black brokers lack the support of enabling legislation/regulations to drive transformation
Uneven playing field: Black brokers are compared to SA banks and global players and are required to compete on equal footing despite no opportunity to build matching resources and support systems
Sporadic support: Institutional support for black brokers over the years has been intermittent, short term and inconsistent, making it difficult for these firms to plan with any predictability
Talent retention: Black brokers who develop talent face significant risk of losing that talent to larger institutions with no recognition of their role; black analysts have not featured in any meaningful ratings published in industry publications for well over 10 years
Low quality business: Black brokers are generally given low quality, illiquid trades to execute, in addition to trades being small
Old Boy connections: Black brokerages face unyielding “school tie connections” by the gatekeepers at institutional asset houses who allocate on a preferential basis to firms where they have past connections often beyond the industry
Transformation in upstream partners: Lack of transformation amongst decision-makers / gate-keepers in institutional asset houses prevents any meaningful allocation to black brokerages.

The number of majority black owned private equity firms registered in the country is not specifically disclosed. The annual KPMG-SAVCA Survey lists funds based on their level BEE score. The collective market share of Level 1 firms is 2.1% and that of Level 2 private equity fund managers is 13.7% of total funds under management. It is not clear if the Level 2 firms are majority black owned. 50% of the funds under management are managed by firms who have undisclosed BEE ratings or are non-compliant.

The banking sector has for some years been characterised by an enduring oligopoly market structure comprising Standard Bank, Nedbank, FirstRand, ABSA and Investec Bank. These five banks hold a market share of approximately 91% based on total assets and approximately 92% based on total deposits, indicating the highest levels of market concentration of all the financial services sub-sectors. While there are in total 33 registered banks, there appears to be only one bank with black shareholding of more than 50.1%.

On long and short-term insurance, there are 73 long-term insurers registered with the FSB. The long-term insurance market is highly concentrated. The top four players (Old Mutual, Sanlam, MMI Group and Liberty) account for 67% of the total assets of the industry while 69 players share the remaining 33% which is highly fragmented. There are 90 short-term insurers registered with FSB and the market is concentrated. The top five players (Santam, Hollard Insurance, Guardrisk, Mutual & Federal, Outsurance) account for 50% of the premiums while 85 players share the remaining 50% of the industry which is highly fragmented.

ABSIP recommended that a form of compulsory disclosure is required for all participants in financial sub-sectors, particularly in asset management, in order to determine the state of the market structure and whether transformation is meaningfully occurring. This should be effected at a sub-sector level with an annual disclosure made publicly. Annualised statistics should be maintained by every regulating authority of each registered firm within the sub-sector and the market share of the firm. Target “Concentration Ratios” should be set by policy-makers to reflect more competitive market structures with targeted black firm participation at a sub-sector level with specific targeted dates.

On deracialising the Financial Services Sector (FSS), Mr Mbatha reported that the FSS has been growing at significantly higher rates than the average for the economy. Unfortunately, its structure remains rigid and the sector continues to support a narrow market with few products to serve the poor or investments to redress apartheid spatial planning. Barriers for new black entrants or start-ups remain too high for genuine inclusive growth; thus reducing its optimum competitiveness. The FSS is plagued with a ‘zero-sum game’. For the FSS to forge ahead in ways that would further strengthen it and make it more competitive; it has to allow new black entrants, especially women across its value chain. It is important to recognise that the FSS is an apex sector in the economy. So, deracialising the sector would help to eliminate the current ‘gate keeping’ that has limited the sectors efficacy to support national priority sectors; incentivise new entrants; increase credit and support to black start-ups and to provide effective financial services to poor households.

Certain sectors of the economy are considered to be engine drivers of the economy where, in the absence of transformation, the national democratic aspirations would not be met in the next several generations to come. The financial services sector is one such sector. All such critical sectors should have compulsory compliance with BEE legislation, whether the incumbent players do business with the state or not. This would lead to the entire capital markets industry and asset management industry having to comply with BEE legislation and this would lead to rapid and radical transformation of the economic landscape.

The legacy of apartheid is most acute in the FSS: it remains an oligopoly. The historical capital accumulation of a few large firms has enabled them to own the entire asset management value chain. Outcomes of the existing policy interventions are equivalent to ‘trickle-down’ economics entrenching oligopoly - a handful of black asset managers are allowed to manage a few cents without disrupting the value chain. Deracialisation of the asset management sector necessitates ‘pressure and support’ at each of the links in the value chain.

These recommendations will enable the FSS to effectively play its role as a public good:
Expand the FS Charter to include process and outcome indicators: Inclusive growth relates to both process and outcomes. Expand the FS Charter to include variables that track process. This would include blacks in key decision making positions in large players.
Develop inclusive growth paths for each sub-sector: The FSS is heterogeneous; each subsector has unique features. Therefore, a single growth path for the entire sector would not fit individual subsectors.
Sanctions for non-compliance of BBBEE Scorecard: Co-regulation is invaluable in reaching consensus; however, without any penalties, it is toothless. A penalty regime should be included.
Ensure effective monitoring: Measuring progress within the FSS and it sub-sectors is critical to making informed decisions. Thus resources should be allocated to gather quality data on rate and pattern of growth.
Regulatory compliance should be matched with support to new entrants: Regulatory compliance can inadvertently serve to entrench existing market behaviour.
Allocation of resources to deracialise the sector: Current government funding schemes for black start-ups are skewed towards other sectors such as: construction, wholesale, mining and manufacturing. A dedicated fund for new entrants into the FSS should be established.

Mr Mbatha recommended that black women’s participation in the financial services sector should be placed high on the FS Charter Council’s transformation agenda. It is imperative that the response rate of the FS Charter Council’s survey participation rate is sharply improved. As a self-regulatory body, the FS Charter Council must be able to flex its muscle and the Trade Associations must strongly encourage its members to comply. The FS Charter Council should embark on an intensive dissemination campaign of the current report with the intention to speed up implementation of transformation plans considering that at the end of 2017, the dti would formally review the sector. In depth studies on the characteristics of subsectors would be instructive on the conversion factors that limit or block transformation. In doing so, it would enable the FS Charter Council to make evidence-based decisions. The FS Charter Council and the Trade Associations (BASA, ASISA, SAIA, SAVCA, and FIA) as the self-regulating authority should not shy away from their role in taking the respective subsectors to task on their transformation progress. The FS Charter Council should be able to offer the necessary technical support to accelerate the process. This should include the facilitation of the creation of a verified and accredited database of suppliers for each sub-sector.

In his conclusion, Mr Mbatha emphasised that ABSIP’s vision is to see a transformed deracialised financial sector that is inclusive. As is evident, the Financial Services Sector needs intervention in a form of accurate legislation that would promote and enforce transformation, implementation of existing policies and the birth of new ones that would assist in fast-tracking transformation and promote economic growth. ABSIP implores that the recommendations made in this submission be accepted so that transformation and inclusiveness can be realised speedily.

Actuaries Lekgotla submission
Mr Melosi Baloyi, Actuarial Scientist: Actuaries Lekgotla, remarked that black actuaries are very frustrated with the slow pace of deracialisation and transformation in the financial services sector and he challenged the industry to explain why white male actuaries get higher salaries than black and female actuaries. There is no action from senior actuaries and management despite being aware of the issues. The AL has proposed that companies should justify pay discrepancies by gender and race - standard statutory submission, and there must be a salary audit every year. He noted that a similar legislation is done in Iceland.

He said there is a lack of a deliberate attempt to transform across the board. Senior leadership in companies and the Actuarial Society of SA (ASSA) are mostly white. For major insurance companies, there is a lack of a black Chief Actuary, Statutory Actuary, Alternative Statutory Actuary or Head of Actuarial (under SAM rules). The AL has so far made engagements with black actuaries in order to gain insights. A submission to ASSA on the slow pace of transformation was done to outline matters needing attention. Unfortunately, the AL has not received any positive news from ASSA. So, it decided to engage with the FS Charter Council to find solutions through the Charter.

The AL pointed out there are unequal opportunities or exposure across race and gender. The AL Forum notes that black actuaries and women have generally been denied opportunities to grow into senior positions. Excuses range from “not being a culture fit” or “there is not black actuarial talent around”. He said this evidences the “fear of the blacks taking over”. Stunted growth is slowing down transformation. The AL would like to suggest that the FS Charter adopt more stringent measures to remove these stumbling blocks for the good of transformation.

Mr Baloyi indicated there is a lack of effective mentorship for black actuaries. The majority of black actuaries come from disadvantaged backgrounds. Senior management is white and male. So, there is a natural gap/disconnect between management and black actuaries, in general. The AL suggests a targeted, formal and effective mentorship programme for black and female professionals to bridge the gap.

Since the 2013 review of progress of FS Charter, there has been a low level of engagement. There has been a disappointing 5% participation level in the 2013 review. Companies are hiding failures to meet FS Charter targets. The AL suggested a naming and shaming of those who do not participate. It should be a requirement for companies to say publicly if they comply with the Charter. The FS Charter should be promoted to create awareness and push for compliance, and fine those who do not comply. The use of the salary band to categorise staff as management is open to fronting. A better definition must be sought which links with the influence the individuals have on decisions and resourcing.

He concluded by saying research has shown that SMEs are a great contributor to job creation and economic growth. Therefore, those that are run by black people should be promoted. The AL believes legislation is the only effective way to enforce change because without regulations, organisations have refused to change. The capital level should be kept at R10m, and there should be targeted funding programmes for black SMEs. Audit rotation for actuarial consultants to help smaller consulting firms to grow should be enforced.

Firstsource Money submission
Mr Redge Nkosi, Founder and Executive Director: Firstsource Money, stated that banks are not “financial intermediaries” as our government, Treasury and Reserve Bank officials think they are. Policies that are made with assumptions or understanding that banks are “financial intermediaries” always fail and that is why there is no growth in South Africa. Banks do not collect money from savers and lend it to borrowers. They have never done so. One of the key reasons why we had the global financial crisis (GFC) is because of the erroneous understanding of what banks do.

An economy is said to have grown when economic transactions of a current period exceed those of the previous period. Economic transactions are transactions that involve money. Those that create and allocate money are the real economic controllers, the gods of economic growth. They could choose to demote or promote a country at will.

5% of South Africa’s money supply is created by government (Reserve Bank) while the 95% comes from the private commercial banks. Money creation and allocation power vests with commercial banks - the Big Four, yet the prerogative for money creation lies with the state. Our laws do not recognise this transfer of such immense power from state to individuals and firms. Once we recognise this 95% reality, it stands to reason that some kind of responsibility goes with the privilege.

Mr Nkosi said banks do not consider or even care about the macroeconomic and related economic and social implications of their power to create and allocate money. The state does not know that it has abrogated its responsibilities and rights to banks, and it does not even know how much poverty and unemployment including crises are caused by banks. Banks shape the economy whether we like it or not. We either choose to leave it that way or do something now urgently.

Pragmatic nations that understood money and banking sidestepped the “conventional” wisdom and used “sovereign money” to lift their economies. These are countries like Germany, Canada, Japan, China and the Asian Tiger nations. They made use of their Reserve Banks to supply money but also guide credit creation. They created and structured appropriately state banks and related financial institutions.

He proposed that the Reserve Bank must be subjected to democratic control and get under Treasury, and its mandate of price stability be changed to include targeting unemployment. The Reserve Bank should be instructed by Parliament to supply sovereign money to all state banks and public banks, new or old.
No state bank should ever go to markets for money, but to the Reserve Bank only.

On suggested policy changes, he stated that beyond the Reserve Bank being subject to democratic control (China, India, Brazil, etc), state and public banks need be created. New policy banks (state banks) to be created. Public banks (Community, Regional Government Banks) catering for SMMEs should be in place: All of them should not be for profit. Community public banks should also include co-operatives. New macro-prudential policies must be put in place; and credit guidance should be at the centre of all public banks. He suggested three types of banks:
• Private Banks (as we have now)
• State Banks (Policy Banks - National) - they should be non profit.
• Public Banks (Municipal/Regional State / Non-State Banks (e.g. co-operative banks) - should be non profit.

On why focus should be on the banking sector and money, Mr Nkosi pointed out that money supply through credit/money creation is the only vehicle through which nations can produce, consume and grow the economy. It is only through banks that new money/credit could be continuously created. Non bank lenders do not create new money but use existing money already in circulation. Therefore, decisions of money/credit creation for a nation cannot be left in the hands of almost four private institutions. These decisions are profoundly important as to be left in the hands of those whose economic motive is narrow and seeks to benefit themselves alone. All other financial institutions depend on bank’s money creation capacity to effect their own activities. These banking systems and structural changes would, amongst other things, lead to:
• High economic growth and low unemployment
• Easy wealth distribution (no need for Black Bank)
• Facilitation of easy industrialisation/innovation
• Easily funded green economy investments
• Lowered price structure of economy (lowering cost of doing business and of living).
The following economies have applied these systems: Germany, Canada, China, the Asian Tigers, India.

SA Development Foundation (SADF) submission
Mr Servaas De Kock, Director: SADF, stated that there are two things in life that people do not want to talk about, and that is sex and money because these two are personal. He said it is interesting to talk about financial sector transformation. There is no common language when it comes to transformation and financial sector. Anything we can learn from international studies should be undertaken.

Banks, trusts and insurances companies must be asked to place R5 billion a year with DTI for start-ups development and industrial programs. This R5 billion would fulfill black people’s ‘start-up’ needs which the financial sector is avoiding because banks and insurance companies are part of national savings. But black people do not get it back for business. Saving money is encouraged in order to create a national pool of wealth. Banks use the population of bank accounts to mobilise more funds. The majority of bank accounts are held by black people. However, the money rarely gets back to black people who also contribute to this national cake; unless one dies or at maturity of investment, which is a minuscule and unfair.

Banks and insurance companies lend to existing businesses only. Black people are unable to access the money because banks and insurance companies say you must start the business first and run it for some time to qualify and very few black people are running businesses. So, the black people get nothing. Banks and insurance companies channel money to lend to 2% of the population who are industrialists or property owners, through buying shares and new properties. This means they take the money back to white people. The properties are rented to black people at exorbitant prices. Even the large supermarkets or chain stores charge that space to customers that are mainly black people. Black people are unable to get that money to build their own properties or chain stores.

Lending to black people is based on pay-slips because of the National Credit Regulations. This lending is not for business but for consumption – such as overdrafts, credit cards, motor vehicles, and houses. 90% of black people earn around R4000. Therefore, very little gets back to black people. Black people cannot industrialise based on pay-slip funding. Too little funding can be raised from a pay-slip. Banks use bank canons when lending and that cuts off black people.

SADF wants the money placed into the DTI and ‘ring-fenced’ for new economic start up programs, not the programs DTI is currently running. The DTI has an allocation from Treasury but that money finances big white and foreign businesses. There is no program for start-ups to encompass the majority of black people who want to start businesses. SADF estimates that 5 million black people want to enter business (start-ups), but have no resources or targeted assistance. Banks and government do not finance start-ups, but only finance existing businesses which enrich the rich and widens the wealth and income gap. This is contrary to public policy to narrow income gap and take more people out of poverty.

Programmes are similar to project management processes. Project management produces exactly what is required and closes the skills gap. What is required is to increase the number of formal businesses to 5% of the population from the current 2%. To succeed we have to handle participants through the five critical stages for a successful business:
• Project conceptualisation - most start-ups are constrained by circumstances and, as a result, are poorly conceptualised.
• Technical assist – design, technical drawings, machinery selection, plant layout and packaging
• Marketing – market penetration, displays, stock, advertising, sales team
• Administration – accounting and compliance
• Funding – the correct capital injection and take-off support.

For example, SADF has developed an industrialisation programme to turn an ordinary citizen into a manufacturer of a consumer product(s) of choice and to prove to everyone that the excuses about skills and education are not the prohibitive factors. The programme takes product ideas and prepares them into production lines, working with the machine manufacturers. The cost of the program over 20 years is R3.0 trillion, creating some 10 million jobs in 25 years. An African Commercial Farmers Development programme could incubate 25 000 black commercial farmers in the next 35 years to replace the dwindling white commercial farmers. The number of commercial farmers dropped from 128 000 in 1980, 60 000 in 1998, 40 000 in 2007, and is currently around 30 000. Absa has projected the number of commercial farmers would drop to 15 000 in the next 15 years. The correct number should be 40 000 commercial farmers. There would be food shortages unless action is taken now. Subsistence farmers do not provide food security. A hungry nation is an angry nation.

It is known as a generic rule that there is no funding for start-ups. All our local financing institutions have been tried, either as one project or as batches. None of them finance start-ups. The list is long - IDC, NEF, Jobs Fund, most of the banks, insurance companies, trusts, provincial institutions such as the NAMC and national financing institutions such as DTI. Other than DTI and Jobs Fund, all the funding institutions are raising their money from the financial markets which force them to conform to bank rules. Some, such as NEF, have the policy to finance start-ups based on the first government fund injection, which was exhausted. When going onto the market the rules of the game forces them away, otherwise they would not get funding.

The total cost for black industrialisation participation is R3 trillion in 20 years, which could be raised from the R1 billion a year for 20 years. R1 billion is from the R5 billion the banks and insurance companies must give to DTI. It must be invested into industrial parks at the rate of R160 million once-off per site. The sites would be able to raise their own money, and if it complies with minimum requirements for local ownership, it would be able to seed more participants.

To achieve the NDP target of R6.5 trillion (including above industrialisation) which is required over 20 years, this could be raised by the injection of R5 billion a year from banks and insurance companies. This would lead black people to start their own businesses, which they cannot do now, and develop them into multi faceted businesses. They would start their own banks and insurance companies and compete. There would be about 20 million workers who earn salaries, driving new markets, chain stores selling billion turnover a year, exports and imports – a new type of economy which competes on a national scale. If the banks, trusts and insurance companies are let off or do not contribute the R5 billion, nothing would happen to black start-ups development and we would be sorry for ourselves and future generations. The marginalisation is happening now and it would not stop. Politics is worthless unless you have economic participation. Therefore, banks, trusts and insurance companies must collectively contribute R5 billion a year. It could be calculated from their turnovers.

The R5 billion contribution is on top of any transformation charters and BEEE participation in the companies themselves, such as same salary for same work, and opportunity for promotions in the businesses and boards of directors. Buying shares alone is not enough because most of the equity partners are not engaged in running the business, and the purchase money is paid to white people. The DTI Programmes are focusing on assisting existing businesses only which could only deliver at best 3% growth. These happen to be white people, thus increasing wealth and income gap. Indeed new blood is required. Minority groups have done what they could do. The priority must be to assist previously disadvantaged individuals to step up and answer this call. The SADF has argued that we have enough skills to industrialise at low-to-medium tech level. But it has to be a facilitated programme because individually very few previously disadvantaged individuals could start and sustain a business, whether the business person is a professor or not. There is no problem that DTI assist existing business but that could not be the end of policy. We need black people to come on board, but these are start-ups. There must an avenue for start-ups.

Bank rules do not allow financing to start a business. Bank lending rules are also called ‘bank canons’. They are forced on banks by the Basel Committee, based in Basel, Switzerland. It is global practice. Banks are controlled by the Basel Committee which issues banking conventions such as Basel 1, 11 and now 111. Basel 111 tightened lending by banks, by moving up, away from the poor after the world financial meltdown in 2008. Banks are instructed to play at a higher level, and to apply the four canons strictly. Banks cannot move out of that. The problem is that banks have influenced everybody to follow their process, even governments which are not controlled by the Basel Committee. By employing bankers, accountants and economists, governments and everybody else are operating like banks.

Mr De Kock identified the following opportunities, amongst others, for shared value:
• to innovate in order to develop new financial products
• expand microfinance
• expand the use of technologies such as satellite and spatial systems, big data, etc.
• provide targeted internship for young people from disadvantaged backgrounds to promote social mobility
• increase opportunities for lower paid workers to develop skills and gain access to improved professional opportunities
• adapt credit processes and lending methods to expand lending to Micro and SMEs by offering collateral free loans or accepting household goods as collateral
• leverage new technologies such as Mobile Money.

He noted that the reason why cooperative banking has not been successful in SA is because the lack of funding is a major challenge in the development of micro-enterprises in Sub-Saharan Africa. There is a need to arrange a formal platform to discuss how to promote cooperative banking in SA.

Discussion
Mr A Williams (ANC) asked Cosatu and SACP what proposals they want Parliament to consider for financial transformation in SA.

Mr Mapaila, SACP, pointed out there is a need to dismantle the banking monopoly because it destroys the big finance sector. Another key area is around the differentiated policy for the sector, especially the incoming sector that is being swallowed by the big banks.

Mr B Mkongi (ANC) asked Cosatu and SACP about the areas Parliament should concentrate on regarding legislation that regulates transformation in SA.

Mr Mapaila replied that community re-investment is important because it could divert resources and deal with national priorities. Another key area is about taking a role in the radical transformation of the economy. He said they could not wait for the legislative process to be completed and allow role players to draw up another Charter to force the sector to transform. National Treasury and DTI should roll out funds to ensure the new agency that is established is an activist one.

Mr F Shivambu (EFF) remarked that if you try to cross a river with a bicycle and you fail, you do not bring in another bicycle. The summits Cosatu is trying to organise and the drawing up of charters is not going to solve the problem. Rather it should try to come up with new ideas.

Mr B Topham (DA) asked CCRED to provide one thing that could be done to help lower the barriers to entry.

Mr Vilakazi replied that the focus should be on the reduction of bank charges, and to open opportunities for new incomers to be able to access the markets. He said it important to establish a state bank which would not request guarantees. That would attract customers. It is also important to change the ownership of the banks and improve customer service.

The Co-Chairperson commented that the stakeholders have said nothing about cooperative banks and Post Bank and how to encourage these two to develop.

Mr Radebe, Financial Sector Campaign Coalition, stated that the social grant crisis is providing a chance to revive the Post Bank service. He also noted that banks make millions of rands from bank charges. Bank charges should be reduced. There is a need to reduce “top costs” like the salaries of the bank CEOs in order to protect the jobs of cashiers.

Mr Israel Noko, Microfinance SA, responding to a question about registration with the NCR, stated there was a threshold that was removed in order to register with the NCR. When people came and were told about what needs to be done to register, they disappeared and did not come forward. Now there is a need to disseminate information on how to register. The main reason his members want a bank is to deposit money and make savings. A trade-off should be made on how to protect the savings. That is a challenging environment.

Submissions from Actuaries Lekgotla, BBC, and ABSIP
Ms T Tobias (ANC) remarked that she engaged with banks in her previous life. She realised they are failing to invest in small businesses. Banks have indicated they are prepared to put in a rand if the government is willing to also put in a rand, but they warned that government has to be prepared to take a risk. Regarding the BBC proposal of a R50 billion injection for black SMMEs funded by the sector, there needs to be a discussion between the private sector and government to engage on raising this amount of money. If there is no engagement, this would just remain an idea on a piece of paper. On the 51% black ownership for bank/insurance licences, she asked if the BBC did not think of a phasing-in approach and capacity to see if this could be done and achieve what it set out to do.

On the R50 billion injection, Dr Baloyi replied that BBC would take up the challenge with the banks to form a partnership on this programme. With regard to the 51% ownership for bank licences, she said the issue of compliance and capital adequacy is still part of ownership. There should be no difficulty in establishing a black bank when there are white banks that form partnerships with new incomers. The challenge only lies with the dividends that have to be used to fund these transactions.

Mr Williams remarked that the BBC and ABSIP are right when they say government must compel transformation in the financial sector so as not be driven by whites but blacks. The sector must be compelled to transform altogether and that idea has to be discussed with the DTI.

Mr D Maynier (DA) said that the presentation by BBC hinges on the credibility of the presenter. He wanted to know if it is true Dr Baloyi holds a fake PhD.

Dr Baloyi heatedly said she would not be dragged into the gutter by entertaining questions from Mr Maynier who is the product of apartheid, and what he has raised is not important and relevant to her.

Mr Shivambu asked Dr Baloyi to remain composed and reserve the shouting for outside the premises.

The Chairperson asked Dr Baloyi to refrain from raising her voice.

Mr M Dlamini (EFF) indicated that from the BBC presentation it is clear that lots of middlemen are procuring from the state. He asked the BBC to investigate other options like the one used in Zambia regarding the 30-day payment.

Mr Shivambu said the BBC should be encouraged to meet more with ABSIP, and explore possibilities of having black participation in listed companies on the JSE.

Ms Delphine Govender, ABSIP deputy president, replied they do engage with the BBC on matters regarding the promotion of black businesses. She also noted it was difficult to obtain the data presented to the Members from the sector, sub-sectors and its participants. She said they used the Financial Services Charter although it was last updated around 2012/13.

Mr P Mabe (ANC) commended the BBC for its progressive submission on how to deal with the insurance space and increase black ownership in that space. ABSIP and Actuarial Lekgotla seem to be singing the same song. There is a need to strengthen regulations on BEE, and the ownership of the banks is another area that needs attention.

Dr Baloyi, answering a question on whether the BBC is captured by the Guptas, stated that is not true. The organisation is led by capable black people. The BBC represents 51 organisations which make collective decisions that advance black people's participation in the mainstream economy.

Ms S Shope-Sithole (ANC) remarked they had been warned by Albertina Sisulu that when they go to Parliament as women, they should be aware of insensitive male chauvinists. The member [Mr Maynier] should be removed and impeached from Parliament.

Submissions from Firstsource Money and South African Development Foundation
Ms Tobias wanted to know if it is possible to re-model our banking system towards cooperative banking because in the Chinese market the biggest chunk of the money is held by the state. She asked Firstsource to give its opinion on cooperative banking.

Mr Nkosi replied that cooperatives must come forward. Perhaps they would be supported by the state banks at municipal, regional, and national level. These banks should be given money by the Reserve Bank, and not go to the markets to look for money. He noted that when they went to Treasury to discuss cooperatives, a number of areas in the legislation were not helpful. They want to give Treasury information on how these regulations should be reviewed. He sees cooperatives as part of development banking. He is looking at synergies where all stakeholders come together and craft a model for cooperative banking. It is important to ask questions why it is working in some countries while it is not working in others. Transformation could only be achieved when all role players are involved and come up with a unique approach that suits SA.

Mr Topham asked if Firstsource is trying to create a hyper inflation economy when it spoke about what has been done in Zimbabwe, because that is something he has raised many times in the Finance Committee.

An angry Mr Nkosi told Mr Topham if he is not informed, he must seek assistance because he does not understand banking and money. $29 trillion were printed by the US. The EU also printed trillions of euros. He asked where inflation is in that when it is done by the US and the EU.

Mr Mabe interjected that those members of the public who think they know too much, must not come to the Committee if they are not doing so in a dignified manner.

The Co-Chairperson agreed that Mr Nkosi's tone was unacceptable, but it is also true that the Member [Mr Topham] has said something that has been perceived as insensitive to the presenter by saying he has raised the issue many times in the Finance Committee. Perhaps the presenter was right in his actions.

Mr Mkongi remarked that the challenge in SA is that the financial sector is showing no interest in the development of the economy and country. He said a way should be found to de-financialise our banks. The banks Firstsource is talking about should provide finance to developmental projects.

Mr Dlamini asked Firstsource for explanation on what banks do because it stated “banks are not doing what we think they are doing”.

Mr Nkosi elaborated that banks exchange securities. This creates a supply of money and they choose who to whom to allocate the money. The money is allocated to a few people. The banks send this money into the productive sector. That is why we have to pay charges when they give us money. Hence the suggestion of a state bank which has to be for non-profit purposes. All the small banks that must be created should be targeted at productive activities like textiles.

Mr Shivambu commented that as Members they want to consider what Firstsource is saying, but the problem is they do not know the person behind Firstsource and what the company is doing.

Mr Nkosi explained he is a former employee of DBSA, Transnet, Department of Transport, and South African Maritime Unit. Firstsource is an economic research firm based in Pretoria, with offices in Cape Town, Durban, and Johannesburg. It is a non-governmental organisation that sources funding from various organisations and it specialises in money banking. It has four members.

The Chairperson concluded that financial services transformation is critical for our country. Transformation in this sector would only be successful if the private and public sectors take a decision to accelerate transformation. It has been 23 years and nothing of substance has been achieved.

Meeting adjourned.

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