1. FINANCIAL SECTOR CHARTER September 2007 presented by Leila Moonda

2. Overview  Broad-based black economic empowerment (BBBEE) is not a legal requirement – it is a business imperative that may or may not lead to a competitive advantage  The Codes of Good Practice and the FSC are guidelines for measurement of BBBEE compliance

3. The BBBEE Imperative  Competitive advantage  Retain existing business / sales / customers  Increased sales volumes  Access to new markets  Staff retention and growth  Social imperative  Growth of the Black middle class = booming economy  Job creation = alleviate poverty and reduce crime  Personal perspectives

4. Who is Subject to the Charter  Currently applies to signatories of the Charter –Banks –Long-term insurers –Short-term insurers –Re-insurers –Managers of collective investments –Asset managers –Listed entities …  Any other institution may opt-in  Once the Charter is gazetted as a Sector Code, it will apply to all institutions active in the sector, i.e including intermediaries

5. Exemptions – under the current framework – SUBJECT TO CHANGE WITH ALIGNMENT  Less than 50 employees – human resource development provisions  Less than R10m designated investments – empowerment financing  Both of the above – totally exempt, but may opt-in  Companies subject to global policy – certain Board member provisions  Companies subject to global policy – ownership provisions  Wholesaler – access provisions

6. Measurement of BBBEE Status under the Codes  Exempt Micro Enterprise (EME) –Less than R5million turnover –Auto Level 4 status, regardless of compliance –If >50% Black owned – Level 3 status –Can opt to be measured as a QSE should they wish to obtain a higher score  Qualifying Small Enterprise (QSE) –Turnover Between R5million and R35million –Can select ANY of the 7 elements, 25 points each, 100 total –Relatively easy to become BBBEE compliant  Large Business –Score on 7 elements out 100 points

7. The FSC elements Human Resources Development20 Employment Equity15 Skills Deveopment5 Access to Financial Services 18 Empowerment Financing 22 Procurement & Enterprise Development 15 Ownership & Control 22 Ownership14 Control8 Corporate Social Investment 3

8. The CoGP Elements

9. CoGP Scorecard for QSEs  Easy to become compliant

10. Alignment recommendation re elements  If the FSC adopts the approach that allows QSE’s to score on fewer elements (e.g. 4 out of 6) and intermediaries cannot comply with Access and Empowerment Financing, it means that intermediaries have to comply with the ownership provision.  Intermediaries should make a recommendation to the FSC Council that HRD be split between Employment Equity and Skills Development and Ownership and Control be split. This would see the FSC duplicate the 7 elements of the Codes and have two additional elements of Access and Empowerment Financing, giving the FSC 9 elements.  Intermediary QSE’s could then have the option of selecting 4 of 7 elements (excluding Access and Empowerment Financing)

11. HR Development  Building a diverse, non-racial, non-sexist and sustainable intellectual pool  Un-quantified commitments to: –Mentorship, Career Path programs –Cultural Diversity and Gender sensitivity programs Institutions –Where possible, support Educational Institutions –Skills Audit to be undertaken to identify black skills shortage

12. Employment Equity Targets in the FSC and the CoGP CodesFSC Targets5 Year Senior Management43%20% - 25% Senior Management Women50% of Black4% Middle Management63%30% Middle Management Women50% of Black10% Junior Management68%40% -50% Junior Management Women50% of Black15% Disabled PeopleThe CoGP have specific targets for Black disabled people The FSC has no targets for disabled people.

13. Employment Equity Alignment  The FSC current catgorisation is according to salary bands  The DTI CoGP categorisation is as per the Employment Equity Act  The Trade Associations have put forward a position to the Charter Council that the categorisation according to salary bands be maintained.  With the alignment process the targets in the FSC will be increased to the targets in the CoGP. The Trade Associations have proposed that the “Adjusted Recognition for Gender” not be incorporated into the FSC, but that there be a separate target for Black Women at 50% of the Black people target.

14. Skills Development CodesFSC Targets Skills Development spend on Black employees 3.0%1.5% Spend on disabled Black employees0.3%None Learnerships5.0%4.5% Targets for smaller companies Skills Development spend on Black employees 2%Companies with less than 50 staff are exempt

15. Skills Development Alignment  The Trade Associations have recommended that the criteria and scoring in the FSC remain.  The TA’s have recommended that the Learnership targets and scoring mechanism be aligned to the Codes

16. Procurement & Enterprise Development (FSC)  Currently premium scoring is awarded to Black Owned, Black Women-owned, Black SMEs or excellent performers in Sectoral Charters. –As part of the alignment scoring will be aligned to what is in the CoGP.  Un-quantified Commitments –Promote early payment to Black SMEs –Encourage existing suppliers to become BEE accredited

17. Preferential Procurement in the CoGP  Promotes BEE compliance by all entities in a value chain  Specific targets for buying from QSE and EME companies – promote their sustainability  Specific targets for buying from 50% black owned or 30% black women owned entities  Enhanced recognition for buying from value adding suppliers, encourages local content (factor of 1.25) –Means a company registered as a vendor under the VAT Act of 1991, where NPAT + total labour cost > 25% of total revenue  Enhanced recognition for buying from ED beneficiaries (factor of 1.2)

18. Procurement  Procurement from BEE accredited companies: –50% by 2008 –70% by 2014 –Same targets as per the CoGP  Suppliers currently have to be rated on a broad – based methodology. Though this continues to be a problem as there are no accredited verification agencies as yet. Self – assessment of suppliers who are QSE’s has been discussed by the various Trade Associations and the FSC Procurement committee and agreed to be acceptable  Procurement in the FSC will be aligned to the CoGP

19. Calculation of Procurement spend in the Codes and the Charter Supplier BBBEE LevelCodesCharter TitleWeightTitleWeight <29%None0%“E” Rated0% 30% - 39%Level 810%“E” Rated0% 40% - 44%Level 750%“D” rated50% 45% - 54%Level 660%“D” rated50% 55% - 64%Level 580%“C” rated75% 65% - 69%Level 4100%“C” rated75% 70% - 74%Level 4100%“B” rated100% 75% - 79%Level 3110%“B” rated100% 80% - 84%Level 3110%“A” rated125% 85% - 99%Level 2125%“A” rated125% 100% and overLevel 1135%“A” rated125%

20. Enterprise Development  Objectives –Foster new BEE companies –Develop existing BEE companies  Mechanisms –Skills transfer –Secondment of Staff –Infrastructure Support –Technical and Administrative support and assistance  Currently scored as part of Procurement, but as part of the alignment process will be split from Procurement. The current proposal is that it is scored as part of Empowerment Financing

21. Enterprise Development in the CoGP (large) Element IndicatorWeighting points Compliance Target ENTERPRISE DEVELOPMENT Average annual value of all Qualifying Contributions made by the Measured Entity measured 153% of NPAT

22.  Broadening the effective provision of financial services to LSM 1-5  To ensure that majority have access to basic affordable financial services  Defining Effective Access: -Affordability – cost effective services to LSM 1-5 -Innovative, user friendly products/services; and -Non-discriminatory practices. Access As Brokers do not make products available, they can apply for exemption from this criteria. However, Brokers do have a role to play in assiting with the distribution of Access products.

23. Consumer Education  This is a sub-category of Access wth a target of 0.2% of NPAT with a score of 2 points.  Even if intermediares receive exemption from the Access provisions, they will still be required to comply with the provisions of Consumer Education.

24. Empowerment Financing  Mobilising resources for investment in socio-economic transformation  “Affected Institutions” – those taking “designated investments”  “Designated investments” – deposits, savings, investments, risk insurance premiums  R123.5bn currently targeted –BEE transaction financing (5 points) –Targeted investments (low-income housing, transformational infrastructure, agriculture, black SMEs) (17 points) As brokers act as intermediaries, they do not hold any “designated investments” in their own right and would therefore be exempt from this provision of the FSC

25. Targeted investment / BEE Transaction Financing targets BEE Transaction FinancingR50bn Low-income housingR42bn / R32bn Black SME financeR5bn AgricultureR1.5bn Transformational infrastructureR25bn Total TargetR123.5bn

26. Ownership & control Enable genuine participation in the holding and strategic direction of the Sector  Black ownership to be aimed at: –Promoting productive and sustainable participation by black people –Encourage involvement of broad based constituencies in BEE transactions –Encourage ownership that is likely to add value to the financial institution –Encourage funding structures that facilitate transfer of economic interest

27. Control targets CodesFSC Black Board Members50% (using ARG)33% Black Woman Board Members 25%11% Black Top/ Executive Management 40%25% Black Woman Top/ Executive Management 20%4%

28. Corporate social investment  Projects aimed at black people, have a strong developmental approach & contribute toward transformation  Promote investment by the sector in areas specific to the needs of the majority Target –0.5% p.a. of post tax operating profits (FSC) – 1% of NPAT (CoGP)  The recommendation is that as part of the aignment process the target be increased to 0.8% of NPAT. With the 0.2%Consumer Education spend this wold equal the target in the Codes.

29. Application  Targets apply from 1 st January 2004 until 31 st December 2014. With the alignment process the dates are likely to match the timeframe of the CoGP, i.e. to be extended to 2017.  Principles embodied in the Charter are perpetual

30. Charter Council  The Charter Council will establish an Executive with the delegated mandate to: –Receive, consider and approve Annual Audits from Financial Institutions –Issue guidance notes on the interpretation and application of Charter –Conduct reviews identified in the FSC –Engage Govt., DFI’s, Regulatory Agencies & BEE Advisory Council to promote implementation of the FSC  Independent Body

31. Charter Council Industry Associations6 ABSIP3 Labour4 Community4 Government4

32. Charter Council Executive  Principal Officer appointed 01 st October 2005 – Enoch Godongwana  Chairman rotates every year amongst the constituencies, currently Kennedy Bungane from ABSIP  Council offices established at 66 Marshall street, Jhb CBD

33. Status  Charter was gazetted as a Transformation Charter by the DTI on the 09 th February 2007.  As the Charter has not yet been gazetted as a Sector Code, government may still choose have its financial sector suppliers rated against the DTI Codes  The Charter Council is working towards having the FSC gazetted as a section 9 Sector Code by the end of 2007. That means that the new provisions of the FSC will be applicable from the 01 st January 2008.

34. Intermediaries Involvement  The intermediaries are interacting with the Principal Officer to ensure that their views regarding the alignment are taken into account.  The Principal Officer has indicated that members of associations that do not sit on the Charter Council will be charged for a review of their scorecards. The costs of this is still to be confirmed.

35. Thank You Mpowered Business Solutions  Leila Moonda  011 268 – 1373  082 331 5251  leila@mpowered.co.za