The sector specific Codes of Good Practice on Broad-Based Economic Empowerment for the financial services sector came into force on 26 November 2012. The FSS Codes have been formulated in accordance with the generic Codes of Good Practice on Broad-Based Economic Empowerment as they were formulated at that date. It is, therefore, questionable as to why this release was made during November 2012 despite the fact that the Department of Trade and Industry released intended revisions to the Generic Codes during October 2012 which will change the focus of BEE and the manner in which BEE will be measured going forward.

[The FSS Codes are applicable to any individual or entity which conducts a business, trade or profession in the South African financial sector. Without limitation, the financial sector includes the following sectors: (1) banking (2) long-term insurance (3) short-term insurance (4) re-insurance (5) management of retirement, pension and collective investment scheme assets (6) management of formal collective investment schemes (7) financial services intermediation and brokerage (8) management of investments on behalf of the public, including but not limited to, private equity, members of any exchange licensed to trade equities or financial instruments in South Africa and entities listed as part of the financial index of a licensed exchanged (9) underwriting management agents.

Despite the FSS Codes being in force, entities in the financial sector will still be entitled to use their current BEE certificate which was obtained when measured against the scorecard in the Generic Codes but only until that certificate expires. Thereafter, entities in the financial sector will be measured against the scorecard in the FSS Codes so should start preparing and implementing BEE strategies based on the elements and targets in the FSS Codes in order to maximize their BEE status under the new regime.]

Entities to which the FSS Codes apply will be measured against the scorecard contained in the FSS Codes. The FSS scorecard measures an entity against the seven elements contained in the Generic scorecard as it was formulated at 26 November 2012, with some variations on the targets and sub-elements in those elements. In addition, the FSS Codes introduce two additional elements to the scorecard: access to financial services and empowerment financing.

The FSS Codes and the scorecard contained in the FSS Codes are both based on the Generic Codes as they were formulated at 26 November 2012. This release and the basis on which the FSS Codes were formulated was made notwithstanding the fact that, in the previous month, the DTI had released the intended revisions to the Generic Codes, which intended revisions will change the focus of BEE and the manner in which BEE is generally and generically measured and implemented in South Africa going forward.

A clear indication of the premature release of the FSS Codes can be seen when considering the intended revisions to the Generic scorecard and the manner in which BEE is currently measured and the manner in which it is intended to be measured. The Generic scorecard currently measures an entity against seven elements but the intended revisions will reduce the scorecard to five elements. The management control element and employment equity element will be merged into one element, management control and employment equity. In addition, the preferential procurement element and enterprise development element will be merged into one element, enterprise and supplier development. The FSS Codes contain the seven (plus two additional) elements scorecard, do not cater for this intended revision to the scorecard and do not accord to the intended shift in focus for and measurement of BEE.

It is, therefore, questionable as to why the DTI released the FSS Codes, based on the existing Generic Codes in the month following the release of the intended revisions to the existing Generic Codes and the announcements regarding the shift in focus of BEE in South Africa. Any application of the intended revisions to the FSS Codes will result in a revision of the FSS Codes within a few months of their release in order to align them and their focus to the revised Generic Codes. Any entities who wish to commence formulating BEE strategies should, therefore, do so on the basis of the Generic Codes, the intended revisions to the Generic Codes, the FSS Codes and the FSS Codes when read with the intended revisions.

Written by Ismail Laher, Norton Rose South Africa