THE DTI RESPONSE TO SUBMISSIONS ON TRANSFORMATION OF THE FINANCIAL SERVICES SECTOR 24 MAY 2017

1. THE DTI RESPONSE TO SUBMISSIONS ON TRANSFORMATION OF THE FINANCIAL SERVICES SECTOR 24 MAY 2017

2. INDEX • INDTRODUCTION & OBSERVATIONS • OWNERSHIP • MANAGEMENT CONTROL & SKILLS DEVELOPMENT • ENTERPRISE AND SUPPLIER DEVELOPMENT • CONSUMER FINANCIAL LITERACY TRAINING • UNLOCKING POTENTIAL FOR FUNDING ON TRIBAL LAND • CREDIT ALLOCATED TO WOMEN AND HISTORICALLY DISADVANTAGED PERSONS (HDPS) • LEGISLATIVE AMENDMENTS IN 2014 FOR REMOVAL OF PAID-UP JUDGMENTS • CONCLUSION AND RECOMMENDATIONS

3. INTRODUCTION & OBSERVATIONS • The public hearings process was useful in that there was a wide range of stakeholders that were invited from government, labour, civil society, and industry. • It was also confirmed by all stakeholders that the pace of transformation in the sector is slow. • Various topics and issues that affect transformation were broadly covered including the role that the state should play; black ownership levels; formation of state & cooperative banks; consumer education and rights; competition & competitiveness; skills development, change of value chains; and data availability. • The view of the dti is that the outcomes of the hearings must inform the improvement of the Financial Services Charter as well as relevant policies within government.

4. OWNERSHIP • The financial services sector is unique in that is the key facilitator of transformation of the rest of the South African economy. • Ownership of the sector should not be viewed narrowly but should be viewed as extending beyond the sector to include funding for SMMEs and Black businesses in other sectors. • State institutions in the sector such as the FSB need to be radical by using Section 10 of the B-BBEE Act as a lever to facilitate black ownership in the sector. For example, the proposal from the BBC that all new banking or insurance licenses must be 51% black owned can be implemented within the ambit of Section 10. • Greater focus and emphasis should be on sub-sectors that are lagging behind such as Asset Management where only about 4% is black owned. the dti will propose that by 2019 the state’s assets must be managed by Asset Management entities that are least 51% black owned and/or Level 4 B-BBEE status.

5. OWNERSHIP contnd….. • NT and the BEE Commission to strongly monitor performance of state institutions as well as private entities. • Propose compulsory minimum B-BBEE Level 4 as a condition for listing on the JSE and other stock exchanges. • When entities such as JSE report they need to be a distinction between direct black ownership and ownership through institutional investment .

6. OWNERSHIP contnd….. • Ownership must also be linked and measured based on ownership of assets in the country. For example, it was reported that banks hold R4.87 trillion of assets in the country. There need to be a measure over time on how much of those assets are in black hands directly (Effective Black Ownership and Control). • the dti support the proposed establishment of a fund which is touted at least R 5 billion to support black businesses and industrial programmes. This must be a fund set aside for funding of black entrepreneurs to establish their own businesses or takeover of existing businesses. Sources for the fund could come from anti-competitive fines, indirect ownership contribution by financial institution and from enterprises and supplier development contribution.

7. MANAGEMENT CONTROL & SKILLS DEVELOPMENT • It is observed that 23 years into democracy entities are still not transformed in terms of employment equity and participation of black people especially at executive level. • Reason often cited by entities is that there is not enough skills available. • the dti support the proposal by Department of Labour (DoL) on penalties for entities that are non-compliant with management and employment equity. This should be included in the financial charter for, example an entity getting discounted to a lower level if theye are non-compliant. • the dtiproposes that 80% of skills development in the sector must be on supporting black students through bursaries especially in actuarial science, accounting, and CAs. • Spending on consumer education should not be considered to be skills development but part of the companies’ way of doing businesses.

8. ENTERPRISE AND SUPPLIER DEVELOPMENT • Enterprise and Supplier development initiatives by financial institutions must be broader than that their first tier suppliers. It must include Black Industrialists and support for Black Owned entities in other sectors especially manufacturing -This must be measured based on impact and not just contributions by financial institutions • Financial Institutions must be incentivized to provide financial access to SMMEs. This include flexible risk assessment systems, favorable interest rates charges and debt management systems, and greater involvement of the financial institutions in assisting black enterprises in their operations. • Insurance companies working with the OEMs must phase out the current panel system for the panel beaters and towing services. At least 50% of the work within the value chains of insurance companies must be done by black companies by 2021.

9. CONSUMER FINANCIAL LITERACY TRAINING • NCR entered into a Memorandum of Understanding with the Cooperative Banks Development Agency (CBDA) in February 2017. The purpose of the agreement is to provide a framework of cooperation between the two entities to provide financial consumer education to members of the CBDA.

10. UNLOCKING POTENTIAL FOR FUNDING ON TRIBAL LAND • Credit providers to be encouraged to partner with building material suppliers and construction companies. To disburse funds directly to these suppliers or introduce a store card to be used solely for the purchase of building material. • Funds for working capital purposes to be channeled directly to accredited construction companies. The NCR has not yet made any proposals to the dti on this issue. the dti reviewed the Limitations on Fees and Interest Rates Regulations, where the interest rates for Developmental Credit where increased, to stimulate appetite in the sector.

11. CREDIT ALLOCATED TO WOMEN AND HISTORICALLY DISADVANTAGED PERSONS (HDPS) • No cost determination has been concluded for new range of products for asset building. The idea was to provide credit for low income consumers. The initiative will be need proximity to funding projects from hardware stores. • NCR has no information of total credit allocated to women and HDPs, however it hopes to begin collection of such information. • Further, the Department of Human Settlements entered into a Memorandum of Understanding (MOU) with the Banking Association of South Africa, to enhance the banking industry’s appetite for developmental credit and provision for low cost housing. • the dti reviewed the Limitations on Fees and Interest Rates Regulations, where the interest rates for Developmental Credit where increased, to stimulate appetite in the sector.

12. LEGISLATIVE AMENDMENTS IN 2014 FOR REMOVAL OF PAID-UP JUDGMENTS • the dti amended the National Credit Act, 2005 in 2014 and made provision for amongst others, the automatic removal of adverse consumer credit information. In terms of section 71A (1) A credit provider must submit to all registered credit bureau, within seven days after settlement by a consumer of any obligation under any credit agreement, information regarding such settlement where an obligation under such credit agreement was the subject of, amongst others, a judgment debt. The credit bureau must remove any adverse listing contemplated in subsection (1) within seven days after receipt of such information from the credit provider. • This provision was introduced to avoid consumers having to approach lawyers and incurring legal costs to remove a paid-up judgment for the credit bureau listing. Consumers are urged to raise complaints with the NCR where paid-up judgments are not removed in terms of the NCA. Credit bureau have reported that credit providers do not transmit the required information timeously and this is done in contravention to the provisions of the NCA regarding the time frames within which the information should be transmitted.

13. CONCLUSION AND RECOMMENDATIONS • Further discussions must take place at the proposed summit on transformation of the sector. • Gazette of the current Amended FSC must go on with a caveat that it will be reviewed within 12 months of gazette taking into account the outcome of the public hearings and the proposed summit. • Parliament to monitor closely the process by FSC Council to review the charter. • All public institutions in the sector to legislate B-BBEE requirements as per Section 10 of the B-BBEE Act in their regulation of the sector. • All entities must submit annually data to the FSC Council and the BEE Commission on the status of their transformation. the dti welcome the proposal by the FSC Council that entities that do not submit data will be penalized by discounting of their B-BBEE level. • Consumers should contact the National Credit Regulator and the dti regarding any credit regulatory matters for clarity.

14. QUESTIONS & COMMENTS

15. THANK YOU