Gary Moore is a Senior Consultant at the Free Market Foundation. He was a practising attorney in Johannesburg for 30 years. He is the author of published articles and monographs about the rule of law, the legality of state action, the meaning of statutes, and laws affecting small business.
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This article was first published on Businesslive.co.za on
17 June 2022
NB: The article below is the first in a series of two. The second article will be added tomorrow.
The Financial Sector Conduct Authority wishes to usurp the B-BBEE role of the Minister of Trade & Industry, to make missing a transformation target an offence, and to make the Sector serve two Masters. Yet it fails to produce even a basic Impact Assessment.
On 28 February, 2022 the Financial Sector Conduct Authority (FSCA) issued a Press Release through which the public was to be invited to comment on its astonishing draft FSCA strategy for promoting financial sector “transformation”. The Press Release states that a “strategic objective of the FSCA” includes “supporting the transformation of the financial sector”. This is a decidedly misleading statement. The Financial Sector Regulation Act, 2017 (“the FSR Act”) states that promoting sector transformation is an object of the Act. It nowhere suggests that it is an object of the FSCA.
The FSCA’s transformation role is merely to attend deliberations of a working group or subcommittee set up to deal with that topic, and then only if the Financial System Council of Regulators selects the FSCA as a member. The subcommittee then deals only with an agenda determined by that Council, not by the FSCA. Tellingly, the draft Strategy document actually acknowledges that the FSCA is restrained from begetting transformation, there being no legislation enabling it to do so.
The FSR Act defines “transformation of the financial sector” as transformation envisaged by the Financial Sector Code for BroadBased Black Economic Empowerment (“B-BBEE”) issued under the B-BBEE Act, 2003. The B-BBEE Act declares that it is a statute to establish a national policy on B-BBEE through socio-economic strategies that include increasing the number of black people, communities and black women that manage, own and control enterprises, and to facilitate B-BBEE by promoting economic transformation. Nowhere does the FSR Act suggest that it is an “objective of the FSCA,” let alone a “strategic objective of the FSCA”, to promote or support B-BBEE transformation. The B-BBEE Act also does not authorise the FSCA to publish transformation strategies.
It is curious, therefore, that the FSCA’s press release and strategy suggest that the FSCA is currently empowered to take action if companies do not meet BB-BEE or transformation, when this assertion is entirely erroneous. Under neither the B-BBEE Act nor the FSR Act is the FSCA directed or empowered to involve itself with such matters.
The FSR Act’s “transformation” definition refers to the B-BBEE Act’s Financial Sector Code definition, the strategy for which is to be issued by the Minister of Trade and Industry, not by the FSCA. Additionally, the B-BBEE Act says if a sector develops a “transformation charter,” it is the Minister of Trade and Industry who must gazette it. The FSCA has no direct role in either developing, issuing or enforcing a B-BBEE charter or standard. (A “conduct standard” is a term used by the FSR Act to describe a regulation by the FSCA, along with such other of the FSCA’s regulations known as a “directive”.)
Even more concerning is that whilst failure to achieve a certain level of B-BBEE compliance is not an offence, the FSCA plans to make it an offence and cancel financial institutions’ licences if licensees who fail to achieve their transformation targets.
Among other things, what the FSCA’s strategy envisages is to make the financial sector answerable to two masters in regard to B-BBEE and transformation. As Matthew’s Gospel says, no man can serve two masters.
Adding insult to injury is the fact that once again no Socio Economic Impact Assessment has been produced by the FSCA, thereby overturning the legitimacy of its draft strategy.
The B-BBEE Act states that Minister of Trade & Industry must issue a strategy for B-BBEE. The Act authorises neither the FSCA, nor its responsible minister the Minister of Finance, to publish a strategy for B-BBEE or for promoting transformation. The Act states that it is the Minister of Trade & Industry who must publish and promote a transformation charter for a particular sector of the economy, after being satisfied that it was developed by major stakeholders in that sector. In 2007 the Minister issue a Financial Sector Charter which stated that it was voluntarily developed by the financial sector. The Charter established targets, principles and responsibilities for the implementing of BEE in the sector and for monitoring and reporting progress, and established an independent Charter Council to oversee implementation. The targets would be achieved consistent with sound business practice. The B-BBEE Act does not authorise the FSCA to publish transformation charters or strategies, whether or not developed by the major stakeholders in the financial sector.
The B-BBEE Act authorises the Minister of Trade & Industry to issue Codes of Good Practice on BEE. Such a Code may include further definition of B-BBEE, and indicators to measure it and the weighting to be attached to them, and specify target dates by when they must be achieved. The Minister’s amended guidelines for developing sector codes says that the main responsibilities of Sector Charter Councils are to develop the sector codes and monitor their implementation. The FSCA is excluded from being called upon to undertake such monitoring, and for good reason. Industry cannot be expected to report to two masters on the same issue without the inevitability of confusion and conflict.
The B-BBEE Act states that every organ of state and public entity must apply any relevant Code of Good Practice issued under the Act “in determining qualification criteria for the issuing of licences” or other authorisations of economic activity in terms of any law. The Minister of Trade & Industry issued a Financial Sector Code in 2012 which stated that it was a harmonisation of the Charter prepared by the financial sector and gazetted in 2007 and of the generic (i.e., not sector-based) Codes issued under the Act. The Minister issued an amended Financial Sector Code in 2017 which states that it is a harmonisation of the 2012 Financial Sector Code and the amended generic Codes. The 2017 amended Financial Sector Code records that the Financial Sector Charter Council was of the opinion that the 2017 Code met all requirements of the provision in the amended guidelines that set out the procedure for developing sector codes. This includes the requirement that the sector body seeking to have a Sector Code gazetted must provide evidence of compliance with the B-BBEE Act’s provision that requires the Minister of Trade & Industry to publish a sector transformation charter, but only if satisfied that it was developed by major stakeholders in that sector.
Perhaps the FSCA is relying on the draft Conduct of Financial Institutions (CoFI) Bill to help solve these problems? That question merits the attention of a further article.