Edition: November 2018/January 2019
Transfixed by transformation
Agenda items as the revised code for the financial sector takes off.
The newly renamed and reconstituted Financial Sector Transformation Council, formerly the Financial Sector Charter Council, has a job on its hands. With it is the financial sector – from banks and life offices to short-term insurers and asset managers – because new empowerment financing targets become effective in January and progress reports for scorecard points under the amended Financial Sector Code should kick in from April.
It’s one thing to set up the bureaucracy for governance, oversight and monitoring. It might be another for the FSTC, comprising senior executives of Nedlac constituents, to instil the awareness down the line in respective organisations for routes to compliance.
The amended Financial Sector Code is itself a many-splendid thing, both inspirational and practical (TT Feb-April). But reading the FSC is a Herculean mission, and getting a grip on the detail is steep uphill for application.
The concepts are perfectly clear, and doubtless the nitty-gritty will be familiar to those who’ve been involved in the exhaustive consultation processes. The challenge arises at operational levels with those at the coalface who must reset budgets for implementation to accord with optimal scorecard points.
FSTC chief executive Isaac Ramputa says that the role of top leaders in the council structure “will be to give strategic leadership and direction to the financial sector to impact further transformation across the financial sector and the role that it plays in supporting economic growth”.
There’s no shortage of money. If anything, there’s a shortage of projects (e.g. infrastructure) and platforms (e.g. higher education). Many institutions have for several years been pushing programmes of their own (e.g. supplier development and preferential procurement). Those who’ve been slow on other criteria (e.g. shareholdings, board diversity and management appointments) are exceptions.
The tricks now are to enhance the drivers (e.g. for loans to smaller black businesses) and to adapt monies being spent (e.g. on consumer financial literacy) to qualify for FSC compliance. The differences between past and present are in execution speed and targeted formulae.
Amongst asset managers, according to the latest annual survey of financial-services group 27four, the transformation pace has been slow. But it depends on definitions and interpretations of the results (see www.27four.com for the full survey).
On the one hand, they show that few black-owned asset managers are getting a fair shake at institutional allocations and are perhaps less successful with retail investors. Of the 48 firms surveyed, only a handful have more than R25bn in assets under management.
On the other, the unspoken implication is that several smaller firms could benefit from consolidation to increase scale -- for research capacities to be deepened, product offerings extended and balance sheets strengthened – so that competitiveness against larger firms is sharpened.
There’s also an implication that a firm which isn’t black-owned must be white-owned. This belies their empowerment credentials. Moreover, the emphasis on ownership overlooks other aspects such as training commitments and employment practices.
Beyond dispute is the value of the research to stimulate debate. In fact, 27four itself is a prime demonstration in the reach for scalability. The acquisitions of Prescient Life and the Peregrine stockbroking business tie neatly with its Legae Securities association, turning 27four into a player of note.
More than this is alignment with the FSC on investment into black business. Started as a partnership with ASISA, since launch in May the 27four Black Business Growth Fund has already deployed almost R200m. Examples of investments are into:
Any institution can earn FSC scorecard points through investment in the Black Business Growth Fund, or by starting its own. But take note that 27four has cleverly trademarked the name.
Which goes to show that the FSC isn’t simply a compliance exercise. It’s simultaneously created opportunities for social impacts and profit advancement. That’s a perfect storm.