Financial Sector Charter (FSC) Update - September 2011
Published |
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2011
Wed
26
Oct
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Following a meeting of the Ministers of Finance and Trade & Industry and the Financial Sector Charter (FSC) Council board on 30 July 2010 it was agreed to gazette the Financial Sector Charter as a three phase process.
Phase 1: Phase 1 specifically excluded Access to Financial Services, Empowerment Financing, Enterprise Development and some aspects of the measurement of Black ownership (primarily the concept of “Once Empowered Always Empowered”).
Agreement has been reached on a Phase 1 Draft Financial Sector Code document and this was submitted to Treasury on 18 October 2010 and gazetted for public comment under section 9(1) of the DTI Generic Codes on 10 December 2010.
The period for public comment ended on 26 February 2011 and the DTI, in participation with a technical sub-committee of the FSC Gazetting committee, have collated and considering the comments received.
Phase 2: Phase 2 aims to achieve consensus on all remaining issues after which a final version of the Draft Financial Sector Code will be published for public comment.
· The major matters to be discussed and agreed during this phase comprise:
· Access to financial products (incorporating Consumer Education)
· Empowerment financing and enterprise development
· Ownership – the issue of “Once empowered always empowered”
· Establishment of revised levels for designated investments to be applied to Empowerment Financing
· Targets
After consideration of public comments, the Minister of Trade and Industry will be asked to gazette the Draft Financial Sector Code under Section 9(1) of the Commission on Government Procurement (CoGP) as a binding Code on the Financial Sector.
Phase 3: It is currently anticipated that gazetting of the final FSC code will take place during the second half of 2011, assuming that agreement on the current areas of discussion under Phase 2 can be achieved.
Current Position
The timetable for completion of phase 2 of the gazetting process has been revised and aims to reach finalisation of the process and submission of a draft Financial Sector Charter document to the Minister during September 2011 / October 2011.
The current status on the Phase 2 issues is as follows:
i. Access to financial services and consumer education
The issue of qualifying product standards and consumer education standards will be debated following the gazetting of the FSC Code.
ii. Access:
It is proposed that each industry sector adopts access principles that are best suited to the particular sector. For the short-term insurance sector the following has been proposed and has received approval in principle by the FSC Gazetting committee:
· The target market be expanded to encompass LSM 1 to 7 segments.
· The target market will be identified and targets set based on a maximum insured amount for each identified short-term insurance type.
· The sector target for access will be established based on a percentage market penetration for each short-term insurance type.
The issue of qualifying product standards and consumer education standards will be debated following the gazetting of the FSC Code. It is proposed that the implementation of the Access section of the FSC Code would be deferred until these standards have been finalised.
iii. Consumer education:
· The target for consumer education spent has been increased from 0.2% to 0.4% of post tax profit.
· The definition of permissible consumer education has been extended to include education that supports the general aims of the Charter and thus will be expanded to include specific (none branded) product education beyond homeowners and householders insurance.
· The current 80:20 restriction in favour of consumer education spend in the form of community workshops will be reviewed as part of the product standards exercise that will follow the gazetting of the FSC.
The National Treasury Policy Statement on Microinsurance has been finalised and was issued for public comment in July 2011.
iv. Enterprise Development and Empowerment Financing
The original Financial Sector Charter included Enterprise Development as part of Procurement with Empowerment Financing as a separate section of the Charter. In order to achieve its Empowerment Financing targets the short-term insurance industry was largely dependent on the banking and investment sectors originating investment structures into which the short-term insurance companies could invest.
In the revised Code, it is recommended that Enterprise Development and Empowerment Financing be combined and that the short-term insurance industry be given the choice of meeting its target requirements in this section through a combination Enterprise Development and / or Empowerment Financing.
v. Ownership – “Once Empowered Always Empowered”
The Ownership concept of “Once Empowered Always Empowered” formed a cornerstone of the original Financial Sector Charter. The Banking Association wished to retain this concept in the Code while the Labour and Community constituencies originally required this provision to be omitted from the Code.
Following extensive discussion on this issue, agreement has been reached, within the Council Gazetting Committee, which aligns substantially to the mandated position granted to the Trade Associations in their April 2011 position paper.
vi. Designated investments
The level of Designated Investments applied to each participant subject to the Financial Sector Code requires to be updated and research in this regard has been completed and a proposal has been tabled for agreement of the FSC Gazetting committee.
Targets
Progress has been made on the determination of revised targets for each section of the Code.
Source: South African Insurance Association
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