Financial Service Charter Code

Introduction To The Financial Sector Charter

The Financial Sector Charter came into effect in January 2004 as a transformation policy based on the terms of the Broad-based Black Economic Empowerment [BBBEE] Act (53 of 2003).

The Financial Sector Charter (FSC) is a voluntary agreement by all National Economic Development and Labour Council (NEDLAC), a multilateral social dialogue forum on social, economic and labour policy, members to promote social and economic integration and access to the financial services sector.

The Financial Sector Charter commits its participants to "actively promoting a transformed, vibrant, and globally competitive financial sector that reflects the demographics of South Africa, and contributes to the establishment of an equitable society by effectively providing accessible financial services to black people and by directing investment into targeted sectors of the economy".

Background To The Financial Sector Charter

In 2002, at the Financial Sector Summit, NEDLAC negotiated the Financial Sector Summit Agreement to transform the financial sector. NEDLAC partners - represented by government, organised business, organised labour and organised community constituencies - committed to the development of a Black Economic Empowerment [BEE] Charter to remove inequalities and create a robust financial services sector.   

On 1 January 2004, the Financial Sector Charter (FSC) came into effect. The FSC was the first voluntary BEE Charter that represented commitment from an entire sector of the economy to transform the financial services industry in line with the Broad-Based Black Economic Empowerment (BBBEE) Act to reduce inequalities that prevent people and South Africa from reaching its potential.

In 2007, the dti gazetted Generic Codes under section 9 of the B-BBEE Act thus giving the Codes a superior legal status to that of the Charters gazetted under section 12. From 2007 to 2011, the Charter constituencies were engaged in discussion to align the FSC to the Codes with the aim of gazetting the FSC under section1 of the Act to have the same legal status as the Codes. In December 2011 phase 1 of the draft sector code was gazetted for public comment. In November 2012 a Financial Sector Code was gazetted.

Financial Sector Charter vs. Generic Codes

The Financial Sector Charter and Generic Codes of Good Practice are used to monitor economic transformation in South Africa. The Charter, now the Sector Code, represents a comprehensive approach by the financial sector to address black economic empowerment.

The charter embodies the financial sector obligation to specific transformation goals and defines key commitments that enable institutions to maximise their contribution toward economic growth and sector transformation.

The FSC provides a credible quantitative measurement of progress. These measurements make it possible for the general public, the Charter Council and government to assess the impact the Charter makes to address the fundamental challenges facing the South African economy.

The diagram below represents the current reality of economic participation vs. demographics compared to the future goal in terms of black economic empowerment.

Economic Impact on Financial Sector

The FSC adds to the rising costs of compliance, however, this is viewed as a necessary “evil” that will be outweighed by the long-term benefits to banks and other financial institutions.

As the process to align the Financial Sector Charter (FSC) to the Department of Trade and Industry (dti) Codes of Good Practice for Broad-based Black Economic Empowerment was still under way, duel reporting was required between 2008 and 2012. Reporting under the dti Codes was required to comply legally and was used to develop and maintain systems in anticipation of the FS Code. Now that the FS Code has been gazetted, institutions will be required to report under the FS Code and the Generic Codes will no longer be applicable. The dti is still in the process of establishing a repository for Generic Codes performance reporting and no aggregated figures are available.

In 2008, the financial sector had originated loans in excess of R60.3 billion for low income housing, agriculture and black SMEs. In addition, R64.6 billion was achieved under the Targeted Investments element of Empowerment Financing and a further R101.2 billion under BEE transaction financing. Significant amounts were also spent in skills development training, Enterprise development and CSI initiatives.

The Pillars

The Financial Sector Code is built on 7 core pillars of empowerment in which companies can score and be given credit. These include:

  1. Human Resources Development
  2. Access to Financial Services
  3. Empowerment Financing
  4. Procurement & Enterprise Development
  5. Corporate Social Investment
  6. Management Control.

Political Implications and Context

The Generic Codes and, more notably, the FS Code have to pass the following acid test in order to be relevant politically and socially.

  • Legitimacy – the FS Code and Generic Codes must be meaningful to and be accepted by the majority of citizens.
  • Stability – the FS Code and Generic Codes should contribute to the political stability and minimise riots (labour or political).
  • Economic Growth – by monitoring transformation, one should be able to see a positive correlation with the economic growth.
  • Economic Development – economic development should focus on healthy, educated and discerning people and not things.

Tools or models used to measure economic transformation should reflect the benefits South Africa receives from the presence/existence of its corporate citizens.

Structure Of The Financial Sector Charter

The Financial Sector Charter consists of 16 sections:
Section 1: Preamble
Section 2: Interpretation
Section 3: The Challenges Facing the Financial Sector
Section 4: Application of the Financial Sector Charter
Section 5: Human Resource Development
Section 6: Procurement Policies
Section 7: Enterprise Development
Section 8: Access to Financial Services
Section 9: Empowerment Financing
Section 10: Ownership in the Financial Sector
Section 11: Control in the Financial Sector
Section 12: Shareholder Activism
Section 13: Corporate Social Investment
Section 14: Regulatory Issues
Section 15: Implementation 
Section 16: The Scorecard
The Financial Sector Charter also has 1 addendum
Addendum: The Scorecard

The Purpose And Policy Of The Financial Sector Charter

The purpose of the Financial Sector Charter is to "actively promot[e] a transformed, vibrant, and globally competitive financial sector that reflects the demographics of South Africa, and contributes to the establishment of an equitable society by effectively providing accessible financial services to black people and by directing investment into targeted sectors of the economy".

The Financial Sector Charter does this by; creating a framework and establishing principles for Broad-based Empowerment implementation in the financial sector, providing a platform for stakeholder engagement with the financial sector, establishing principles, targets and unquantified responsibilities, and outlining processes for implementation for the Charter as well as mechanisms to monitor, measure and report on progress.

Who Does The Financial Sector Charter Affect?

The Financial Sector: Natural or juristic persons involved with business, trade or profession operating in the financial sector of the Republic of South Africa. This includes, but is not limited to banks, long-term insurers, short-term insurers, re-insurers, underwriting management agents, financial intermediaries and brokers, managers of formal collective investment schemes in securities, investment managers and other entities that manage funds on behalf of the public, including retirement funds and 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 exchange.

Any other institution in the financial sector may opt to participate in the Financial Sector Charter.

What Are The Responsibilities Of Financial Services Sector In Terms Of The Financial Sector Charter?

The Financial Sector Charter, developed in consultation with the financial services industry, is a voluntary set of guidelines for promoting transformation of the South African financial services sector. The Charter has developed a scorecard used to measure quantifiable responsibilities of financial institutions as defined by the FSC. 

In terms of the FSC, financial institutions are responsible for achieving employment, ownership and control equity; promoting preferential procurement practices; developing and financing black owned enterprises, low-income housing, transformational infrastructure and agriculture; and providing effective access to financial services.

Key Points Of The Financial Sector Charter

Human Resource Development

Human resource development seeks to redress past inequalities in the work place that resulted from discriminatory practices and laws that had negative implications for economic efficiency, competitiveness and productivity. To develop a broad-based and diverse pool of skills, financial institutions commit to: creating a non-racial, non-sexist environment and enhance cultural diversity and gender sensitivity; investing in human resource and future leadership development aimed at increasing the participation of black people in skilled, strategic and operational leadership.

In addition to the obligations of the financial sector in terms of Employment Equity and Skills Development legislation, the financial services sector established a number of transformation targets based on percentage ratios. Financial institutions have devoted 1.5% of their payroll per annum to train black employees. These skill development programmes promote black skills in line with skills audits undertaken by financial institutions, the sub-sectors or by the respective SETAs. The Learnership Programmes that result from the skill audits will be used to employ and train up to 4.5% of each financial institution’s total staff in the form of black matriculants or the National Qualification Framework (NQF) Level Four equivalent.

Each financial institution is committed to develop and report on: career paths and the provision of support to black people at all levels; the implementation of appropriate mentorship programmes; targeted recruitment to expand the base of potential recruits; cultural diversity and gender sensitivity programmes that promote a vibrant and diverse institutional culture; and where possible, in conjunction with institutions of higher learning, introduce training programmes in line with the NQF requirements and establish undergraduate and post graduate diplomas and degrees in financial services.


Financial institutions will implement a targeted procurement strategy to reach 70% by 2014 of total procurement from BEE accredited companies. The break down includes two thirds of procurement expenditure flowing to BEE accredited companies as the primary vendor and one third channelled to BEE accredited companies via the primary vendor, which is not a BEE accredited company.

Financial institutions will provide: support to black Small and Medium Enterprises (SME) through programmes designed to assist in tendering processes and creating reserved or preferred areas for black SMEs only; early payment for services provided by SME’s; existing suppliers with help to address BEE and become BEE accredited; reports on all spend that falls within the definition of BEE accredited; and, meaningful ways of supporting the Proudly South African Campaign.

Enterprise Development

The FSC defines Enterprise Development as fostering new, and developing existing, BEE accredited companies through improving the levels of assistance provided to BEE accredited companies/suppliers in the financial sector and other sectors of the economy. This is done through skills transfer, secondment of staff, infrastructure support, and providing financial, technical and administrative support and assistance for the establishment and growth of BEE accredited companies/suppliers as broking agencies and/or enterprises through which the sector sells its products and services. In addition, where appropriate, financial institutions will refer business opportunities to, and procure from, black owned financial institutions.

Enterprise development is bundled in with procurement and as such Enterprise Development has no separate target. 

Access To Financial Services

The Financial Sector Charter acknowledges that access to first-order retail financial services is fundamental to BEE and to the development of the South African economy. First-order transaction products and services are defined as basic and secure means of accessing and transferring cash for day-to-day purposes; savings products and services for accumulating funds over time such as savings accounts, contractual savings products, collective investments and community-based savings schemes; credit for low-income housing, financing agricultural development, or establishing, financing or expanding a black SME; and insurance products and services for mitigation of risks such as life insurance, funeral insurance, burial society, household insurance and health insurance.

Effective access to financial services is defined in terms of availability and proximity of a sufficiently wide range of first-order financial products and services. Access to financial services seeks to provide affordable and sustainable access to banks, ATMs and other origination points within 20 km of all individuals who fall into the All Media Product Survey (AMPS) categories of LSM 1-5. In addition, accessibility seeks to dispense appropriate and affordably priced products and services in a non-discriminatory way by structuring and describing financial products and services in a simple and easy to understand manner.

Empowerment Financing

The FSC makes provision for BEE empowerment financing that is geared toward mobilising proper resources and promoting the productive and sustainable participation of black companies and black people. To achieve this all parties are committed to working in partnership with the Government and DTI to provide resources for empowerment financing. This includes identifying the total amount of empowerment financing broken down into four targeted investment components, namely, low-income housing, black SME, transformational infrastructure and agriculture; appropriate risk mitigating measures and risk sharing arrangements; the period over which the empowerment financing will be done; the institutional framework and financing models for the mobilisation of the various resources; and, the extent to which and how past empowerment financing transactions will be taken into account.

In addition to targeted investment, the Financial Sector Charter aims to provide BEE transactional financing for acquisition, by Black people, of direct ownership in an existing or new entity, other than SMEs, in any sector of the economy; and joint ventures with, debt financing of, other form of credit extension to, or equity investments in BEE companies. Facilities that represent financing risk, but that do not involve a flow of funds to BEE entities, such as guarantees, are not counted as BEE transaction financing.

Equity Ownership And Control

Equity ownership and control is based on the concept of "once empowered, always empowered", which is a central pillar of the Financial Sector Charter. The FSC aims to transfer a minimum of 25% at holding company level to black ownership, of which at least 10% must be direct ownership by black people and the remaining 15% through indirect ownership. Direct ownership in the financial institution may be achieved through BEE transaction financing; broad-based ownership; disposal of any assets, operations, businesses or subsidiaries by the financial institution as a going concern to black people; direct shareholding or ownership with control, commensurate with the level of ownership concerned, at subsidiary or divisional level; or joint venture or partnership arrangements. These ownership targets apply to foreign banking groups with South African branches but they will be given a wider range of transaction options to achieve their targets.

Control centres on the authority and power to manage assets, the determination of policies and the direction of business operations. The FSC requires that financial institutions cede control by targeting 33% for black directors, this includes 11% black women directors. In addition to equity control, the Financial Sector Charter targets, based on a formula, a minimum of 25% black executive management and 4% black women executives.

Corporate Social Investment

The FSC requires each financial institution to direct 0.5% per annum of post-tax operating profits to corporate social investment (CSI) projects aimed primarily at black groups, communities and individuals. CSI projects such as education, training, youth or other target group development, environment, job creation, arts and culture, health, sport and others should have a strong developmental approach and contribute towards transformation.


The scorecard forms an integral part of the FSC and provides an objective and broad-based set of indicators for measuring implementation and success of the FSC by financial institutions. The scorecard will be used by the financial institutions for self-assessment, Charter Council to evaluate the implementation of BEE, and, government and private sector for awarding contracts.

Mechanisms Of The Financial Sector Charter

The Charter Council is an independent body established to: oversee the FSC implementation; address issues of principle and review conduct and make decisions based on reviews, and if or when the environment changes, decide if targets and implementation strategies are still appropriate and how they should be revised; fairly represent the interests of financial institutions and industry associations; make consensual decisions or refer decisions to dispute-breaking mechanism or arbitration or mediation.

In addition, the Charter Council will establish and finance the executive to: receive, consider and approve annual audits; confirm ratings of financial institutions; issue guidance notes on the interpretation and application of the Charter; prepare an annual review which outlines progress and evaluates new areas of intervention; submit the annual review to the BEE Advisory Council for publication; prepare interim reports at appropriate intervals; undertake industry reviews as per the Charter; accredit agencies to perform audits; and engage with Government, public sector finance institutions, the BEE Advisory Council and other regulatory agencies to promote the implementation of the Charter.

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© The Banking Association South Africa 2019