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Broad-Based Black Economic Empowerment Act, 2003 (Act No. 53 of 2003)

Industry Charters

Financial Sector Charter on Black Economic Empowerment

Interpretation

Interpretation 2.1 to 2.29

 

2.1 Affected institution means every financial institution that takes designated investments.

 

2.2 Agreed standard valuation means a valuation of an asset (valued in terms of the context in which this term appears) based on normal valuation methodologies (representing standard market practice) given the nature and stage of development of the asset being valued provided that:
• the principles set out in the table hereunder will serve only as a guide to possible valuation methodologies that could be employed:

 

Operation

Valuation methodologies

Banking

Discounted cash flow

Price to book

Capitalisation of earnings

Net asset value

Insurance

Discounted cash flow

Embedded value

Price-to-embedded value

Capitalisation of earnings

Net asset value

Brokerage firms

Discounted cash flow

Capitalisation of earnings

Net asset value

Asset managers & Collective Investment Schemes

Discounted cash flow

Capitalisation of earnings

Percentage of funds under management

Net asset value

 

• where the financial institution is listed on the JSE Securities Exchange South Africa the market capitalisation of the financial institution concerned shall serve as an overall benchmark for the individual valuations of the underlying assets and businesses of such financial institution such that, on a sum-of-the-parts basis, these would represent a value no higher than such market capitalisation.
• Cash flows to a beneficiary or shareholder will be valued on an after-tax basis.

 

2.3 BEE, as defined in the Broad-Based Black Economic Empowerment legislation, means the economic empowerment of all black people, including women, workers, youth, people with disabilities and people living in rural areas, through diverse but integrated socio-economic strategies.

 

2.4 BEE accredited means being validated in terms of this charter as a BEE company, or being validated as having achieved a certain standard of BEE contribution in terms of a recognised BEE charter scorecard or accreditation system.

 

2.5 BEE transactions means:
• all transactions for the acquisition, by black people, of direct ownership in an existing or new entity (other than an SME) in the financial or any other sector of the economy; and
• joint ventures with, debt financing of or other form of credit extension to, and equity investments in BEE companies (other than SMEs).

 

2.6 BEE companies refers to companies as defined in paragraphs 2.7, 2.8, 2.9, and 2.12.

 

2.7 Black companies mean companies that are more than 50% owned and are controlled by black people.

 

2.8 Black empowered companies mean companies that are more than 25% owned by black people and where substantial participation in control is vested in black people.

 

2.9 Black influenced companies mean companies that are between 5% and 25% owned by black people and with participation in control by black people.

 

2.10 Black people means all Africans, Coloureds and Indians who are South African citizens and includes black companies. However, in paragraphs 5 and 11 the term shall include permanent residents of the Republic of South Africa. The word "black" when used in conjunction with other words shall have the same implications.

 

2.11 Black SME means a small or medium enterprise (with a turnover ranging from R500,000 per annum to R20 million per annum) which is a black company or a black empowered company.

 

2.12 Black women-empowered enterprise means companies that are more than 30% owned by black women, and where substantial participation in control is vested in black women.

 

2.13 Broad-based ownership is where an empowerment shareholder represents a broad base of members such as employees (to the extent that the options have actually been exercised), collectives and/or communities, or where the benefits support a target group, for example black women, people living with disabilities and the youth. Shares are held directly or indirectly through non-profit organisations and trusts. At the same time, directors and management of the groups should predominantly comprise black people.

 

2.14 Charter Council means the Charter Council established in terms of paragraph 15.1.

 

2.15 Company means an enterprise registered in terms of the Companies Act, 1973, close corporations, trusts and any other such enterprise formed for business purposes.

 

2.16 Control centres on the authority and power to manage assets, the determination of policies and the direction of business operations. Indicators of control may include:
• participation in control structures of a business unit or of the company (such as shareholder meetings, the Board of directors, board subcommittees, and divisional boards), the exercise of voting rights on the board of directors and committees thereof, and controlling equity;
• participation in executive management.

 

2.17 Discrimination: means discrimination as defined in the Promotion of Equality and Prevention of Unfair Discrimination Act.

 

2.18 Designated investment means any form of statutory or voluntary deposit, saving, investment or risk insurance placed or made by the South African public (whether of a wholesale or retail nature, but not by one financial institution in another).

 

2.19 Development Finance Institutions or “DFl’s” means finance entities created or funded by a tier of Government. These include, but are not limited to, the DBSA, IDC, PostBank, NEF, Land Bank, Khula, NHFC, the PIC, the Umsobomvu Fund, and Provincial Development Corporations.

 

2.20 Direct ownership means ownership of an equity interest together with control over all of the voting rights attaching to that equity interest.

 

2.21 Empowerment financing means the provision of finance for or investment in:
• Targeted investment; and
• BEE transactions.

 

2.22 Effective access means
2.22.1 being within a distance of 20 Kms to the nearest service point at which first-order retail financial services can be undertaken, and includes ATM and other origination points, except in the case of the products and services of the long term assurance industry, where effective access, including physical access will be in terms of the availability of these products and services, and in terms of proximity or accessibility of financial advisers to community-based infrastructure;
2.22.2 being within a distance of 20 Kms to the nearest accessible device at which an electronic (other than ATM) service can be undertaken;
2.22.3 a sufficiently wide range of first-order retail financial products and services to meet first order market needs and which are aimed at and are appropriate for individuals who fall into the  All Media Product Survey (AMPS) categories of LSM 1-5;
2.22.4 non-discriminatory practices;
2.22.5 appropriate and affordably priced products and services for effective take up by LSM 1-5; and
2.22.6 structuring and describing financial products and services in a simple and easy to understand manner.

 

2.23 Enterprise development means support for existing, or the fostering of, new black SMEs and BEE companies in the financial and other sectors of the economy.

 

2.24 Executive management means X number of people identified by the Board of Directors by name and position as the top managers of that financial institution, where X = 0.4% of the total staff of the financial institution employed in South Africa, with a minimum of 9 people and a maximum of 50.

 

2.25 Financial sector means all the classes of financial institution defined in paragraph 2.26.

 

2.26 Financial institutions means banks, long-term insurers, short-term insurers, re-insurers, 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 this country and entities listed as part of the financial index of a licensed exchange. Any other institution in the financial sector, including licensed exchanges, may opt in.

 

2.27 First-order retail products and services means
2.27.1 transaction products and services, being a first order basic and secure means of accessing and transferring cash for day-to-day purposes;
2.27.2 savings products and services, being a first order basic and secure means of accumulating funds over time. (e.g. savings accounts, contractual savings products such as endowment policies, collective investments and community-based savings schemes);
2.27.3 credit for low-income housing (as defined in paragraph 2.34.3, but with a minimum income of R500 per month), financing agricultural development, or establishing, financing or expanding a black SME (as defined in paragraph 2.11, but with no minimum turnover);
2.27.4 insurance products and services being the mitigation of impact of defined first order basic risks. (e.g. life insurance, funeral insurance, burial society, household insurance and health insurance).

 

2.28 Global policy  means a globally and uniformly applied restriction, regulation, or directive imposed on a foreign owned financial institution by the parent company or on any financial institution by a regulator which governs that financial institution.

 

2.29 Indirect ownership occurs where an institution or other investor owns equity in a company on behalf of beneficiaries and there may not be direct participation by the beneficiaries in the voting rights.