How to revise your BEE strategy to the practice note under the FSC

The Financial Sector Transformation Council (FSTC) recently published a practice note that clarifies the revised formulas for entities being measured under the BEE Financial Services Sector Code (FSC). We outline the updated formula and summarise the developments for BEE transformation strategy in the financial sector.

Recalibration under the FSC is based on the total points under the Generic Revised DTIC Codes (Generic Codes), which were amended on 01 December 2019. A number of BEE certificates issued under the FSC since then have been based on the “old” formulas. 

Why the Financial Services Sector Code requires recalibration

Due to the uniqueness of the financial services sector, the FSC outlines four different types of scorecards that can be measured for BEE compliance under the FSC:

The reason for the different types of sub-scorecards is the different challenges and requirements of transformation initiatives in each sub-sector. Due to the nature of their sector,  banks, for example are required to participate in Empowerment Financing, short-term insurers are required to contribute to Access to Financial Services, and “Other” entities still apply the Ownership scorecard under the Generic Codes.

This poses a challenge when it comes to rating entities as each of these four scorecards have different totals. The FSC, therefore, provides a formula whereby the total points earned need to be recalibrated to a total based on the Generic Codes.

It is important to further note that the FSC was gazetted in December 2017. Back then the total number of points per Generic Codes were still 109. Therefore, the recalibration formula gazetted in the FSC is based on 109 points.

However, on 01 December 2019 the Generic Codes were amended:  two points were added under the Preferential Procurement element, bringing the total number of points per the Generic Codes to 111. Until now there has not been clarity on whether FSC entities should recalibrate to the 111 points total or continue to apply the existing 109 point.  This has all changed with the publication of the practice note by the FSTC.

The FSC practice note calls for alignment with the Generic Codes 

The practice note clarifies that there needs to be an alignment to the Generic Codes and that the recalibration formula needs to be aligned to the 111 per the current Generic Codes.

The practice note does not state that this is applicable retrospectively. Therefore, the assumption is that:

• all BEE certificates issued under the FSC after 01 December 2019, but prior to this practice note, need not be revised;
• the new recalibration formula needs to be applied to all new BEE certificates moving forward.

Why it is crucial to revise and align your BEE Strategy accordingly?

This practice note is applicable with immediate effect, and it is important for entities operating within the sector to align their BEE planning and strategies accordingly. The following example illustrates the importance of this:

An entity that falls under the 'Other Institutions' scorecard wishes to obtain a Level 7 rating. Under the old formula, they would need to achieve 52.98 points (Level 7 under the Generic Codes is 55 points, therefore 55/109*105 = 52.98).

Under the new recalibration formula, they need only to achieve 52.03 points (55/111*105 = 52.03). This is a difference of 0.95 less than they are previously required to achieve. This would give them flexibility to revise their BEE strategy and allow them to re-focus on other elements on their scorecard.

Transcend Corporate Advisors has years of experience in assisting to formulate and implement BEE strategies under the FSC. Should you require assistance with your BEE strategy, or to recalibrate your strategy per the above practice note, please contact us and one of our BEE advisors will be in touch.