Transformation in the financial sector, including retirement funds, is a work in progress. With fresh blood in the FSTC, it’s about to be accelerated.

Until now, retirement funds have enjoyed a special dispensation within a special dispensation. That’s about to change. In the name of transformation, a new and more challenging dispensation awaits.

Under the broad-based black economic empowerment (B-BBEE) legislation, retirement funds fall not under the general codes of good practice but are separately categorised under the Financial Sector Code (FSC).

In turn, under the amended FSC gazetted in December 2017, it was voluntary for the 100 largest retirement funds (including the umbrella arrangements) to report to the Financial Sector Transformation Council (FSTC) on their individual progress in fulfilling their obligations. It’s been a complex and sometimes confused exercise.

Nonetheless, sooner than later, the voluntary element of annual reporting will be replaced by mandatory. The change became inevitable after the funds were accused – not necessarily with the best interests of fund members at heart — of slow and sloppy reporting to the FSTC. Participants in a Batseta panel discussion interpreted this — not necessarily with altruistic dispassion – to reflect a lackadaisical commitment to transformation vigorously disputed at the organisation’s winter conference two years ago.

At a cost

Will the imminent change be for better or worse? It depends on implementation; for example, who will pay and who will be paid how much for the costs of compliance, and on whether enhanced black participation will indeed be facilitated to sharpen competition. Almost as an aside, since it’s too often obscured in the industry leaders’ clamour to be acknowledged for their virtue, there’s also the little matter of the quantifiable impact on fund members’ benefits in net after-costs returns.

The big difference now is that funds will be obligated to assemble and submit loads of verifiable data to the FSTC, itself awoken from slumber under new management. The board chairman is Khaya Sithole, a chartered accountant and media commentator of outspoken views.

Chief executive is Pumla Ncapayi, formerly head of the Gauteng department of economic development. Her appointment was an inspired choice that bodes promisingly for consensus-building between the rival interest groups amongst the FSTC’s disparate stakeholders.

Quietly spoken and thoughtful, she’s an easy conversationalist keen to hear the views of others without imposing her own. Her priority is to “place the FSTC where it should be as a leader in transformation matters”, she says, and sees transformation itself “as a vital means to redress challenges, especially inequality, in SA”.

Anticipating the emotion she’ll encounter, Ncapayi calls for “cool heads” in admitting to past flaws and pausing to ensure that “what we’re doing is working for the economy”. A particular passion is around education, from teacher ratios in schools to value from investment in Sector Education & Training Authorities. She considers that the provision of financial education is a key FSC deliverable.

Her first priority is reporting to government on the financial sector’s state of transformation for 2018-20. “The goal is to present stakeholders with a user-friendly report card that outlines both the transformation achievements and shortcomings when measured against the amended FSC,” she says. The areas of identification include:

  • Funding and development of black business in general and black industrialists in particular;
  • Support for small black businesses through Enterprise & Supplier Development and preferential procurement;
  • Public-private partnerships to fund higher education, and
  • Increasing the levels of financial inclusion and consumer financial literacy.

Commendable principles, all of them, and long articulated. But then, in April, came the jolt. Ncapayi wrote to “all measured entities” in the financial sector. They included asset-management companies, in recent months accused rightly or wrongly by deputy finance minister David Masondo of too slowly bringing racial and gender representation to better balance.

Pressure to report

Recipients were reminded to submit annual reports to the FSTC, showing progress in implementing the FSC, and have their information verified by “B-BBEE qualified professionals”. Also contained are get-tough warnings such as name-and-shame, and dropping rating levels, for institutions which don’t report on time.

There was no specific mention of retirement funds, but this will presumably change when the voluntary dispensation – allowed since December 2017 – gives way to mandatory. For a preview on where future direction might lead, there’s a checklist against a schedule under the amended FSC (with own comments in italics) summarized:

• Although many aspects of the B-BBEE legislation are irrelevant to retirement funds, they have a critical role to play in the transformation of the sector largely by virtue of appointing private-sector service providers. (Take this as the leg-up for smaller firms, black owned and/or managed, onto the radar of the large retirement funds and onto asset managers’ platforms of linked investment service providers.)

• Large funds should compile and publish annual scorecards for the elements of preferential procurement and management control. (The former should embrace the look-through principle into who does what work, whether in administration or investments, as well as the efficacy of mentorship and promotion programmes. A tickbox exercise on ownership can mislead. On management control, it cannot be assumed that there are armies of aspirant trustees chomping at the bit for appointments. They simply don’t exist in either gender or any pigmentation. The lack of enthusiasm for trusteeship – from member elections to enhancing competence levels – blights the foundation of the industry’s supposed ‘democratisation’.)

• Trustees have little or no influence on membership demographics. For this reason it is suggested that large funds should not be scored on the ownership aspect of B-BBEE but should report annually on the proportion of fund liabilities attributable to black male and female members. (Sounds pointless, given that trustees cannot influence the membership demographics, except to increase the costs of data research or satisfy an appetite for racial profiling.)

• Funds should annually disclose details related to accredited SAQA-approved training spent on trustees and executive management such as principal officers. This should include the quantum, average spend per staff member etc. (Such disclosures need not tell anybody anything about the ability to instruct an asset manager on proxy voting, draft an investment policy statement, choose a service provider or fight on fees.)

Annual reporting by funds should include a narrative on the B-BBEE scorecard achieved and future plans for achieving the score. (Seems there could be an unspoken gap between instruction and implementation. Why should funds comply? And what if they don’t? Can the FSTC fine the fund or its trustees? If not, does the change from voluntary to mandatory make much difference?)

In its myriad forms, transformation is the holy grail of SA’s democracy. Retirement funds, by virtue of their assets under management, can play a critical role in making it work. On it depends their judgment simultaneously to balance societal upliftment with risk management and investment returns, the one ultimately dependent on the other.

The opportunity to do so is to work with Ncapayi, the sort of personality with whom it looks enticing to work. In the tilts of everyday SA bureaucracies, such opportunities to repair the trust deficit do not often present themselves.

This is a fresh start along an evolving continuum, begun in 2002 with the voluntary Financial Sector Charter. It’s perpetually tried and tested, now the more difficult because of the shrinking assets in retirement funds and the dire circumstances of the SA economy. Yet the more urgent and necessary, in the sense of cooperation to create a social glue, for precisely those reasons.

The FSTC was constructed to be broadly representative. Of its members, three are drawn from trade-union federations, two from government, three from “community groups”, and three from such trade associations as the Association of Black Securities & Investment Professionals, the Association of Savings & Investment SA, and the Banking Association. For the FSC to be gazetted, and thus to have become law, there had to be consensus between all parties.

Broad agreement

This has happened, quite remarkably in a society ostensibly so divided, and from it have flowed B-BBEE ratings without which it’s virtually impossible for an institution to conduct business. Ownership is only one element amongst others – such as skills development, procurement policies and consumer education – for earning scorecard points.

The major banks, life offices and asset managers are overwhelmingly in the higher levels of transformation on the current FSC. As flaws emerge – as they inevitably do in any market system – the code stands to be reviewed.

At present exhaustive efforts are underway for independent measurement of transformation within different financial sectors given their different capital requirements and operational purposes. The idea is to compare like with like, across the myriad criteria that are variously weighted, for the research findings to be actuarially sound.

What is all this effort and expense supposed to achieve? By the extent to which it succeeds in promoting the growth of black businesses, for the good of the many, is transformation surely to be judged.


Such was the “uncertainty and confusion” created by the FSTC’s letter in April, according to feedback from Batseta members, that the retirement-fund organization arranged a webinar to address some of the main issues raised. In many instances, it was premature to offer definitive views but they’ll doubtless emerge as new FSTC chief executive Pumla Ncapayi settles into the hot seat.

Some of the issues were whether:

  • The submissions from retirement funds would be voluntary;
  • Depending on the reporting period, some funds are concerned that the information they’ve gathered may be old and will have to be redone:
  • The fees of asset managers should be included;
  • Funds can apply a look-through principle for looking through to small and black asset managers in an investment policy/portfolio, without which it will be impossible for a fund with investment choice to have a compliant default portfolio;
  • Considering that costs of a formal verification can be around R40 000 per fund, this pilot study requires a formal verification rather than documents simply being signed off by the board;
  • There’ll be other fees and costs when funds submit their scorecards;
  • The FSTC will confirm its list of the top 100 funds.


According to Black Business Council president Sandile Zungu, writing in the Sunday Times on April 25:

At its most basic level, transformation is achieved when the leadership and general workforce of an organization are reflective of the demographic realities of our country. Put differently, in a country with a troubled race relations past like ours, where a majority of citizens are black Africans, it goes without saying that the workforce and leadership structures should be black African.

Were it so simple. However:

  •  SA’s population profile is rapidly changing. That the proportion of whites is shrinking relative to blacks means that the transformation objective of “demographic representativity” comprises moving goalposts.
  •  Legally, in terms of the B-BBEE good practice codes, black people fall under the definition of ACI (African, Coloured and Indian). Worryingly, and increasingly according to anecdotal evidence from private-sector tenders, it’s being taken to mean black Africans only. The blacker a vendor’s credentials, to the exclusion of Coloureds and Indians, the better its chances of success. If this practice is allowed to gain traction, as Zungu appears to encourage, the negative consequences can be severe for the ratings of several service providers in the retirement-fund industry.

All this in a contracting economy of heightened job insecurities and skills shortages. The FSTC will have its work cut out.




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