Mandatory B-BBEE compliance in the financial services sector: Could it be good for business?

There are strong indications that the FSCA will start to monitor and enforce B-BBEE compliance across the financial sector. Rather than seeing the potential move as a hurdle to be overcome, financial services businesses should appreciate that Transformation is an opportunity to be seized.

The state of the sector

B-BBEE compliance in the financial services sector is generally high. At least, that’s what a snapshot view of the data reveals. When we dig in, the picture becomes a little murkier. As the comprehensive Sanlam Gauge report (Sanlam Gauge Report, May 2021, p. 60) indicates, smaller firms and intermediary companies clearly seem to be lagging behind when it comes to Transformation.? As the authors of the report make clear, fine-grained data is hard to get (Ibid., p. 59) and many entities may simply choose not to be compliant.

The compliance gap is not necessarily surprising. B-BBEE has obvious socio-economic benefits and, when implemented effectively, it’s good for business. At the same time, B-BBEE compliance is sometimes seen as complex and demanding.??

Fortunately, the perceived complexity is usually inflated. Companies today don't have to labour over spreadsheets and can simplify the task with cost-effective compliance software. With the right technology and appropriate strategic advice, even smaller businesses can greatly benefit from a smart compliance strategy.

Future finance compliance??

New moves by financial regulators make ‘how’ rather than simply the ‘why’ of B-BBEE compliance more urgent.?

Based on submission by the FSCA, there seems to be a clear move to take active steps to compel increased B-BBEE compliance across the sector.?

Legislation empowering the FSCA to enforce Transformation is under development. In anticipation of new regulations, the authority is already conceptualising an enforcement mechanism.

In its draft “Strategy for promoting financial sector transformation” document, the FSCA lays out a two-phased approach. Phase 1 would comprise a period of consultation and preparation. In Phase 2, the FSCA would monitor and enforce minimum B-BBEE levels, in accordance with an approved framework.

Given these trends, we anticipate a framework and mechanism for enforcement. In big picture terms, the presence of an authorised regulator would offer a number of benefits. Financial services companies would have clarity on their obligations. And the regulator will work to ensure Transformation is in line with policymakers’ social and economic objectives.?

But what are the implications for businesses within the sector? With enforcement in place, there is a much stronger incentive to leverage B-BBBEE regulations to improve business capacity and competitiveness.

?Transformation that benefits your business

When poorly implemented, B-BBEE is an administrative burden that involves a significant diversion and time, money, and effort for little business benefit and low social impact.?

If Transformation becomes mandatory, then businesses will want, at minimum, to reduce the cost and effort of compliance.??

As noted above, B-BBEE compliance software is a game-changer. By automating tedious, time-consuming manual processes, businesses immediately save on administrative costs, reduce errors, and to apply their minds on more strategic endeavours

But that’s only half the equation. What about the strategic purpose of the company’s B-BBEE interventions? Is compliance simply a box-ticking exercise, designed to meet the minimum Scorecard requirements??

It doesn’t have to be. After all, the B-BBEE framework was devised in consultation with stakeholders across society and with the goal of improving overall business and social outcomes.?

For example, many businesses directly benefit from initiatives such as the Skills Development (SD) element of the B-BBEE Scorecard. There are a number of ways to successfully implement SD, including in-house capacitation. In practice, that means companies can equip their employees with the skills they need to become more competitive and productive members of the workforce while enhancing their own labour capacity. SD is a priority element in the Scorecard, so it is worth doing in an efficient and strategic way that aligns with the company’s long-term goals.?

A framework for reciprocity?

In fact, the B-BBEE framework provides for a number of innovative initiatives expressly designed to produce a meaningful social impact. Consider the Youth Employment Services (YES).

No one would deny that the unemployment rates among young South Africans are intolerably high. YES programmes address the crisis by providing young people with quality work experiences that help equip them to contribute meaningfully to the economy.?

But YES programmes don’t just deliver social impact. A business that successfully implements a YES initiative can gain as many as two levels on its B-BBEE Scorecard.?

Those results will be welcomed by any South African business. When you’re facing mandatory compliance obligations, the opportunity is even more significant.?

A strategy for change?

This is hardly an exhaustive account of how financial services firms can creatively approach their B-BBEE goals. The point, rather, is that B-BBEE offers flexible opportunities to realise business goals while delivering real social benefit.?

Of course, you first need to clarify what your goals are, carefully develop a strategy to align your objectives to your compliance processes and leverage the appropriate technology to more efficiently reach your goals.?

In short, with the right advice and technology, mandatory B-BBBEE compliance isn’t anything to be afraid of. Rather, it’s an opportunity to enhance your business, while helping to create a more inclusive economy for everyone.?