"Parliamentary Hearings Outcome: If financial sector institutions don’t quickly meet transformation targets, they can expect legislation forcing them to"

Gavin Smith, head of Africa at deVere Acuma.

Financial sector institutions need to come up with innovative solutions for more inclusion in the sector to fulfil the country’s transformation objectives, or face new legislation forcing them to do so.

Gavin Smith, head of Africa at deVere Acuma, a global financial advisory firm, says recent parliamentary hearings on transformation indicate that if financial sector institutions do not quickly meet transformation targets, they can expect legislation forcing them to do so.

“Representations to parliamentary hearings over the past few months reflected a general consensus that the financial sector has been slow to transform against targets set in the early 2000s,” Smith says.

“However, these representations also highlighted some of the transformation challenges in a highly regulated market and economic downturn, where financial stability is critical. Transformation cannot happen without taking stability into account.”

deVere Acuma supports finance committee chairman Yunus Carrim’s assertion of the need to balance the need to transform with a destabilising overhaul, given South Africa’s shaky economic situation.

The parliamentary hearings over the past few months have indicated a push for transformation of banks, asset managers and insurance companies in the financial sector.

Treasury said transformation targets should be reexamined and financial services companies should be doing more to facilitate access to funding and enterprise development. Black ownership had slipped to below the charter’s 25% target. Treasury also indicated that the asset management industry was the least transformed.

“We need to also bear in mind that while financial services companies may not have met targets, specifically in terms of ownership, they are facilitators of transformation by funding projects which in turn, allow the economy to transform.

“Nevertheless, we also acknowledge that we are not doing enough, specifically in areas which are relatively easier to transform, such as employment equity,” says Smith. The asset management industry has been singled out as being the least transformed both in terms of ownership and employment targets.

Some representations to parliament have suggested solutions such as cross-subsidisation, pooling of risk and government support, in the form of guarantees. “While the latter looks unlikely given the recent downgrade and pressure on the fiscus, there are some innovative solutions which could be tested,” says Smith.

He adds, however, that the recent hearings, while focusing on lack of transformation, may not have given full credit to the industry for the role it plays in the economy and the progress it has made to date.