On 12 April 2023, the president signed the Employment Equity Amendment Bill (EEAB) into law. This legislation gives the Minister of Employment and Labour the right to set employment targets for various race groups in each economic sector in the country. On 12 May, the minister published the proposed targets for the financial services sector.
The Financial Intermediaries Association of Southern Africa (FIA) appreciates the motivation behind the Department of Employment and Labour (DOEL) employment targets and understands the urgent need to transform the financial services sector. However, the association is concerned about the potential impact of these targets, especially on intermediary firms that employ 50 or more people. No stakeholder in the broader financial services sector can afford to ignore the challenges that firms face in achieving these targets. Before sharing some of the FIA’s thoughts on the targets, it is worth considering the background.
The targets explained
The DOEL has proposed employment targets for four management levels at all companies with 50 or more employees, referred to in the EEAB as ‘designated employers’. The employment targets have been set as percentages for African (A), Indian (I) and Coloured (C) employees, further delineated by gender, at each of the four management levels. And each designated employer must achieve the proposed employment targets by 2028. If designated employers fail to meet the targets, they will be fined 2% of their turnover in the first year and 4% in the second year, increasing to 10% in the fifth year. The current proposed targets are:
|DOEL Targets 2028 (proposed)|
|Occupational level||% Male||% Female||% ACI|
Practical challenges of race-based management targets
The regulation creates a scenario in which designated employers will be unable to make new hires or internal promotions from minority race groups. For example, statistics for the industry show that designated employers in the financial services sector have already met the 2028 targets for Coloured and Indian managers. This means, assuming the firm does not grow its overall headcount significantly, that all future hires and / or internal promotions to the affected management level would have to be allocated to applicants from the African race group.
The FIA view
The FIA actively supports efforts to transform the industry, but the association is lobbying for sub-sector employment targets for intermediaries. Our reasoning: a one-size-fits-all approach cannot succeed given the diversity of firms across the financial services sector. Asset managers are different to banks, which are different to insurers etc; and intermediaries who exclusively work with these financial institution types differ from one another too. In this context, the FIA is proactively engaging with the DOEL to find workable solutions that will support the intermediary market, and achieve the aspirations of government.
The FIA’s interactions with government and regulators are informed by the association’s deep knowledge of the operational realities that our members face. One of the big obstacles to transformation in the intermediated space is the disconnect between the tough qualification requirements imposed by sectoral regulation versus the country’s academic outcomes, especially in higher education. For example, the stringent “fit and proper” requirements introduced under the Financial Advisory and Intermediary Services (FAIS) Act severely limits the pool of suitable candidates across all race groups.
Furthermore, once an applicant meets the “fit and proper” requirements, more secure jobs become available in non-intermediary sectors where larger financial firms typically have larger budgets to lure talent. The regulated remuneration structure on which intermediary firms operate also creates challenges insofar as offering salaries that attract highly skilled employees from under-represented race groups.
From an intermediated market perspective, it is becoming increasingly difficult to attract and retain qualified resources. It also takes more than five years to vest a new intermediary, with the result that the 2028 EEAB target date does not allow adequate time for the industry to train up and promote new talent. The FIA’s Training and Education Executive Committee is working with industry stakeholders to find solutions to these staffing challenges.
Addressing the transformation challenge remains a long-term process that requires a collaborative industry-wide effort. The FIA has been active throughout the process, making multiple presentations to the DOEL and to Parliament. The FIA has resubmitted its challenges and solutions over the proposed EEAB employment targets to government, and hopes that they will be taken into consideration in the final round of the public consultation process. The final DOEL targets were expected by 1 July 2023, but had not been published by the time of going to print.