Monday 11 July 2016

INSURANCE & ACTUARIAL NEWS

Innovative risk management can aid service delivery

How does the public sector balance its risk management framework with massive investment in infrastructural development required to reignite economic growth on the one side, and increasing damage from service delivery protests on the other?

Pride Chorum

Protests cause massive damage

The numbers speak for themselves. The recent student protests, for example, led to damage claims of nearly R100m in less than two months. Sasria also reported in its 2015 integrated report that claims in that financial year spiked by 54% due to labour and service delivery protests (which had increased 33% over 2013/14). More recently, Metrorail in Cape Town has been the target of protests and vandalism.

Violent and disruptive actions such as these have become more common and are clearly cause for concern.

Local, district and provincial authorities as well as state-owned entities are therefore in far greater danger during these times, which calls for appropriate measures to manage their risks.Transferring risk through insurance might be one of the most effective ways to achieve this.

These entities need to cover themselves against damage to existing infrastructure and ongoing projects, which may further hamper their ability to deliver their services to communities. This will also help them to align with sound risk management controls and good governance protocols, which apply to all organisations, to mitigate threats to their ability to operate effectively.

Extra cover

While an institution such as Sasria offers some protection against undue financial losses, proactive public sector managers are well advised to seek additional insurance solutions to cover themselves against exceptional losses that can go above Sasria limits.

While general insurance cover may be sufficient for normal circumstances, public sector managers also require nimble, intelligent insurance solutions that offer additional cover for extraordinary events.

The same principle applies to natural disasters and changing weather patterns. Coastal regions, for example, are at a far greater risk from such events than they were 10 years ago and this should be factored into any risk management and mitigation strategy.

Insurance, therefore, is no longer a matter of one size fits all – it requires an appropriate solution designed to meet a specific need or threat.

COMPETITION LAW NEWS

MOU signing - first step to regional competition authority for SADC?

BY: PIETER STEYN

The competition authorities of Botswana, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania and Zambia have signed a memorandum of understanding (MOU), an important step in the direction of more effective cross border enforcement of competition laws in SADC.

MOU signing - first step to regional competition authority for SADC?

It took effect once the 10 authorities signed it and it remains in force for three years. An authority may terminate its participation on three months' notice. SADC authorities that have not yet signed the MOU are from Angola, the Democratic Republic of Congo, Lesotho, Madagascar and Zimbabwe.

The MOU aims to strengthen relationships between SADC competition authorities by facilitating co-operation including through:

the exchange of information on significant developments in competition law and policies, and on investigations of mergers and complaints
participation in conferences, seminars, etc on competition law and policies
participating in joint studies and research of common interests
co-operating and co-ordinating with one another in the investigation of mergers and complaints
harmonising the rules and procedures for filing of mergers and applying for leniency or immunity

The MOU also makes provision for SADC competition authorities to develop an annual work plan of activities and establish a joint working committee. However, an authority is not obliged to participate in any such activities. A Joint Working Committee of authorities is also established.

The MOU contains protections for third party information including confidential information submitted as part of a merger investigation or cartel leniency process. An authority is however obliged to use “best endeavours” to obtain a waiver from the relevant third party. A recipient authority is obliged to maintain confidentiality of information received from another authority.

Could this be the first step towards the establishment of a regional competition authority for SADC, similar to that of COMESA?

CORPORATE & COMMERCIAL LAW NEWS

New BEE Regulations addresses two key aspects

The final Broad-Based Black Economic Empowerment Regulations, in terms of the Broad-Based Black Economic Empowerment Act (BEE Act), were gazetted by the Minister of Trade and Industry in early June 2016. The Regulations came into effect the same day.

According to Ashleigh Hale, partner and co-head of Bowman Gilfillan Africa Group’s Corporate Department, two key aspects addressed by the Regulations are the registration of major BEE transactions and annual BEE reporting requirements for listed companies and government entities.

Registration of a BEE Transaction

Hale explains that the B-BBEE Commission (Commission) must maintain a registry of ‘major’ BEE transactions, being those that fall above a certain threshold. The Minister is required to publish this threshold notice in the Government Gazette but this has not yet happened.

“Because the threshold for a major BEE transaction has not yet been determined, it is not currently possible to comply with this registration requirement, despite the BEE Regulations having taken effect.

“Further, it is not clear what a BEE transaction is for the purposes of the Regulations because a definition of a ‘-BBEE transaction’ has not been included in the Regulations.

“According to the Regulations, a party that enters into a major BEE transaction is required to register the transaction with the Commission by completing and submitting a prescribed form. No underlying transaction documents are required to be submitted.

“Once the form has been submitted, if the Commission is of the view that the transaction does not adhere to the BEE Act (for example, if it is of a view that the transaction amounts to fronting), it must advise the submitting party of its concerns in writing. The submitting party must take steps to remedy the issues identified ‘within a reasonable period’.

“If the submitting party fails to remedy the issues to the satisfaction of the Commission, the Commission may proceed to initiate an investigation. This investigation will presumably focus on the possible fronting practices.

“It is not clear how adherence to the BEE Act will be assessed by the Commission prior to any investigation being conducted, given that the information required to be submitted to the Commission is very limited, with no underlying transaction documents required.

“In addition, while the Regulations specifically state that the registration requirement does not constitute a requirement to obtain approval from the Commission before the transaction can be implemented, it is recommended that the parties to a major BEE transaction take steps to seek appropriate advice prior to concluding the transaction, including through the advisory services of the Commission.

“The Commission’s role in assessing the BEE transaction thus appears to amount to an indirect approval process.”

BEE reporting for listed companies

The Regulations also provide that JSE-listed companies and government entities must submit a compliance report to the Commission on an annual basis.

A company listed on the JSE must either submit its compliance report to the Commission within 90 days of the end of its financial year, or within 30 days of the approval of its audited financial statements and annual report, where the annual compliance report is included in its annual report.

Government entities have to submit their reports within 30 days of the approval of their audited financial statements and annual reports.

“Reporting companies have to detail the score obtained by the company for each of the BEE elements, whether they are an empowering supplier and whether they have achieved the priority element thresholds of ownership, skills development and enterprise and supplier development.

“Once the Commission receives the compliance report, it must respond within 90 days describing the state of compliance with the BEE Act and highlighting areas of improvement.

“If the Commission finds ‘non-compliance’ with the BEE Act, it will notify the company and the company will be required to correct its report and ensure compliance with its reporting duties under the BEE Act within 30 days. If a company fails to comply with its reporting duties, the Commission must reject any submitted compliance report and indicate the reasons for its decision. They will then be considered not to have complied with the requirements of the BEE Act.

“The Commission may allow a company that has submitted a report to appear before it in either an open or closed meeting, to respond to any questions the Commission may have in relation to its report,” concludes Hale.

TAXATION & REGULATION NEWS

BBBEE screws tighten on South African businesses

Many South African businesses will face a stiff challenge in meeting their accreditation targets as they prepare for their first audits under the stricter Revised Broad-Based Black Economic Empowerment (BBBEE) Codes that came into effect on 1 May 2015.

Growing pressure

Many companies are scrambling to address the stricter codes before they undergo their annual BBBEE audits for 2016, as they managed to squeeze an audit in last year under the old codes before the new ones took effect. Now, they face their first audits under the new codes. Many will see their ratings drop significantly unless they take drastic measures to improve their BBBEE credentials.

There’s also growing pressure, as large organisations start to tighten the screws on other entities they do business with. When procuring goods, most state-owned entities and large organisations are demanding that companies still achieve good overall ratings levels even under the revised codes.

In addition, when applying for licences and concessions, companies need to show they are aligned with BBBEE imperatives. This poses some serious challenges for companies which did not begin the process of transforming their businesses in line with the new codes when they were first announced in 2013.

Compliance levels

Some businesses may see their BEE certification levels drop two to four levels under the stricter new codes when they conduct their 2016 audits, with many previously compliant companies even becoming non-compliant.

Compliance levels for each pillar of BBBEE are much higher under the revised codes. Organisations with a turnover of more than R50m a year must achieve a score of 40% in each of the following categories that have been deemed priority elements: ownership, skills development, and enterprise and supplier development. A company that fails to meet this threshold in just one of these elements will have its overall empowerment status drop by a level.

Empowering supplier

The revised codes also introduce the idea of an empowering supplier, defined as an entity that meets three of the following criteria if it is large entity (R35m-plus turnover) or one if it is a medium-sized company (R10m to R50m turnover):

Buys at least 25% of cost of sales excluding labour cost and depreciation from local producers or local suppliers.

50% of jobs created are for black people.

At least 25% transformation of raw material/beneficiation.

Spends at least 12 days a year of productivity in assisting small black companies to increase their operation or financial capacity.

At least 85% of labour costs should be paid to South African employees by service industry entities (only applicable to entities in the services industry).

Companies not deemed to be empowering suppliers will find it harder to do business with larger companies and state-owned enterprises because they will not count in their client’s preferential procurement calculations.

Africa Biz