The Financial Sector Conduct Authority (“FSCA”) recently hosted a financial soundness workshop for Financial Services Providers (“FSPs”) that collect premiums or hold assets.
During this session, the FSCA explained the general financial soundness requirements contained in Chapter 6 of the Determination for Fit and Proper Requirements for FSPs (BN 194 of 2017).
Some of the insights shared are summarized below:
For an FSP to be considered financially sound it must:
ensure its adjusted assets exceed its adjusted liabilities at all times;
maintain adequate financial resources to carry out its activities;
be able to meet its liabilities as they fall due; and
have strategies, processes, systems, and financial resources to cover its risk exposures.
An FSP is regarded as not being financially sound when it is:
declared insolvent or provisionally insolvent;
placed under liquidation or provisional liquidation;
subject to proceedings that lead to any of the above statuses;
found to have seriously and persistently failed to manage its financial obligations; and
undergoing business rescue proceedings.
The general requirements for the submission of financial statements in terms of Section 19 of the Financial Advisory and Intermediary Services Act, 37 of 2002:
an FSP having to submit its financial statements annually (no later than four months after its year-end);
financial statements needing to be approved by executive management or sole proprietor of an FSP; and
fully complete financial statements.
As part of efforts to pre-emptively spot early warning signs of possible contravention of the Fit and Proper Requirements, the FSCA encouraged FSPs to immediately notify it in writing, if any of the following occur:
assets of an FSP or Juristic Representative (“JR”) exceed liabilities by less than 10%;
current assets of an FSP or JR exceed current liabilities by less than 10%;
the FSP or JR does not meet any of the requirements set out in Chapter 6; and
the FSP becomes aware of an event or situation that may or will result in early warning events occurring.
Notification of the above must be approved by the executive management of the FSP. If these early warning signs exist, the FSP (any director, officer, partner, shareholder, related party or associate) may not make any payments by way of loans, advances, bonuses, dividends, repayments of capital or loans or any other payments or asset distributions without the prior written approval from the FSCA.
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