Financial Services Providers (FSPs) have to consider and plan for several different requirements in the FAIS legislation relating to financial management, which goes beyond just the numbers. With many FSPs having just gone through their financial year end (i.e. end Feb 2020), it is as good a time as any to review the various financial soundness requirements, policies, procedures, plans and deadlines which FSPs must comply with. While these make good business sense, it is also required by law. If an FSP doesn’t meet all the requirements they place their licence at risk as it could result in licence suspension or even worse.
Below we have briefly summarised some of the main financial management requirements that FSPs need to think about. These should be regularly reviewed to ensure that they are working as they should and that they are still relevant.
- General Requirement
All FSPs must make sure that they always have enough funds or financial resources to continue operations. This requires forethought and planning and should flow from the FSP’s business plan and budget.
- Financial Strategy
Some FSPs, for example those that collect premiums or hold client funds and Category II and IIA FSPs, must have comprehensive financial strategies and processes in place to assess and maintain what is needed to cover any risks they face, including the risk of not meeting the financial soundness requirements which apply to them.
- Ongoing management and monitoring of the financial position of the FSP
To ensure ongoing compliance with the general and more specific financial soundness requirements, and to track the actual position against what was planned or budgeted, FSPs must manage and monitor their financial position regularly. Legislation says this should be done on a monthly basis, and it is important as it will help FSPs to identify areas where they need to take action.
All FSPs must prepare annual financial statements (AFS) and submit these to the FSCA within 4 months of the FSP’s financial year end. For those FSPs whose financial year end is 28 February, the deadline for submission of the AFS is 30 June 2020. These FSPs should make sure that they have all the information necessary to prepare the AFS as soon as possible after the end of the financial year, to avoid delays resulting in late submission.
Depending on the type of FSP, there may be additional reporting requirements such as the Liquidity Calculation Declaration for FSPs that have to maintain liquid assets.
Non-submission or late submission of a report can have serious consequences, so FSPs must be clear about what they must report, when they have to report, the format in which they have to report and to whom.
- Write the process down
It is never a good idea to rely purely on memory as things can so easily slip between the cracks. Writing things down and making sure that everyone who plays a role in the process understands their duties, deadlines etc. helps a business to run efficiently and reduces the risk of missing key regulatory requirements. It also allows the FSP to identify early warning signs of potential problems, increasing the chance of putting successful action plans in place. Documenting the process will also ensure compliance with FAIS as it prescribes that FSPs must have an accounting policy and procedure in place which deals with things like how the FSP will keep a record of their financial reports and provide these to the FSCA on time and in the appropriate format and who will be responsible to do this.
- Plan to recover
Every business faces its challenges and FSPs should plan for circumstances which could place the business under financial stress, setting out a roadmap or plan of action which it will take should this become reality. While FAIS requires all FSPs to document their Financial Recovery Plan, this should in any event be something that all businesses consider. It is always easier to follow a pre-set plan than to deal with a crisis ‘by the seat of your pants’.
- Orderly resolution in the event of failure
Although it’s never pleasant to consider business failure, FSPs must document the practical steps which it would take in such an event, so that the business can be resolved in an orderly fashion. Amongst other things, consider your clients to ensure that they are dealt with fairly and kept informed through the process.
FSPs need to ensure that the financial management process is well entrenched in the business. Ensure that key deadline dates are diarised with reminders so that these are not missed.
Masthead can help FSPs that require assistance to implement and address the various requirements. Keep a look out for our seminar – Learn How to Build a Robust Financial Management Model in your region.