The Financial Sector Conduct Authority (FSCA) recently published a press release recapping the financial soundness requirements for FSPs that collect premiums or hold assets. This comes after the FSCA hosted a series of financial soundness workshops for FSPs.
The workshop for FSPs that collect premiums or hold assets explained the general financial soundness requirements contained in Chapter 6 of the Fit and Proper requirements (Board Notice 194 of 2017), as well as the different types of financial statements and supporting documents required to demonstrate financial soundness.
For an FSP to be considered financially sound it must:
- ensure that 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.
Conversely, 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.
Financial Statements
The general requirements for the submission of financial statements as required by section 19 of the FAIS Act were also discussed during the session, which include:
- an FSP must submit its financial statements annually and no later than four months after its year-end;
- financial statements must be approved by the executive management or sole proprietor of an FSP; and
- fully complete financial statements containing the following:
– Balance sheet
– Income statement
– Cashflow statement
– Statement of changes in equity
– Notes to the financial statements
– Director’s/ members’ report
– Section 19(2) auditor’s report in accordance with International Financial Reporting Standards (IFRS)
– Comparative figures from the prior year
Early warning signs
As part of efforts to pre-emptively spot early warning signs of a possible contravention of the Fit and Proper Requirements, the FSCA encouraged FSPs that collect premiums to immediately notify it, in writing, if any of the following occurs:
- the assets of an FSP or Juristic Representative exceed liabilities by less than 10%;
- the current assets of an FSP or Juristic Representative exceed current liabilities by less than 10%;
- the FSP or Juristic Representative 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 the early warning events occurring.
Notification of the above must be authorised by the executive management of the FSP. If these early warning signs exist, the FSP may not make any payments by way of loans, advances, bonuses, dividends, repayments of capital or loans, or any other payments or asset distributions. This is to any director, officer, partner, shareholder, related party or associate without the prior written approval from the FSCA.