Financial statements indicate financial soundness, so the premise is that if an FSP is financially sound, it can advise clients how to take care of their financial wellbeing.
An annual compliance report serves as a snapshot of your operations and provides insight to your state of affairs during the reporting period. All authorised FSPs are therefore required to submit, among other requirements, their compliance report and annual financial statements to the FSB.
Submission of compliance reports
Section 17(4) of the FAIS Act requires a compliance officer, or an authorised FSP in the absence of a compliance officer, to “submit reports to the registrar in the manner and regarding the matters of the FSP for the reporting period.”
FSPs that are dormant or newly authorised are also expected to submit annual compliance reports. Dormant FSPs will indicate their dormancy on their compliance reports with the reasons for dormancy and when they expect to resume activities.
FSPs that have just been authorised when reporting is due must also submit a fully completed compliance report, indicating that they have just been authorised and therefore little activity has taken place.
Submission of financial statements
Section 19(2) of the FAIS Act requires all FSPs to submit financial statements to enable the FSB to determine if they meet the financial soundness requirement of the Fit and Proper Requirements. A positive statutory solvency level is when assets (excluding goodwill and other intangible assets) exceed liabilities (excluding subordinated loans). Certain FSPs may have additional financial soundness requirements which they must comply with.
Businesses that do not submit the required documentation may face penalties. In a recent Ombud determination in the case of Maditse/Magajane Trading, an FSP had its licence withdrawn in 2012 due to non-submission of its annual financial statements and compliance report. At the time the transaction was concluded with the complainant in 2014, the FSP provided financial services without the required licence in contravention of Section 7 of the Act (authorisation of FSPs). Although the Ombud determination was based on other violations by the contravening FSP, it drew attention to an entity that continued to operate after its licence was withdrawn.
Section 2 requires that a provider must always render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry. This was clearly not the case, as the contravening FSP continued to render financial services after its licence was withdrawn.
It is incumbent and mandatory for all authorised FSPs to adhere to the requirements of the Act and submit their annual financial statements and compliance reports timeously within the prescribed period.