FSCA sets out requirements for an FSP to be considered financially sound

Posted on by

The FSCA this week published a media release providing a short summary of the content covered in its financial soundness workshop for FSPs that collect premiums or hold assets.

The online workshop was held on 15 September.

During the workshop, the FSCA said it explained the general financial soundness requirements contained in chapter 6 of the Determination of Fit and Proper Requirements for FSPs.

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;
  • Found to have seriously and persistently failed to manage its financial obligations; and
  • Undergoing business rescue proceedings.

Requirements for financial statements

The general requirements for the submission of financial statements in terms of section 19 of the FAIS Act were also discussed during the session. These include:

  • An FSP has to 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 contain the following:
  1. A balance sheet;
  2. An income statement;
  3. A cash-flow statement;
  4. A statement of changes in equity;
  5. Notes to the financial statements;
  6. The director’s/members’ report;
  7. The section 19(2) auditor’s report in accordance with the International Financial Reporting Standards; and
  8. Comparative figures from the prior year.

Signs of trouble

As part of efforts to identify early-warning signs of a possible contravention of the Fit and Proper Requirements, the FSCA encouraged FSPs that collect premiums to notify it immediately, 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 FSCA’s prior written approval.