Financially sound at all times
A brief discussion on the amended FAIS fit and proper requirements relating to financial solvency
The Fit and Proper requirements which were introduced during 2018 has brought about several changes in the financial soundness requirements for authorised financial services providers.
General requirements which are applicable to all FSP’s (and its juristic representatives) include the general solvency requirement that assets must at all times exceed the liabilities. An FSP (and its juristic representative) must at all times maintain adequate financial resources to ensure that they are able to carry on with their business and meet all liabilities as they fall due.
Some of the changes brought about by the Fit and proper determination in relation to Cat I FSPs ( and its juristic representatives) who does not collect, hold or receive premiums or other monies:
What has changed?
The definitions of assets and liabilities no longer have any exclusions( please see below).
Previous solvency requirement for CAT I
New solvency requirement for CAT I
The assets of the FSP (excluding goodwill other intangible assets and investments in related parties) must at all times exceed the FSP’s liabilities (excluding loans validly subordinated in favour of all other creditors).
The assets as a -
must at all times exceed the liabilities of that FSP or that juristic representative.
Juristic representatives of a Category I are required to comply with solvency requirements from the 1st of March 2019.
Here is a short example of how this may affect your FSP?
An FSP will no longer be able to subordinate a loan from a shareholder in order to meet the solvency requirements.
There are also changes brought about by the Fit and proper determination in relation to Cat I FSPs ( and its juristic representatives) that collect, hold or receive premiums or other monies as well as CAT II, IIA, III and IV FSPs:
What has changed?
Changes in definitions of annual expenditure and liquid assets;
The requirement of the Submission of a Liquidity calculation on an annual or bi-annual basis depending on the type of FSP; and
Early warning requirements, which requires an FSP to submit a notification to the FSCA once certain factors in relation to its financial soundness arose ( for instance if the assets of the FSP exceed the liabilities with only 10%)
Juristic representatives of an FSP is required to comply with solvency requirements from the 1st of March 2019
It is clear from the above mentioned that the financial soundness requirements have to be complied with on a continuous basis, so it is important that you familiarise yourself with the contents and the requirements in the Fit and proper determination (BN 194 of 2017)