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Financial soundness deadline looming – FSPs with juristic reps, please take note

According to Board Notice 194 of 2017, the Fit and Proper BN, FSPs and juristic representatives have to be financially sound in order to be able to deliver a quality service to clients. The financial soundness requirements have been extended to juristic representatives with effect from 1 March 2019.

Section 53 of the Fit and Proper Board Notice stipulates that Section 44(1) and (2); 45; 48 and 49 relates to juristic representatives and commences on 1 March 2019.

Who is affected, and how?

Sections 44 and 45 of Board Notice 194 of 2017

In an October 2018 Moonstone article, Alan Holton focussed on financial soundness requirements and highlighted Sections 44 and 45 of Board Notice 194 of 2017 that applies to juristic representatives:

  • S 44 provides that every juristic representative will, as of 1 March 2019, be required at all times to maintain financial resources that are adequate both as to amount and quality to enable it to carry out its activities and to ensure that liabilities are met as they fall due.
  • S 44(3) which became effective on 1 April 2018 provides that no person may continue as a juristic representative if it has been placed under liquidation or provisional liquidation or is subject to any pending proceedings which may lead to liquidation or provisional liquidation. In addition, no person may continue as a juristic representative if it seriously and persistently failed or fails to manage any of its financial obligations satisfactorily. This places an obligation on the FSP to ensure the overall financial soundness of its juristic representatives.
  • S 45 applies to juristic representatives of Category 1 FSPs. As of 1 March 2019, the assets of a juristic representative of a Category I FSP must at all times exceed the liabilities of that juristic representative.

The Board Notice distinguishes very clearly between those FSPs who “hold, control or has access to client assets” and/or “collect, hold or receive premiums or other monies” and those who do not. Please make sure that you understand very clearly what applies to you.

The financial soundness requirements of juristic representatives of Category II, IIA, III and IV FSP’s are set out in S 46 – S 49. Juristic reps in these categories should familiarise themselves with the detail of the requirements as set out in the Board Notice:

Section 48 of Board Notice 194 of 2017

S48 provides that a juristic representative must comply with the additional asset, working capital and liquidity requirements as set out in the following table:

Category of FSP and juristic representative General requirements and additional asset requirement Working capital requirement Liquidity requirements Submission of form A: Liquidity calculation to Commissioner
Category I FSP that holds client assets/receives premiums and their juristic reps Assets must exceed liabilities Current assets must exceed current liabilities Liquid assets must be larger or equal to 4/52 weeks of annual expenditure Annually together with financial statements
Category II FSP and its juristic reps Assets must exceed liabilities Current assets must exceed current liabilities Liquid assets must be larger or equal to 8/52 weeks of annual expenditure Six monthly within 45 days after half year end
Category IIA FSP and its juristic reps Assets must exceed liabilities by at least R3 million Current assets must exceed current liabilities Liquid assets must be larger or equal to 13/52 weeks of annual expenditure Six monthly within 45 days after half year end
Category III FSP and its juristic reps Assets must exceed liabilities by at least R3 million Current assets must exceed current liabilities Liquid assets must be larger or equal to 13/52 weeks of annual expenditure Six monthly within 45 days after half year end
Category IV FSP and its juristic reps Assets must exceed liabilities Current assets must exceed current liabilities Liquid assets must be larger or equal to 4/52 weeks of annual expenditure Annually together with financial statements

Section 49 of Board Notice 194 of 2017

S49 refers to early warning requirements, warning lights that may alert an FSP, or its juristic representative that it is running the risk of not meeting its financial soundness requirements. The following is indicated:

  1. the assets of the FSP or that of its juristic representative exceed the liabilities by less than 10%;
  2. the current assets of the FSP or that of its juristic representative exceeds the current liabilities by less than 10%;
  3. in respect of a Category IIA and Ill FSP and juristic representatives of that FSPs, the additional assets of the FSP or that of its juristic representative exceeds the minimum requirement by less than 10%;
  4. the FSP or its juristic representative does not meet any of the requirements in this Chapter; or
  5. the FSP becomes aware of an event or situation that may or will result in the effect contemplated in paragraphs (1), (2) and (3).

If any of the above situations occur at a juristic rep he or she needs to notify the FSP, and not the Commissioner, accordingly.

It is strongly recommended that the provisions of Chapter 6 of Board Notice 194 of 2017 re Financial Soundness are studied carefully.

Click here to download a copy.

Please also note below the Moonstone KI workshops scheduled for March which cover this in great detail.

If you have any questions it is recommended that you urgently consult your Compliance Officer.

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