Important Changes to Fit & Proper Requirements

The publication of Board Notice 202 of 2012 brings about very important changes to the definitions of “Annual Expenditure”, “Liquid Assets” and “Management Accounts”, amongst others. This may impact significantly on your financial soundness requirements.

“annual expenditure’, means the expenditure set out in-

a. the latest financial statements of the FSP; or
b. the budgeted expenditure as expressed in the budget or financial accounts in the case of an applicant commencing with business, less-

1. staff bonuses;
2. employees’ and directors’, partners’ or members’ share in profits;
3. emoluments of directors, members, partners or a sole proprietor;
4. other appropriation of profits to directors, members and partners;
5. fifty percent of the commissions or fees paid to representatives for the rendering of services       that did not form part of their remuneration;
6. depreciation
7. Bad debts
8. any loss resulting from the sale of assets

The sections marked in yellow are additions to the existing list. Certain minor omissions in the former definition were also rectified.

’Liquid assets’, were previously simply defined as “cash or cash equivalents which can be liquidated with in (sic) seven (7) days without realising a loss on liquidation.”

The new definition reads:

“… cash and other assets equivalent to cash that can be liquidated without realising a loss on liquidation provided that-

a. 25% of such assets must be capable of being liquidated in 7 days;
b. a further 25% of such assets must be capable of being liquidated in 30 days; and
c. the remaining 50% of such assets must be capable of being liquidated in 60 days;”; and

‘Management Accounts’, means a set of financial statements which-

1. is prepared from the accounting records contemplated in section 19(1)(a) of the Act;
2. reflects the financial position of the FSP at month end;
3. is prepared in accordance with the accounting policies as contemplated in section 19(1 )(b)(iv) of the Act;
4. fairly represents the financial performance and position of the FSP; and
5. reflects any material matter which has affected or is likely to affect the financial affairs of the FSP;”.

Certain other changes are also contained in the board notice, but appear to be more of a cosmetic nature than much else.

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