Financial Services Providers who receive client funds are required to conform to very specific requirements in terms of liquidity, as set out in the Determination of Fit and Proper Requirements.
In terms of section 9 of the Determination, a FSP who receives client funds must maintain ‘liquid assets’ equal to, or greater than, 4, 8, and 13/52 weeks respectively of annual expenditure, depending on the category for which such FSP is authorised.
The proposed changes intend the inclusion of an investment in a money market portfolio in the calculation of a FSP’s ‘liquid assets’ and to reduce the period within which the assets must be liquidated.
An FSP’s investment in a money market portfolio is generally excluded from the calculation of its ‘liquid assets’ as the capital invested in a money market portfolio is not guaranteed and an investment in such a portfolio could result in a loss at liquidation.
The Registrar is satisfied that the inclusion of investments in money market portfolios will not defeat the achievement of the purpose of the liquidity requirements provided that such investments can be liquidated within seven days. The Registrar’s view is informed by the fact that money market portfolios are highly liquid, have a relatively low investment risk, are regulated under the Collective Investment Schemes Act and are included the calculation of the liquid assets of persons regulated under other laws administered by the FSB.
Comments on the proposed amendment may be submitted, in writing on or before 28 February 2014, to the Registrar of Financial Services Providers per electronic mail to Loraine van Deventer at loraine.vandeventerfsb.co.za.
This is not the first amendment to these requirements. Like the others, these proposed changes indicate a practical approach which is to be commended.
Please click here to download the formal request for input from the FSB.