Prudential Requirements (Part I)

Question 1

What are the minimum requirements of the FMA regarding the content of a member’s accounting records?

Answer 1

Records to contain details of:
1. Receipts and Payments, both own and clients;
2. Income and expenditure, explaining the nature thereof;
3. Assets and Liabilities;
4. Purchases and Sales, both own and clients;
5. Receipts and dispatch of documents of title; and
6. Securities and documents of title in the possession or control of the member showing:
a. physical location;
b. owner;
c. purpose for which held; and
d. whether they are subject to any change.

Question 2

How frequently must a member reconcile all balances with banks and custodians?

Answer 2

As frequently as is appropriate for the volume of transactions on the accounts but not less than every 2 days.

Question 3

In extending credit to a client or counterparty, either through a loan of funds, a loan of securities or an indulgence in relation to an obligation of a client or counterparty to a member, what must a member ensure?

Answer 3

1. That the granting of credit does not compromise its ability to meet its financial resources requirements as specified in the rules and directives.
2. That the granting of credit does not adversely impact its liquidity to the extent that it may not have sufficient funds to meet its short-term commitments.
3. That the realisable value of any collateral or other security provided by the client or counterparty which reduces the exposure on which the member’s Counterparty Risk Requirement is calculated, in terms of DC 9.4, can be reliably measured.

Question 4

By when are members required to submit returns reflecting members risk positions and its financial resources (Capital Adequacy Return) to the Director: Market Regulation?

Answer 4

Within 10 business days of the end of each month.

Question 5

Within how many months of a member’s financial year end must the following reporting statements be submitted to the Director: Market Regulation?
1. Annual financial statements,
2. Annual reconciliation statement,
3. Auditor’s special reports.

Answer 5

3 Months.

Question 6

What criteria must be met to include redeemable preference shares as capital in determining a member’s financial resources?

Answer 6

1. The initial period to redemption shall be at least 2 years.
2. The remaining period to redemption shall be at least 3 months.

Question 7

In order to include loan accounts, which include shareholders loan accounts as capital in determining its financial resources, what is a member required to do?

Answer 7

Ensure that they are legally subordinated in a manner prescribed by the Director: Market Regulation.