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Fit & Proper FSP License (Fit & Proper/Operational Ability)
A Category I FSP that holds no client funds has total assets of R900 000, of which R300 000 is goodwill. Its liabilities are R700 000. Does it meet the financial soundness requirement?
RE5 practice question with a worked answer. This is one of hundreds of FSCA RE5 questions in the RegulatoryExams question bank.
- a) No. Goodwill is excluded, so its assets of R600 000 do not exceed its liabilities of R700 000.Correct
- b) Yes. Its total assets of R900 000 exceed its liabilities of R700 000 by R200 000.
- c) Yes. A Category I FSP that holds no client funds is exempt from the financial soundness requirements.
- d) No. It must also hold liquid assets equal to 4/52 weeks of its annual expenditure.
Why this is the answer
Every FSP's assets must exceed its liabilities, and for this test goodwill and other intangible assets are excluded. That leaves R600 000 of assets against R700 000 of liabilities, so the FSP fails. The solvency test applies to all FSPs; the liquidity multiple applies only where a Category I FSP holds client assets or receives premiums.
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