The Securities and Exchange Commission of Zimbabwe (Sec) has slashed minimum capital threshold for asset managers by 50% to US$250 000, businessdigest has learnt.
The minimum capital thresholds for asset managers was set at US$500 000 prior to the new system, but players requested that it be cut to US$150 000 citing viability concerns in a market reeling from tight liquidity and receding economic growth.
A June proposal to approve a directive known as Capital Requirements of Investment Management Companies was last week approved by the Sec board chaired by Willia Bonyongwe.
Under the new terms, asset managers can comply under a three tier system; being the liquid capital equivalent, risk based capital allocation and available paid up equity shareholders funds approaches.
Failure to comply may result in asset managers losing their operating licenses, according to Sec.
“Where the investment management company fails to comply with directives , the commission shall declare the investment management company to be a defaulter (and) have the power, in terms of the Securities and Exchange Act, to reprimand, sanction, suspend and or cancel the registration of an investment management company declared to be a defaulter; and the suspension or cancellation of an investment management company’s registration shall automatically suspend all rights and privileges of the investment company, without relieving it of its liabilities,” the directive says.
The liquid capital approach compels every investment manager to have minimum capital sufficient to cover three months expenditure, with the minimum pegged at US$250 000, whichever is greater, based on the previous year audited financial statements and reviewed quarterly, based on quarterly returns submitted to Sec.
Sec said the US$250 000 should be in the form of liquid capital to be placed with at least two independent financial institutions of the asset manager’s choice and not be withdrawn unless with the consent of the regulator.
However, it can be rolled over or moved to a different institution from time to time. The point of emphasis is that it cannot be liquidated without approval from the commission.
Sec said three months expenditure cover will also enable the institution to fund its obligations in the event of winding down its operations.
In addition, paid up share capital, comprising capital and reserves, should be positive, to reflect the company as a going concern.
“Not later than three months after the last day of its financial year end, the Investment management company shall submit to the commission, together with its audited financial statements, a return of the expenses incurred by the investment management company during the year.”
The positive paid up equity, and working capital tier dictates that shareholders’ funds must always be positive and immediate recapitalisation is required whenever capital is negative.
Sec said preference share capital shall constitute available capital if it is not redeemable.
The regulator said players must maintain positive working capital at all times and be regularised within 30 days any variation.
The risk governance and risk-based capital tier requires asset managers to ensure adequacy of board and senior management oversight, including existence of a risk management and compliance committee or its equivalent as well as other functional board and management committees.