The Securities and Exchange Commission of Zimbabwe has directed asset managers to maintain liquid capital equivalent to operating expenditure for the last three months or money market investment of at least $250 000 from the previous $500 000 set by the Reserve Bank of Zimbabwe.
According to a summary of the new capital requirements, made up of three tiers, firms can choose whichever is greater under tier 1, based on the previous year’s audited financial statements reviewed quarterly, based on quarterly returns to SECZ.
Under tier 2, SECZ wants the investment managers to maintain positive shareholders funds and recapitalisation of companies if the funds drop to negative levels.
They must also maintain positive working capital and liquidity ratio of 30 percent, which is equivalent to 30 percent of a company’s current liabilities.
Further, under tier 3 SECZ said asset managers should institute capital provisioning, have contingency measures such as insurance policies, have adequate and sound risk management, assessment and oversight systems.
SECZ said that the directive was made in terms of section 21 of the First Schedule of the Securities and Exchange Act chapter 24:25 read with section six of the sixth schedule of statutory instrument 100 of 2010.
The new capital requirements threshold cover the liquid capital, available paid up equity shareholders funds and risk based capital allocation components of the capitalisation structure for all asset managers.
The $250 000 shall be in the form of liquid capital to be placed with at least two independent financial institutions of the asset manager’s choice.
The liquid capital shall not be withdrawn without the consent of the SECZ. It can however be rolled over or moved to a different institution from time to time.
Three months expenditure cover will enable the institution to fund its obligations if it wound down operations. Paid up share capital (capital plus reserves) should be positive, to reflect the company as a going concern.
SECZ said not later than three months after the last day of its financial year end, investment management firms shall submit to the commission, together with audited financial statements, a return of selected expenses.
In determining the three months expenditure items considered include accounting and secretarial or other services/charges, auditors’ remuneration, depreciation, insurance, interest paid other than to directors, bank overdraft, other finance, other charges and fees and motor vehicle expenses, net loss on disposal of fixed assets and office rental.
Machine and other leasing charges/rentals, printing costs, salaries and employee benefits, telephone, telex and postage, salaries and directors’ fees, interest and other administration expenses also make the list.
The returns submitted by the investment management company shall be signed by all principal officers. No investment management company shall allow a shortfall in any tier capital, other than pursuant to a specific temporary exception granted by SECZ due to unusual circumstances.
The investment management companies shall notify the Securities and Exchange Commission immediately in writing if there are indications that they may not meet the new prescribed minimum capital adequacy requirements.