Attention: Fund Managers

On the 13th May 2015, the MFSA issued a Circular addressed to Fund Managers on the inclusion of Retained Earnings as part of the Own Funds’ Computation.

By means of the said circular the MFSA clarified that interim and year-end profits are not to be included as part of the Own Funds’ Computation unless verified by the auditors of the Licence Holder. This means that for interim or year-end profits to qualify as regulatory capital, the licence holder has to take the required steps to have the profits verified as such by the auditors. This applies to those profits which have not yet been subject to audit.

The MFSA plan to monitor the inclusion of interim and year-end unaudited profits classified as part of the own funds, by carrying out sporadic checks to ensure that, where the profits are reported as part of the Own Funds, the Licence Holder has the required auditor verification on file. Regulatory onsite compliance visits undertaken by the MFSA will also be an occasion for this check to take place. Since this is a requirement of the Capital Requirements Regulation (“CRR”), the MFSA has noted the seriousness of the event where own funds are misreported as a result of the inclusion of interim or unaudited year end profits which are not properly supported by the auditors’ verification.

The Financial Return for Fund Managers (Appendix 2B) has been revised, as of 1st April 2015. Fund Managers must input the profits made during the year which have not yet been subjected to an audit, but which are verified by the auditors, in Section 6(j) of the Input Sheet. The revised Financial Return is to be used for any reports for submission going forward as of this date.

The Circular in question is accessible here whereas the updated Appendix 2B Financial Return for Fund Managers is accessible here.

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