Insurance (Capital, Solvency and Reserves Requirements for Insurers) Regulations 2016

LESOTHO Government Gazette Vol. 61 Friday – 28th October, 2016 No. 63 CONteNts No. Page legal NOtiCes 133 insurance (Capital, solvency and Reserves........................................ 971 Requirements for insurers) Regulations, 2016 134 Financial institutions (large Financial Cooperatives) ..................... 1004 Regulations, 2016 OtheR NOtiCes (See Supplement of the Gazette)

Published by the Authority of His Majesty the King Price: M52.00

legal NOtiCe NO. 133 OF 2016 Insurance (Capital, Solvency and Reserves Requirements for Insurers) Regulations, 2016 Pursuant to sections 22(2), 25(4), 26(2), 28(1), 36(1) and 134 of the insurance act, 2014 1 , i, RET◊ELISITSOE MATLANYANE governor of the Central Bank of lesotho, make the following regulations - Citation and commencement

1. these Regulations may be cited as the insurance (Capital, solvency and Reserves Requirements for insurers) Regulations, 2016 and shall come into op￾eration on the date of publication in the gazette. Interpretation
2. in these Regulations, all other words used have the same meaning as￾cribed to them under the act, and unless the context otherwise requires - “act” means the insurance act, 2014; “amount at risk” means the difference between insurance indemnity and mathematical reserve, calculated for insurance contracts covering the risk of death; “assets” means the total approved assets kept by an insurer and inves￾ted in terms of prescribed investment guidelines including total assets as per the balance sheet; “available solvency margin” means the excess of value of assets over the value of liabilities representing the level of own funds of the insurer; “Commissioner” means the Central Bank of lesotho continued into ex￾istence by the Central Bank act, 2000 2 ; “contractual liabilities” means the total amount of insurance technical 971

972 provisions; “iBNR” means incurred but not reported claims; “incurred claims” means paid claims plus the modification of reserves for outstanding claims for a particular reporting period; “insurer or reinsurer funds” means all assets admitted, other than the amount set aside comprising the policyholder funds; “gross incurred claims” means incurred claims before deducting the re￾lated reinsurer share; “liability adequacy test” means the test conducted by an actuary at the end of each reporting period to assess whether its recognised insurance liabilities are adequate; “liquid assets” means assets in cash, current bank accounts, demand deposit accounts or term deposits, which can be withdrawn uncondi￾tionally and securities that are easily convertible into cash without incurring penalties; “net incurred claims” means gross incurred claims minus the share of a reinsurer related to gross incurred claims; “not approved asset” means an asset identified as a not approved asset under section 25 of the act and these Regulations; “policyholder funds” means the total assets admitted under these Regu￾lations set aside to cover the contractual liabilities of the insurer plus an amount of the required solvency margin in value provided by the dispersal requirements; “required solvency margin” means the level of own funds required to be held and maintained permanently by the insurer, below which the in￾surer is deemed insolvent; “solvency ratio” means the ratio of the amount of available solvency margin to the amount of required solvency margin;

“technical provisions” means an amount set aside by an insurer to meet liabilities arising out of insurance contracts; “unearned premiums reserves” means the pro-rata portion of the full gross premium from the statement date to the end of the period for which premiums have been paid on the policy for protection that is to be given in the future; “unexpired exposure period” means the remaining coverage period of existing policies in which the liabilities of insurer may arise; “unexpired risk reserves” means the additional provision that arises as a result of the estimated cost of claims and expenses exceeding the un￾earned premium reserve; and “valuation date” means the date at which the prospective assessment of the amount that needs to be set aside in order to provide for claims and costs that will result out of unexpired exposure periods of cover. Application 3. these Regulations apply to a person licensed to engage in the provision of insurance business in lesotho. Purpose 4. the purpose of these Regulations is to establish capital, solvency and reserves requirements; and calculation of solvency margins for insurers. Capital Requirements 5. (1) a company which applies for registration - (a) as a short term insurer; or (b) as a long term insurer, shall have share capital of not less than M4, 000,000. (2) an insurer who is in operation shall maintain - 973

(a) a minimum capital balance not less than the greater of the amounts specified in subregulation (1); or (b) an amount equal to or greater than the minimum sol￾vency amount calculated in accordance with these regu￾lations; (3) the assets required when calculating the minimum solvency amount in subregulation (2)(b) shall be subject to the prescri￾bed limits of investments specified in schedule 1 and schedule 2. Investment rules 6. (1) an insurer shall invest its assets in a manner that complies with the criteria in schedule 1 and schedule 2. (2) Notwithstanding subregulation (1), an insurer shall hold assets in lesotho in total aggregate value of not less than 30 per cent. (3) For non-direct investments, investments shall be deposited or invested through a locally registered institution or entity operating and admin￾istering assets in lesotho. (4) the Commissioner may order an insurer to dispose of any assets kept by an insurer that the Commissioner deems are not in compliance with the provision of subregulation (2). (5) any insurer seeking to invest in assets that are outside of the in￾vestment rules established in these Regulations shall request approval from the Commissioner. Reserving requirements for short-term insurer 7. a short-term insurer shall - (a) maintain reserves in respect of short-term insurance; and (b) maintain a solvency margin not less than the amount set out in schedule 3. 974

Unearned premium reserves for short-term insurer 8. (1) a short-term insurer shall establish and maintain unearned pre￾mium reserves, in addition to reserves provided under section 26 (1) of the act. (2) in determining the reserves required for the unearned premium reserves in subregulation (1), a short-term insurer shall use the methods in sched￾ule 4 and any other method as approved by the Commissioner. (3) a short-term insurer shall determine and disclose a value for its unearned premiums reserves for each class of business. (4) a short-term insurer shall conduct a test on the adequacy of un￾earned premium reserves, and where the unearned premium reserves are inade￾quate, premium deficiency reserves shall be determined. (5) the reserving method used to determine the unearned premium reserves shall be applied consistently from year to year. Unexpired risk reserves for short-term insurer 9. (1) a short-term insurer shall calculate reserve for unexpired risks by estimating the claims expected to be incurred after the valuation date on poli￾cies with unexpired exposure periods as at the valuation date, including the part of claims management expenses that relates to these claims in such an amount that the estimated value of such future claims exceeds the unearned premiums reserve. (2) a short-term insurer shall calculate and maintain the reserve for unexpired risks separately for each class of business. (3) a short-term insurer shall conduct a test on the adequacy of un￾expired risk reserves in accordance with the generally accepted actuarial stan￾dards and international financial reporting standards, and where the unexpired risk reserves are inadequate, deficiency reserves shall be determined. Outstanding claims and incurred claims for short-term insurer 10. (1) a short-term insurer shall determine outstanding claims incurred and reported using - 975

(a) the Case estimate Method; (b) the average Cost per Claim Method; or (c) Other actuarially accepted methods recognized by the Commissioner. (2) a short-term insurer shall determine reserves arising from iBNR claims by using one of the following methods in accordance with the risk nature, risk distribution and experiential data of the insurance lines - (a) the Chain-ladder Method; (b) the average Cost Per Claim Method; (c) the Bornhuetter-Ferguson Method; (d) the Cape-Cod Method; or (e) any other accepted actuarial methods recognised by the Commissioner. (3) a short-term insurer shall conduct a test on the adequacy of the reserves and where the outstanding claims incurred, and iBNR are inadequate, claims deficiency reserves margin shall be determined. (4) a short-term insurer shall - (a) maintain contingency reserves to cover fluctuations in securities and variations in statistical estimates; and (b) disclose the value of contingency reserve in its financial statements. Reserving requirements for long-term insurer 11. a long-term insurer shall maintain reserves in respect of long-term in￾surance. 976

Unearned premium reserves for long-term insurer 12. a long-term insurer shall establish and maintain unearned premium re￾serves, in addition to reserves provided under section 26 (1) of the act. Policy liabilities for long-term insurer 13. (1) a long term insurer shall establish and maintain policy liabilities providing for - (a) a best estimate value of the liability of the company in respect of obligations under life insurance contracts; and (b) uniform emergence of profit in respect of life insurance contracts. (2) the policy liability is equal to the sum of - (a) the best estimate liability; (b) the value of future best estimate bonuses; and (c) the value of future best estimate shareholder profits. (3) Where non-participating benefits are provided, profit is entirely the entitlement of the shareholder and in that case, the policy liability is equal to the sum of - (a) the best estimate liability; and (b) the value of future best estimate shareholder profits. (4) a long-term insurer shall determine the best estimate liability as the value of the expected future payments and receipts under the policy, gross of reinsurance, which are based on obligations at the reporting date and the best estimate liability shall be equal to - (a) the value of expected future benefit payments; plus (b) the value of expected future expenses; less 977

(c) the value of expected future premiums. (5) a long-term insurer shall use the generally accepted actuarial principles when projecting the expected future cash flows, taking into consider￾ation the assumptions about the expected future experience, and all factors which are considered to be material to the calculation, including - (a) investment earnings; (b) inflation; (c) taxation; (d) expenses; (e) mortality and morbidity; and (f) policy discontinuance. (6) the best estimate liability and best estimate assumptions shall be based any options or guarantees offered by the insurer. Solvency margin 14. an insurer shall - (a) calculate the solvency margin in accordance with schedules 3 and 5; (b) determine the value of assets for the required solvency margin calculation in accordance with schedule 6; and (c) determine the available solvency margin as the value of admissible assets over and above the value of admissi￾ble liabilities. Assets not approved 15. (1) the Commissioner may recognise assets which meet the obli￾gations of a policyholder and which are readily marketable assets when current 978

and future obligations are due, as approved assets. (2) subject to section 25(1) of the act, the following assets shall not be considered as approved assets - (a) organizational expenses, goodwill, trade names, and other similar intangible assets; (b) uncollected receivables of the agents which are over 90 days regardless of any unearned premium; (c) reinsurance premiums which are more than 90 days overdue except to the extent the assuming entity main￾tains unearned premium and loss reserves; (d) software; (e) furniture, fixtures and equipment; (f) assets not held in the name of the insurer; (g) assets which do not meet investment criteria prescribed by the Commissioner; (h) investment amount whose investment value is not cal￾culated and reported in the manner as prescribed by the act; (i) reinsurance recoverable related to reinsurance agree￾ments not approved by the Commissioner as set out in the act and related regulations; (j) advances to employees, directors or agents, other than loans of policyholders, whether secured or not. (3) an insurer may request and obtain approval of all or part of an asset otherwise excluded under section 25 of the act and these regulations as an approved asset by forwarding a written request to the Commissioner which - (a) provides a description of the amount and nature of the 979

asset; (b) states whether the company is requesting that all or a portion of the asset is to be considered approved; and, (c) demonstrates that the asset - (i) is readily marketable, (ii) is unencumbered; and, (iii) may be easily liquidated to meet policyholder obligations when both current and future obli￾gations are due. (4) Where the reinsurance recoverable is not approved, any deduc￾tions to liabilities pertaining to the reinsurance agreements not approved shall be reported as a liability. Methodology for calculating required solvency margin of an insurer 16. (1) a long-term insurer shall calculate the required solvency margin based on technical reserves and on amount at risk, in accordance with schedule 5. (2) a short-term insurer shall calculate the required solvency margin based on net written premiums for the last 12 months and net incurred claims for the last 12 months, in accordance with the schedule 3. Required solvency margin for long-term insurer 17. (1) a long-term insurer shall determine required solvency margin by applying risk factors on the mathematical reserves and the sum at risk per class of long term business. (2) Risk factors as stipulated in this regulation shall relate to adverse impacts due to movements in future mortality, morbidity, longevity, expenses, lapses and other insurance risks. (3) a long-term insurer shall be required to maintain the required 980

solvency margin equal to the sum of risk factors multiplied by the mathematical reserves and sum at risk per class of long term business. (4) an insurer shall, for the purposes of calculating the required sol￾vency margin for mathematical reserves and sum at risk apply such factors to each class of business insurance liabilities according to the form for the calcu￾lation of solvency margin. Required solvency margin for a short-term insurer 18. (1) the required solvency margin for short-term insurers shall be determined using the premium basis or the claims incurred methods. (2) a short term insurer shall be required to maintain solvency mar￾gin which shall be a higher of amount determined using the premium basis method or the incurred claims basis method. (3) Risk factors shall be applied on the premiums written and claims incurred within the 12 months period on each line of short term business when determining the value of the required solvency margin when using the premium basis and incurred claims basis respectively. (4) an insurer shall, for the purposes of calculating the required sol￾vency margin for written premiums and incurred claims apply such factors to each class of business insurance liabilities according to the form for the calcu￾lation of solvency margin. (5) the insurer shall maintain a solvency ratio at a level of not less than the level prescribed in these Regulations. if an insurer’s solvency level shall be below this amount, it shall be considered to be unable to satisfy its liabilities as these become chargeable. (6) an insurer shall calculate and continuously monitor monthly its required solvency margin and available solvency margin. (7) an insurer shall submit the information on its required solvency margin and available solvency margin as of the annual balance sheet date or as of any other reporting date required by the Commissioner. (8) an insurer shall inform the Commissioner upon determination 981

that either of its solvency margins, required or available, falls under the minimum level prescribed under these Regulations, within 10 days from the date it acquires knowledge of such non-compliance. Transitional provisions 19. a person registered as an insurer under the act, shall adjust insurance activities in accordance with the provisions of these Regulations within one year from the coming into operation of these Regulations. DR. RET◊ELISITSOE MATLANYANE GOVERNOR OF THE CENTRAL BANK OF LESOTHO NOTE

1. act No. 12 of 2014
2. act No. 2 of 2000 982

sCheDUle 1 INVESTMENT RULES ON ADMISSIBILITY FACTORS - MARKET RISK (Regulation 5(3) and 6(1)) Item Categories or kinds of assets Percentage of Percentage of market value market value of asset of of asset of Short Term Long Term Insurer Insurer 1 government securities 100% 100% 2 Deposits at financial institutions 100% 100% 3 Ordinary shares listed 85% 80% 4 Preference shares listed 90% 85% 5 Ordinary shares Unlisted 80% 80% 6 Preference shares Unlisted 80% 80% 7 Owner Occupied Property 60% 80% 8 investment Properties 85% 90% 9 investments in affiliated companies 80% 80% 10 Premiums receivable for less than 100% 100% 60 days 11 Receivables Outstanding for a period 100% 100% of less than 90 days from reinsurers 12 Receivables Outstanding for a period 100% 100% of less than 90 days from insurers 13 Receivables from related companies 100% 100% outstanding for less than 90 days 14 accrued interest, rent, income 100% 100% 15 Policyholders' loans 90% 100% 16 Mortgages and debentures 100% 100% 17 secured loans 100% 100% 18 Unsecured loans 50% 60% 19 Other assets 50% 50% 983

sCheDUle 2 INVESTMENT RULES ON CONCENTRATIONS LIMITS Investments in a company, share, bank or any institution on a single entity basis (Regulation 5(3) and 6(1) Item Categories or kinds of assets Maximum Maximum percentage percentage of of aggregate aggregate market market value of value of total assets total assets of Short of Long Term Term Insurer Insurer 1 Deposits and balances in any 20% 20% bank or building society registered in lesotho as deposit-taking institution including negotiable deposits, and money market instruments in terms of which such an institution is liable, paid-up shares of a building society 2 Bills, bonds or securities issued or 20% 30% guaranteed by or loans to or guaranteed by any statutory body or any local in lesotho or outside lesotho 3 investment in a single property or 5% 10% property development project in lesotho 4 investments in ordinary shares of any 10% 10% company, banking institution, building society or other institution incorporated in lesotho, excluding affiliated 984

companies, whose shares are listed on a licensed exchange in lesotho 5 investments in ordinary shares of any 10% 10% company, banking institution, building society or other institution, excluding affiliated companies, whose shares are listed on a licensed exchange outside lesotho 6 investments in preference shares of any 15% 15% company, banking institution, building society or other institution incorporated in lesotho, excluding affiliated companies, whose shares are listed on a licensed exchange in lesotho 7 investments in preference shares of any 15% 15% company, banking institution, building society or other institution, excluding affiliated companies, whose shares are listed on a licensed exchange outside lesotho 8 investments in shares or debentures of 10% 15% any company or other institution, excluding affiliated companies, listed on a licensed exchange 9 investments in shares or debentures of any 5% 5% company other institution, excluding affiliated companies, unlisted on a licensed exchange 10 investment in any property shares in lesotho 10% 10% 11 investments in affiliated companies 5% 5% 12 investments in other assets 2% 2% 13 loans to and non-convertible debentures of 5% 10% any affiliated company 985

sCheDUle 3 SHORT TERM INSURANCE BUSINESS CALCULATION OF SOLVENCY MARGINS (Regulation 7(b), 14(a) and 16(2)) short term insurance Business Calculation of solvency Margin Company: insurance iD: Financial Year : (Amounts in thousands Maloti) Method 1 - line gross Net Retention Rate Class Required Premium Written Written (Min NWP/ Risk solvency￾basis Premium Premium gWP = 50%) Factor Current (gWP) (NWP) Period [a] [B] [C] [D] [e] = aCD Property 11 - -- 30.0% - accident and 12 - -- 25.0% - health Motor 13 - -- 16.0% - transportation 14 - -- 20.0% - engineering 15 - -- 30.0% - liability 16 - -- 35.0% - guarantee 17 - -- 29.0% - Miscellaneous 18 - -- 10.0% - 986

Other general insurance 23 - -- 10.0% - total (Method 1 - 24 - -- - Premium basis) Method 2 - Claims line gross Net Retention Class Required basis Claims Claims Rate Risk solvency￾incurred incurred (Min Factor Current (gCi) (NCi) NCi/ Period gCi= 50% [g] [h] [i] [J] [K] = giJ Property 25 - - -- 15.0% - accident and 26 - - -- 33.0% - health Motor 27 - - -- 18.0% - transportation 28 - - -- 26.0% - engineering 29 - - -- 35.0% - liability 30 - - -- 24.0% - guarantee 31 - - -- 25.0% - Miscellaneous 32 - - -- 20.0% - Other general 33 - - -- 20.0% - insurance total (Method 2 - 34 - - -- - Claims basis) solvency Margin Current Result Period [s] Required 35 - minimum margin (the highest of 2 methods) total (Method 1 - - Premium basis) 987

total (Method 2 - - Claims basis) SOLVENCY POSITION Short term insurance Business Capital Adequacy Company: insurance iD: Financial Year : (Amounts in thousands Maloti) Item Line Current Period [A] Capital Available [12-13-14-15] 11 - total assets 12 - Non Admissible Assets 13 - Assets With Over Concentration Limits 14 - total liablities 15 - Capital Required [Maximum of 17 or 20] 16 4,000,000 Risk Capital Requirement - 30% of [sum 18 to 19] 17 - Risk Capital amount - insurance Risk 18 - Risk Capital amount - asset Risk 19 - Minimum Capital Requirement - 4,000,000 20 4,000,000 Capital Adequacy Ratio 21 0.0% sCheDUle 4 UNEARNED PREMIUM RESERVES METHODS (Regulation 8 (2)) Method Basis “24ths” Reserve on monthly “365ths” Reserve on daily “8ths” Reserve on bi-quarterly 988

sCheDUle 5 LONG TERM INSURANCE BUSINESS CALCULATION OF SOLVENCY MARGINS (Regulation 14(a) and 16(1)) Long term insurance Business Calculation of solvency Margin Company: insurance iD: Financial Year : (Amounts in thousands Maloti) Mathematical line Mathematical Factor Requirement Reserves-Solvency reserves for Current Period [A] [B] [C] = AxB Insurance not related (linked) to investment funds: Individuals: 11 life insurance 12 4.0% - annuities 13 4.0% - Collectives: 14 life insurance: 15 989

Wi th p re m i u m s 1 6 1 . 0 %

g u a r a n t e e d fo r n o t m o re th a n o n e y e a r Wi th p re m i u m s 1 7 3 . 0 %

g u a r a n t e e d fo r m o re th a n o n e y e a r a n n u i t i e s 1 8 4 . 0 %

I n s u r a n c e r e l a t e d ( l i n k e d ) t o i n v e s t m e n t fu n d s : I n d i v i d u a l s : 1 9 l i fe i n s u r a n c e 2 0 2 . 0 %

Wi th g u a r a n t e e s 2 1 1 . 0 %

Wi th o u t g u a r a n t e e s 2 2 a n n u i t i e s 2 3 Wi th g u a r a n t e e s 2 4 2 . 0 %

Wi t h o u t g u a r a n t e e s 2 5 1 . 0 %

C o l l e c t i v e s : 2 6 l i fe i n s u r a n c e 2 7 Wi th g u a r a n t e e s 2 8 2 . 0 %

Wi th o u t g u a r a n t e e s 2 9 1 . 0 %

a n n u i t i e s 3 0 Wi th g u a r a n t e e s 3 1 2 . 0 %

9 9 0

Without guarantees 32 1.0% - Additional insurances (risks) Individuals and 33 collectives accidental death 34 2.0% - accidental injury 35 2.0% - permanent disability 36 2.0% - temporary disability 37 4.0% - hospitalization or 38 4.0% - health care expenses severe disease 39 4.0% - insurance unemployment 40 2.0% - insurance other (specify) 41 2.0% - Total (Solvency - 42 - Mathematical Reserve) sum at Risk line gross sum Reinsu- Net Factor Require￾solvency at Risk rance sum ment share at for of gross Risk Current sum at Period Risk [e] F] [g]= [h] [i] = gxh e-F 991

I n s u r a n c e n o t r e l a t e d ( l i n k e d ) t o i n v e s t m e n t fu n d s : I n d i v i d u a l s : 4 3 l i fe i n s u r a n c e 4 4

0 . 3 %

a n n u i t i e s 4 5

0 . 0 %

C o l l e c t i v e s : 4 6 l i fe i n s u r a n c e : 4 7 Wi th p re m i u m s 4 8

0 . 2 %

g u a r a n t e e d fo r n o t m o re th a n o n e y e a r Wi th p re m i u m s 4 9

0 . 3 %

g u a r a n t e e d fo r m o re th a n o n e y e a r a n n u i t i e s 5 0

0 . 0 %

I n s u r a n c e r e l a t e d ( l i n k e d ) t o i n v e s t m e n t fu n d s : I n d i v i d u a l s : 5 1 l i fe i n s u r a n c e 5 2

0 . 2 %

Wi t h g u a r a n t e e s 5 3

0 . 3 %

Wi t h o u t 5 4 g u a r a n t e e s a n n u i t i e s 5 5 Wi t h g u a r a n t e e s 5 6

0 . 0 %

Wi t h o u t 5 7

0 . 0 %

g u a r a n t e e s C o l l e c t i v e s : 5 8 l i fe i n s u r a n c e 5 9 Wi t h g u a r a n t e e s 6 0

0 . 0 %

Wi t h o u t 6 1

0 . 0 %

9 9 2

guarantees annuities 62 With guarantees 63 - 0.0% - Without 64 - 0.0% - guarantees Additional insurances (risks) Individuals and 65 collectives accidental death 66 - 0.0% - accidental injury 67 - 0.0% - permanent 68 - 0.0% - disability temporary 69 - 0.0% - disability hospitalization or 70 - 0.0% - health care expenses severe disease 71 - 0.0% - insurance unemployment 72 - 0.0% - insurance other (specify) 73 - 0.0% - Total (Solvency - 74 - Sum at Risk) Solvency Margin Current Result Period [s] sOlVeNCY POsitiON Long term insurance Business Capital adequacy Company: insurance iD: Financial Year : 993

(Amounts in thousands Maloti) Item Line Current Period [A] Capital Available [12-13-14-15] 11 - total assets 12 - Non admissible assets 13 - assets With Over Concentration limits 14 - total liablities 15 - Capital Required [Maximum of 17 or 20] 16 4,000,000 Risk Capital Requirement - 30% of [sum 18 to 19] 17 - Risk Capital amount - insurance Risk 18 - Risk Capital amount - asset Risk 19 - Minimum Capital Requirement - 4,000,000 20 4,000,000 Capital Adequacy Ratio 21 0.0% 994

sCheDUle 6 VALUATION OF ASSETS (Regulation 14(b)) CalCUlatiON OF aDMissiBilitY OF assets FOR lONg teRM iNsUReR LONG TERM INSURER Calculation of Admissibility of Assets Company: insurance iD: Financial Year : (Amounts in thousands Maloti) Item Line Admissi Life bility Insura￾Factor nce Total 100% Risk Non Over Net Amount Admit- Adjus- Admi- Concent-Admitted ration Amount Assets Limit Amount [A] [B] [C] [D] [E] [F] Assets 11 - - - -- - Fixed Assets (Net Book Values) [sum 12 to 15] Owner 12 80% - - -- - Occupied Property 995

M o t o r 1 3 5 0 %

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Ve h i c l e s C o m p u t e r e q u i p m e n t 1 4 0 %

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F u r n i t u r e , 1 5 0 %

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F i t t i n g s a n d O ffi c e e q u i p m e n t

---

I n v e s t m e n t s 1 6 [ s u m 1 7 t o 2 5 ] g o v e r n m e n t 1 7 1 0 0 %

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& N o n g o v e r n m e n t a l s e c u r i t i e s D e p o s i t s a t 1 8 1 0 0 %

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F i n a n c i a l i n s t i t u t i o n s O r d i n a r y 1 9 8 0 %

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s h a r e s l i s t e d P r e fe r e n c e 2 0 8 5 %

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s h a r e s l i s t e d O r d i n a r y 2 1 8 0 %

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s h a r e s U n l i s t e d P r e fe r e n c e 2 2 8 0 %

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s h a r e s U n l i s t e d i n v e s t m e n t 2 3 9 0 %

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F u n d s i n v e s t m e n t 2 4 8 5 %

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P r o p e r t y i n v e s t m e n t 2 5 8 0 %

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i n s u b s i d i a r i e s a n d a ffi l i a t e s 9 9 6

L o a n s 2 6

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[ s u m 2 6 t o 3 2 ] P o l i c y 2 7 1 0 0 %

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h o l d e r s ' l o a n s M o r t g a g e s 2 8 1 0 0 %

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a n d D e b e n t u r e s U n s e c u r e d 2 9 8 0 %

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l o a n s t o i n s t i t u t i o n s s e c u r e d 3 0 1 0 0 %

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l o a n s l o a n s t o 3 1 0 %

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e m p l o y e e s , D i r e c t o r s , a g e n t s O t h e r l o a n s 3 2 0 %

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R e c e i v a b l e s 3 3 0 %

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[ s u m 3 4 t o 4 3 ] P r e m i u m s 3 4 1 0 0 %

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R e c e i v a b l e s O u t s t a n d i n g F o r l e s s t h a n 6 0 d a y s P r e m i u m s 3 5 0 %

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R e c e i v a b l e s O u t s t a n d i n g fo r P e r i o d M o r e t h a n 6 0 D a y s R e c e i v a b l e s 3 6 1 0 0 %

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O u t s t a n d i n g F o r a P e r i o d o f l e s s t h a n 9 0 D a y s fr o m R e i n s u r e r s 9 9 7

R e c e i v a b l e s 3 7 0 %

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O u t s t a n d i n g F o r P e r i o d M o r e t h a n 9 0 D a y s F r o m R e i n s u r e r s R e c e i v a b l e s 3 8 1 0 0 %

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O u t s t a n d i n g F o r O u t s t a n d i n g F o r a P e r i o d o f l e s s t h a n 9 0 D a y s fr o m i n s u r e r s R e c e i v a b l e s 3 9 0 %

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O u t s t a n d i n g F o r P e r i o d M o r e t h a n 9 0 D a y s F r o m i n s u r e r s R e c e i v a b l e s 4 0 1 0 0 %

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O u t s t a n d i n g F o r a P e r i o d o f l e s s t h a n 9 0 D a y s fr o m a ffi l i a t e s R e c e i v a b l e s 4 1 0 %

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O u t s t a n d i n g F o r P e r i o d M o r e t h a n 9 0 D a y s F r o m a ffi l i a t e s R e i n s u r a n c e 4 2 1 0 0 %

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R e c o v e r a b l e s a p p r o v e d R e i n s u r a n c e 4 3 0 %

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R e c o v e r a b l e s N o t a p p r o v e d C a s h a n d 4 4 c a s h e q u i v a

l e n t s [ s u m 4 5 t o 4 6 ] 9 9 8

Cash in hand 45 100% - - -- - Cash in 46 100% - - --- Banks Other [sum 47 - - -- - 48 to 52] accrued 49 100% - - -- - interest, Rent, income Deferred 50 0% - - -- - acquisition Cost Prepaid 51 0% - - -- - expenses intangible 52 0% - - -- - assets Other assets 53 50% - - -- - (specify below) [sum 54 to 58] 0 54 50% - - -- - 0 55 50% - - -- - 0 56 50% - - --- 0 57 50% - - --- 0 58 50% - - -- - total 59 - - --- 999

CALCULATION OFADMISSIBILITY OFASSETS FOR SHORT TERM INSURANCE Short term Insurance Calculation of Admissibility of Assets Company: insurance iD: Financial Year : (Amounts in thousands Maloti) Item Line Admissib- General ility Insurance Factor Total 100% Risk Non Over Net Amount admitted adjusted admitt- Concentra- admitt￾assets assets ed tion ed amount amount assets limit amount [a] [B] [C] [D] [e] [F]=[a]- [D]-[e] Assets 11 - - - - - Fixed Assets (Net Book Values) [sum 12 to 15] Owner Occupied 12 60% - - - - Property Motor Vehicles 13 50% - - - - Computer equipment 14 0% - - - - Furniture, Fittings and 15 0% - - - - Office equipment investments [sum 17 16 0% - - - - 1000

t o 2 5 ] g o v e r n m e n t & N o n 1 7 1 0 0 %

g o v e r n m e n t a l s e c u r i t i e s D e p o s i t s a t F i n a n c i a l 1 8 1 0 0 %

i n s t i t u t i o n s O r d i n a r y s h a r e s l i s t e d 1 9 8 5 %

P r e fe r e n c e s h a r e s 2 0 9 0 %

l i s t e d O r d i n a r y s h a r e s 2 1 8 0 %

U n l i s t e d P r e fe r e n c e s h a r e s 2 2 8 0 %

U n l i s t e d i n v e s t m e n t F u n d s 2 3 8 0 %

i n v e s t m e n t P r o p e r t y 2 4 8 5 %

i n v e s t m e n t i n 2 5 8 0 %

s u b s i d i a r i e s a n d a ffi l i a t e s l o a n s [ s u m 2 6 t o 3 2 ] 2 6

P o l i c y h o l d e r s ' l o a n s 2 7 1 0 0 %

M o r t g a g e s a n d 2 8 1 0 0 %

D e b e n t u r e s U n s e c u r e d l o a n s t o 2 9 8 0 %

i n s t i t u t i o n s s e c u r e d l o a n s 3 0 1 0 0 %

l o a n s t o 3 1 0 %

e m p l o y e e s , D i r e c t o r s , a g e n t s O t h e r l o a n s 3 2 0 %

R e c e i v a b l e s [ s u m 3 4 3 3 0 %

t o 4 3 ] 1 0 0 1

P r e m i u m s R e c e i v a b l e s 3 4 1 0 0 %

O u t s t a n d i n g F o r l e s s t h a n 6 0 d a y s P r e m i u m s R e c e i v a b l e s 3 5 0 %

O u t s t a n d i n g fo r P e r i o d M o r e t h a n 6 0 D a y s R e c e i v a b l e s 3 6 1 0 0 %

O u t s t a n d i n g F o r a P e r i o d o f l e s s t h a n 9 0 D a y s fr o m R e i n s u r e r s R e c e i v a b l e s 3 7 0 %

O u t s t a n d i n g F o r P e r i o d M o r e t h a n 9 0 D a y s F r o m R e i n s u r e r s 3 8 1 0 0 %

R e c e i v a b l e s O u t s t a n d i n g F o r a P e r i o d o f l e s s t h a n 9 0 D a y s fr o m i n s u r e r s R e c e i v a b l e s 3 9 0 %

O u t s t a n d i n g F o r P e r i o d M o r e t h a n 9 0 D a y s F r o m i n s u r e r s R e c e i v a b l e s 4 0 1 0 0 %

O u t s t a n d i n g F o r a P e r i o d o f l e s s t h a n 9 0 D a y s fr o m a ffi l i a t e s R e c e i v a b l e s 4 1 0 %

O u t s t a n d i n g F o r P e r i o d M o r e t h a n 9 0 D a y s F r o m a ffi l i a t e s R e i n s u r a n c e 4 2 1 0 0 %

R e c o v e r a b l e s a p p r o v e d R e i n s u r a n c e 4 3 0 %

R e c o v e r a b l e s N o t a p p r o v e d C a s h a n d c a s h 4 4 0 %

e q u i v a l e n t s [ s u m 4 5 t o 4 6 ] 1 0 0 2

Cash in hand 45 100% - - -- Cash in Banks 46 100% - - - - Other [sum 48 to 52] 47 - - - - accrued interest, Rent, 49 100% - - -- income Deferred acquisition 50 0% - - -- Cost Prepaid expenses 51 0% - - -- intangible assets 52 0% - - -- Other assets (specify 53 50% - - -- below) [sum 54 to 58] 0 54 50% - - -- 0 55 50% - - -- 0 56 50% - - -- 0 58 50% - - -- Total 59 - - -- 1003

legal NOtiCe NO. 134 OF 2016 Financial Institutions (Large Financial Cooperatives) Regulations, 2016 Arrangement of Regulations Regulations PaRt i – PReliMiNaRY

1. Citation and commencement
2. interpretation
3. Objective
4. application PaRt ii – liCeNsiNg
5. application for a license
6. Requirements for licensing
7. Duration of a licence
8. Renewal of a licence PaRt iii – ORgaNisatiON aND gOVeRNaNCe
9. Constitution of a large financial cooperative
10. amendment to the Constitution
11. Board and Management Committee
12. Functions
13. Powers
14. limitations PaRt iV – CaPital, ReseRVes aND aCCOUNts
15. Minimum capital requirements
16. Distribution of annual surplus
17. accounts and audit 1004

PaRt V – sUPeRVisiON, RegUlatiON, COORDiNatiON aND CONtROl 18. supervision and powers of the Commissioner 19. inspections 20. Coordination and control by the Commissioner 21. Power of the Commissioner to give directives 22. establishment of branches in secondary societies 23. holding 24. Other events requiring prior authorisation PaRt Vi – sPeCial DUties OF laRge FiNaNCial COOPeRatiVes 25. exhibition of licenses 26. Publication of Balance sheet 27. Fidelity and secrecy 28. Cash reserves and liquid assets requirements PaRt Vii – MaNageMeNt OF the laRge FiNaNCial COOPeRatiVes 29. Duties of directors and other officers of large financial cooperatives 30. Fit and Proper test for directors and officers 31. Civil liability of Director, Managing Director, or executive Officer PaRt Viii – DissOlUtiON aND liqUiDatiON 32. Voluntary dissolution 33. Verification of sufficiency of assets during voluntary dissolution 34. Corporate existence after commencement of voluntary dissolution 35. Duties of liquidator under voluntary dissolution 36. Completion of voluntary dissolution and liquidation 37. termination of corporate existence 38. Dissolution by Commissioner 39. appointment of the liquidator 40. Powers and duties of the liquidator 41. Completion of dissolution by Commissioner 1005

PaRt iX – PROhiBiteD aCtiVities 42. Unlawful use of word “large financial cooperative or “conduct of finan￾cial services cooperatives” 43. Untrue information in connection with applications 44. Criminal liability of directors, managing director, executive officer and other persons PaRt X – geNeRal PROVisiONs 45. Certification of documents 46. indemnity 47. Delegation of powers 48. exemptions 49. transitional arrangements sCheDUle 1006

legal NOtiCe NO. 134 OF 2016 Financial Institutions (Large Financial Cooperatives) Regulations, 2016 Pursuant to section 27(1) read with 71(1) of the Financial institutions act, 2012 1 , i, RETŠELISITSOE MATLANYANE governor of the Central Bank of lesotho, being the Commissioner of Financial institutions, make the following regulations: PaRt i – PReliMiNaRY Citation and commencement

1. these regulations may be cited as the Financial institutions (large Fi￾nancial Cooperatives) Regulations, 2016 and shall come into operation on the date of publication in the gazette. Interpretation
2. in these regulations, unless the context otherwise requires - (a) “board” means the governing body of a large financial coopera￾tive to which the governance of its affairs is entrusted; “Commissioner” means the Central Bank of lesotho; “cooperative” means a cooperative as defined in the Cooperative societies act 2000 2 ; “fit and proper person” means a person contemplated in regu￾lation 30; “financial cooperative” means a financial institution which is owned and operated by its members to provide products and services which are comparable to those offered by banks; 1007

“large financial cooperative” means a financial institution which is owned and operated by its members and accepts deposits from members and provides credit services on the pledge of savings; “Minister” means the Minister of Finance; “proposed large financial cooperative” means a cooperative whose volume of savings and deposits have reached M5 000 000.00 and has applied for registration as a large financial co￾operative under regulation 5; “the act” means the Financial institutions act 2012; (b) other words have the same meaning as ascribed to them under the Financial institutions act 2012. Objective 3. the objective of these regulations is to - (a) create a prudential, legal, regulatory and supervisory framework for large financial cooperatives; (b) place large financial cooperatives under the regulatory and su￾pervisory authority of the Commissioner; (c) determine thresholds for placing a large financial cooperative under prudential supervision; (d) protect deposits and shares of members while preserving the ability to serve the members; (e) strengthen governance of large financial cooperatives; (f) strengthen internal controls in large financial cooperatives; and (g) streamline regulatory relationship between the Commissioner for Cooperative Development and the Commissioner. 1008

Application 4. (1) these regulations apply to a large financial cooperative incopo￾rated under the Cooperative societies act of 2000, engaged in accepting savings and deposits from its members, and meets any of the following criteria - (a) total deposits are equal to or more than M5 000 000.00; or (b) assets are equal to or more than M5 000 000.00 in value. PaRt ii – liCeNsiNg Application for a licence 5. (1) a financial cooperative which meets the criteria established in regulation 4 shall apply to the Commissioner for a licence to operate as a large financial cooperative. (2) subject to subregulation (5), an existing financial cooperative which operates as stipulated under regulation 4, without a license, as a large fi￾nancial cooperative, shall be deemed to be engaged in business without being a financial institution and shall be subject to section 20 of the act. (3) an application for a licence shall be made in writing and shall include - (a) 2 certified copies of the applicant’s constitution; (b) a certified copy of the registration certificate as a coop￾erative under the Cooperative societies act of 2000; (c) the full and abbreviated name of the large financial co￾operative, which shall include its trading name; (d) by-laws approved by the Commissioner for Cooperative Development; (e) copies of lending and other administrative policies and internal procedures and controls manuals; 1009

(f) audited financial statements showing an adequate eco￾nomic and financial situation and full compliance with rules and regulations applicable to cooperative societies licensed under the Cooperative societies act of 2000; (g) the postal and physical address of the financial cooper￾ative and a statement describing the suitability of the premises of the large financial cooperative and a state￾ment describing the suitability of the premises from which the large financial cooperative will operate; (h) the application fee prescribed by the Commissioner; and (i) such other information as the Commissioner may re￾quire. (4) Upon receipt of the application, the Commissioner may require the large financial cooperative to comply with any condition stipulated under Part ii of the act. (5) Within 60 days after the receipt of the completed application, the Commissioner may grant the large financial cooperative a license to operate as a large financial cooperative or, where the application has been rejected, the Commissioner shall provide the grounds upon which the application has been rejected. (6) the Commissioner may issue a provisional licence subject to fulfilment of any condition necessary for the grant of a licence to a large financial cooperative within 3 months following the date of application. Requirements for licensing 6. Before a licence is issued to a large financial cooperative the large fi￾nancial cooperative shall demonstrate to the satisfaction of the Commissioner that - (a) the business it proposes to conduct is that of a large financial co￾operative to which the application relates; (b) it has sufficient human and financial resources and operational 1010

capacity to function as a large financial cooperative; (c) a director, managing director or executive officer of the large financial cooperative has the necessary experience, knowledge and qualifications to operate the large financial cooperative, and is a fit and proper person as contemplated in sections 43 and 44 of the act; (d) the composition of the board or governing body of the large fi￾nancial cooperative is commensurate with the nature and scale of the business to be conducted. Duration of a licence 7. a licence issued to a large financial cooperative shall be valid for one year and may be renewed on application by a large financial cooperative. Renewal of a licence 8. (1) Prior to renewing a licence, the Commissioner shall carry out an examination of the financial position of the applicant, its physical and techno￾logical infrastructure, the professional quality of the managers and the training of the personnel, as well as the accuracy and completeness of the documentation presented in the application for renewal. (2) Within 60 days after the receipt of the complete application for renewal of a licence, the Commissioner may renew the licence to operate as a large financial cooperative or, where the application for renewal has been re￾jected, the Commissioner shall provide written grounds upon which the rejection is based. (3) a large financial cooperative which continues to operate before renewing its licence shall be liable to a fine as set out in the schedule. 1011

PaRt iii – ORgaNisatiON aND gOVeRNaNCe Constitution of a large financial cooperative 9. the constitution of a large financial cooperative shall, in addition to the provisional requirements under the Cooperative societies act of 2000 provide - (a) that the determination of the remuneration and other benefits of its directors, including the managing director, shall be at the an￾nual general meeting; (b) for the composition of an audit and risk committee consisting of persons who are not members of the cooperative; (c) for the establishment of a management committee and the man￾ner in which it is to be constituted; (d) for the appointment of a managing director of the large finan￾cial cooperative; (e) for the settlement of disputes between and among members or between a member and the large financial cooperative; (f) that any membership shares issued are to be fully paid up; (g) that certificates, share statements or any other proof of share￾holding shall be issued to members; and (i) that members have a right to attend annual and other meetings of members. Amendment to the Constitution 10. (1) an amendment to the constitution of a large financial coopera￾tive shall be approved by the Commissioner prior to its submission to the Com￾missioner for Cooperative Development. (2) the Commissioner may approve or refuse the proposed amend￾ment, and in the case of a refusal, the Commissioner shall provide written rea￾sons for the refusal. 1012

(3) the Commissioner may, at any time, issue a directive to a large financial cooperative to amend its constitution to remove anomalies or undesir￾able divergences in its activities. (4) a directive referred to in subregulation (3) shall be considered by the members of the large financial cooperative at its next general meeting and, if approved, the amendment shall be submitted to the Commissioner for Cooperative Development in accordance with the Cooperative societies act, 2000. (5) if a large financial cooperative refuses or fails to amend its con￾stitution in accordance with subregulation (4), it may be liable to a penalty as prescribed in the schedule. Board of Directors and Management Committee 11. (1) a large financial cooperative shall have a board of directors and a management committee, appointed by the general meeting in accordance with the Cooperative societies act 2000. (2) the Board shall be responsible for establishing operational and financial policies, as well as appointing a general manager and approving man￾agement responsible for all executive duties including the approval of loans and advances to members. (3) the Board shall - (a) have all the duties and responsibilities assigned to the board of directors under Part Vii of the act; (b) appoint an audit committee which shall - (i) assist the board in its evaluation of the adequacy and efficiency of internal control systems, risk management systems, accounting practices, ac￾counting systems, information and auditing processes within the large financial cooperative; (ii) facilitate and promote communication regarding the matters referred to in paragraph (a) or any 1013

other related matter between the members, board, executive officers, auditor and the em￾ployees charged with the internal auditing of the transactions of the large financial cooperative; and (iii) introduce measures that in the committee’s opin￾ion may serve to enhance the credibility and objectivity of financial statements and reports prepared with reference to the affairs of the large financial cooperative. (4) Members of the Board and Management Committee shall be subject to the sanctions and penalties set out in the act. Functions of a large financial cooperative 12. Notwithstanding the Cooperative societies act, 2000, a large financial cooperative may provide the following services to its members - (a) soliciting and acceptance of savings, call deposits and fixed de￾posits from members; (b) withdrawal of monies; (c) grant of secured and unsecured loans to members in the manner and form as prescribed by its loan policy as determined by the directors from time to time; (d) provision of trust or custody services; (e) investment of deposits for the purposes of earning returns for the benefit of the large cooperative and for offshore investments they shall seek prior approval of the Commissioner; (f) provision of money transfer and payments services; (g) receipt and distribution of member remittances; (h) any other financial services as may be incidental to the achieve￾1014

ment of the above objects as resolved by the board, or govern￾ing body, and approved by the Commissioner. Powers 13. a large financial cooperative may - (a) be a member of, and enter into agreements with, a representa￾tive body or support organization; or (b) make, draw, accept, endorse or negotiate negotiable instruments that are made to the order of, or made out and endorsed by that cooperative. Limitations 14. (1) a large financial cooperative shall not provide, participate in or undertake financial services other than the services authorised in respect of the large financial cooperatives as registered in terms of these regulations. (2) Failure to comply with subregulation (1) shall constitute an of￾fence for which the Commissioner may impose a penalty as prescribed in the schedule. PaRt iV – CaPital, ReseRVes aND aCCOUNts Minimum capital requirements 15. (1) a large financial cooperative shall maintain a minimum core capital made up of members’ shares, 20% of retained net surplus and 10% of members savings yearly until the capital reaches M10 000 000.00. (2) a large financial cooperative shall operate with a total capital of not less than 8% of its loans, advances, and off balance sheet items. (3) special purpose reserves such as education, social services men￾bership in secondary cooperative societies or others shall not be considered in the computation of the capital. 1015

Distribution of annual surplus 16. (1) the annual general meeting of the large financial cooperative shall approve the amounts of general and special purpose reserves, to be created from the annual surplus audited by an independent auditor in accordance to ap￾plicable regulations, as well as the amounts, if any, to be given to managers and employees as a bonus for their performance. (2) Not less than 20% of the annual net surplus shall be dedicated to the creation of general reserves for unanticipated losses, which shall be ac￾counted in capital accounts and included in the calculation of the core capital. Accounts and audit 17. (1) the Board shall ensure that proper books of accounts and other records are kept in relation to the operations of the cooperative and shall prepare in respect of each financial year, a statement of accounts in such form as the Commissioner shall prescribe. (2) the statement of accounts referred to in subregulation (1) shall be ready for submission to the auditors within 2 months of the close of the fi￾nancial year of a large financial cooperative. (3) a large financial cooperative shall, annually, appoint an inde￾pendent auditor approved by the Commissioner. (4) the auditor appointed under subregulation (3) shall submit, di￾rectly to the Commissioner, copies of financial statements audited by him or her. (5) a large financial cooperative shall prepare and submit, quarterly to the Commissioner within 20 days after the end of the quarter to which the statement relates, a summary statement of its financial position. (6) as soon as the accounts of a large financial cooperative have been audited, and in any case not later than 3 months after the close of the fi￾nancial year, the board shall send a copy of the statement of accounts to the Com￾missioner together with a copy of any report made by the auditor. (7) the Commissioner may arrange trilateral meetings with a large financial cooperative and its auditor from time to time, to discuss matters rele￾1016

vant to the Commissioner’s supervisory responsibilities which have arisen in the course of the statutory audit of the cooperative including relevant aspects of the cooperative’s business, its accounting and control system and its annual ac￾counts. (8) entries in the books of accounts of large financial cooperatives shall be in the english language. (9) a large financial cooperative shall post, at a conspicuous place at the normal place of business, annual information on the state of books of ac￾counts and a summary statement of its financial position duly certified by the auditor. (10) if a large financial cooperative contravenes or fails to comply with these regulations, it shall be liable to a default fine as prescribed in the schedule. PaRt V – sUPeRVisiON, RegUlatiON, COORDiNatiON aND CONtROl Supervision and powers of the Commissioner 18. (1) Notwithstanding any other law, the power relating to the super￾vision, control and regulation of a large financial cooperative is vested in the Commissioner which, for the purposes of these regulations and without preju￾dice to the generality of the power conferred by the foregoing, shall have power to - (a) carry out inspections over the operations of a large fi￾nancial cooperative in accordance with regulation 19; (b) regulate the investment, finance and credit policies of a large financial cooperative so as to be in line with the prevailing credit, currency, exchange control and poli￾cies of the financial sector, with a view to facilitating the more efficient discharge of the functions of the Commis￾sioner relating to the formulation, implementation and monitoring of the financial sector institutions; (c) require a large financial cooperative within such time as 1017

it may stipulate, to furnish any information or to com￾ply with any order, directive or determination issued or made by the Commissioner pursuant to the powers of the Commissioner conferred on it under these regula￾tions and the act; (d) require any large financial cooperative to provide peri￾odical written reports at such times and in such manner as may be prescribed by the Commissioner. (2) a large financial cooperative which contravenes or fails to com￾ply with a requirement under regulation 18(1)(c) and (d), shall be liable to a de￾fault fine as prescribed in the schedule. Inspections 19. (1) the Commissioner may, at any time upon application by at least ten per cent of the members of, or at the request of the judicial manager of, a large financial cooperative, inspect the business of a financial cooperative; and or at any other time that the Commissioner considers fit, or has reason to believe that the large financial cooperative is not conducting its affairs in accordance with these regulations, inspect the business of a large financial cooperative. (2) the Commissioner shall provide the Commissioner of Cooper￾ative Development with a copy of inspection reports. (3) a direct inspection activity by the Commissioner of Cooperative Development shall be coordinated with the Commissioner before it takes place and the report thereof shall be made available to the Commissioner. (4) the Commissioner may take any measures and make any rec￾ommendations it considers appropriate following an inspection in terms of sub￾regulation (1). Coordination and control by the Commissioner 20. if, in the opinion of the Commissioner, following an examination as au￾thorised under section 52 of the act and under regulation 19, it is shown that a large financial cooperative is conducting its business in an unlawful or unsound manner or that it is otherwise in an unsound condition, the Commissioner may, 1018

in addition to any other course of action open to it: (a) require the cooperative to take such measures as it may consider necessary to rectify the situation; (b) appoint a qualified person who, in the opinion of the Commis￾sioner, has capacity to advise the cooperative on measures to be taken to rectify its situation, and the person shall fix his remu￾neration which shall be paid by the cooperative; (c) prohibit the declaration or payment of a dividend until the situ￾ation is corrected; (d) withhold approvals on establishment of new branches or other expansion of operations; (e) apply for a court order against the cooperative and its manage￾ment either to stop an unacceptable practice or take affirmative action to cure an undesirable condition; (f) apply to court for a removal or suspension order requiring a per￾son in the position of management of a cooperative to cease par￾ticipating in the affairs of the cooperative on either a temporary or permanent basis; (g) impose fines, consistent with the provision of this regulation and the act, on individual members of management for violations of these regulations. Power of the Commissioner to give directives 21. (1) the Commissioner may, in order to ensure the implementation and administration of these regulations or to protect the members and the public in general, issue directives to a large financial cooperative. (2) a directive referred to in subregulation (1) may apply to coop￾eratives generally or be limited in its application to a particular cooperative. (3) a directive issued in terms of subregulation (1) takes effect on the date determined by the Commissioner in the directive, and may take effect 1019

immediately. (4) the Commissioner shall, where a directive is issued for public protection of the members and the public in general, publish the directive in the gazette. (5) Where the Commissioner intends to exercise its function under sub-regulation (1), the Commissioner may consult with the Minister responsible for cooperatives. Establishment of branches in secondary societies 22. (1) Where a large financial cooperative wishes to establish a branch, the large financial cooperatives shall seek and obtain approval of the members in a general meeting. (2) a branch shall be opened only in locations approved by the Commissioner. Holding 23. a member of a large financial cooperative shall not hold more than 20% of outstanding shares, except where it is approved by the Commissioner for the purposes of addressing a situation of financial distress. Other events requiring prior authorisation 24. (1) a large financial cooperative shall not, without the prior written authorisation of the Commissioner - (a) effect any voluntary merger, consolidation or other re￾organization of its business or affairs with another co￾operative or financial institution; (b) transfer to any other institution the whole or any of its assets or liabilities in lesotho; (c) alter its name; (d) amend its by-laws or constitution under which it is or￾1020

ganized or established. (2) Notwithstanding any other law, the Commissioner may, in re￾spect of any large financial cooperative, advise the merger of that large financial cooperative with any other financial institution if the financial condition of the concerned large financial cooperative so requires. (3) the withdrawal by a member of the whole or any amount of shares shall have the prior authorisation of the Board. (4) a member of the Board shall be personally responsible for au￾thorizing a withdrawal of shares that causes the large financial cooperative to fail to comply with any statutory limits related to capital accounts. (5) Withdrawal of shares shall be subject to prior approval of the Commissioner for Cooperative Development, and of the Commissioner. PaRt Vi – aDDitiONal DUties OF laRge FiNaNCial COOPeRatiVes Exhibition of licences 25. (1) a large financial cooperative shall, at all times, exhibit the li￾cence granted to it under these regulations in a conspicuous position in the public part of its principal place of business and shall similarly exhibit copies of such licence in each of its branches. (2) if a large financial cooperative fails to comply with this regula￾tion, it shall be liable to a fine as prescribed in the schedule. Publication of balance sheet 26. (1) a large financial cooperative shall at all times exhibit a copy of its last audited balance sheet in a conspicuous position in the public part of its principal place of business and shall similarly exhibit copies of such balance sheet in each of its branch offices. (2) a large financial cooperative shall, at least once in every year, publish copies of its last audited balance sheet in such newspapers which have nationwide circulation. 1021

(3) if a large financial cooperative fails to comply with this regula￾tion, it shall be liable to a fine as prescribed in the schedule. Fidelity and secrecy 27. (1) a large financial cooperative shall, except as otherwise required by law, observe the practices and standards customary among financial institu￾tions and, in particular, it shall not divulge any information relating to its cus￾tomers or their affairs except where it is required by law to do so. (2) a director, a member of a committee, an auditor, advisor, man￾ager, officer and employee of a large financial cooperative shall, before entering upon his or her duties, make a written declaration of fidelity and secrecy, which shall be witnessed by the principal officer or the company secretary of the large financial cooperative concerned. (3) except as otherwise required by law, nothing in these regulations shall authorise an enquiry to be made into the affairs of any individual member or customer of a large financial cooperative: Provided that nothing herein shall prevent a large financial cooperative from providing to a locally registered credit information agency upon a legitimate re￾quest relevant information for credit rating, a summary of which, upon request, shall be provided to the member or customer concerned. (4) a large financial cooperative shall not reveal to any person any information as to the affairs of any of its members in the cooperative unless law￾fully required to do so by a competent court of law. (5) a person who contravenes this regulation commits an offence and shall be liable, on conviction, to a fine as prescribed in the schedule. Cash reserves and liquid assets requirements 28. (1) a large financial cooperatives shall maintain - (a) minimum cash balances of 1% on deposits and savings with the Commissioner as reserves against the deposit and other liabilities; 1022

(b) liquid assets in lesotho of 10% on deposits and savings. (2) a large financial cooperative which fails to maintain the required liquidity assets as provided in this regulation shall be subject to penalty charges applicable as prescribed in section 32 of the act. PaRt Vii – MaNageMeNt OF the laRge FiNaNCial COOPeRatiVes Duties of directors and other officers of large financial cooperatives 29. (1) the directors, managing director and executive officer of a large financial cooperative shall be appointed in accordance with the conditions pro￾vided for in the constitution of such large financial cooperative. (2) the Commissioner may object to the appointment of a director or the managing director and may, in accordance with regulation 21, direct the financial cooperative to remove the director within the period stated in the di￾rective. (3) a director, managing director and executive officer of a large fi￾nancial cooperative: (a) owes a fiduciary duty and a duty of care and skill to the large financial cooperative of which such a person is di￾rector, managing director or executive officer; (b) shall act bona fide for the benefit of the large financial cooperative; (c) shall avoid any conflict between the interests of the large financial cooperative and the interests of such director, managing director or executive officer, as the case may be; (d) shall possess and maintain the knowledge and skill that may reasonably be expected of a person holding a simi￾lar position and carrying out similar functions as are car￾ried out by the director, managing director or executive officer of that large financial cooperative; and 1023

(e) shall exercise such care in the carrying out of their func￾tions in relation to that financial cooperative as may rea￾sonably be expected of a diligent person holding a sim￾ilar position, and who possesses knowledge and skill mentioned in paragraph (d) and any such additional knowledge and skill as the director, managing director or executive officer may have. (4) a person who is a director or officer concerned with the man agement of a large financial cooperative shall cease to hold of fice if - (a) he or she is an adjudicated insolvent or suspends pay ments or compounds with his or her creditors; (b) he or she is convicted of an offence involving fraud or dishonesty. (5) a person who has been a director of, or who has been directly or indirectly concerned in the management of a financial cooperative, the licence of which has been revoked shall, without the approval of the Commissioner, act or continue to act as a director, or be concerned directly or indirectly in the man￾agement of any large financial cooperative. (6) a person acting in contravention of this regulation commits an offence and shall be liable to a fine as prescribed in the schedule. Fit and proper test for directors and officers 30. (1) the Commissioner shall, for purposes of assessing whether a di￾rector, managing director or executive officer of a large financial cooperative is a fit and proper person have regard to the integrity, competence, financial in￾tegrity and the duty of care of the person for the fulfilment of the responsibilities of the particular office to which he or she aspires to in the large financial coop￾erative. (2) in determining whether a person is a fit and proper person under sub-regulation (1), guidelines on Fit and Proper assessments for Directors and senior Officials in the Financial sector issued by the Commissioner shall apply. 1024

Civil liability of Director, Managing Director or Executive Officer 31. (1) a director, managing director, executive officer, including for￾mer director, former managing director, former executive officer who knew or knows that the business of a large financial cooperative was or is being carried on recklessly, with intent to defraud creditors of the large financial cooperative or creditors of any other person, or for any fraudulent purpose is personally re￾sponsible, without any limitation of liability, for all or any of the debts or other liabilities of the large financial cooperative. (2) the Commissioner may institute legal proceedings against any director, managing director, or executive officer, including former director, man￾aging director, or executive officer during judicial management, dissolution, or at any other time when it appears that the business of a large financial coopera￾tive was or is being carried on recklessly with intent to defraud creditors of the large financial cooperative or creditors of any other person, or for any fraudulent purpose, for all or any of the debts or other liabilities of the large financial co￾operative. (3) Despite any other law, any amount recovered as a result of pro￾ceedings instituted by the Commissioner in terms of sub-regulation (2), may be utilized: (a) first, to reimburse all expenses reasonably incurred by the Commissioner in bringing such proceedings; (b) thereafter to set-off any amount paid to depositors by the Commissioner of Cooperatives, as part or full compen￾sation for the losses suffered by depositors as a result of the financial cooperative having been unable to repay its deposits; and (c) thereafter for the pro rata repayment of the losses of de￾positors. 1025

PaRt Viii – DissOlUtiON aND liqUiDatiON Voluntary dissolution 32. (1) a board of directors of a large financial cooperative may propose dissolution for approval by the members and call a meeting for that purpose. (2) at any time after a proposal for dissolution has been approved by the members, the large financial cooperative shall submit a written application to the Commissioner for authorisation to commence liquidation proceedings. (3) the application for liquidation referred to in subregulation (2) shall - (a) state the name of the large financial cooperative; (b) state the date that the dissolution was approved by the members; (c) contain a statement to the effect that - (i) the dissolution was approved by the members in terms of the constitution of the large financial cooperative; (ii) the large financial cooperative will be able to pay its liabilities, supported by audited financial statements; and (d) state the particulars of the liquidator. Verification of sufficiency of assets during voluntary dissolution 33. the Commissioner shall verify that the assets of the large financial co￾operative are sufficient to cover the payment of all the liabilities and the shares of the members before granting authorisation to commence liquidation proceed￾ings. 1026

Corporate existence after commencement of voluntary dissolution 34. a large financial cooperative’s corporate existence shall continue after it commences liquidation proceedings, but it shall not carry on business except business that is required to wind up and liquidate its affairs, including - (a) collecting its assets; (b) disposing off its property; (c) discharging its liabilities; (d) distributing its remaining property to members after payment of liabilities; (e) doing every other act necessary to wind up its affairs. Duties of liquidator under voluntary dissolution 35. Within 14 days of his or her appointment a liquidator of a large financial cooperative which is under voluntary dissolution shall - (a) give public notice of his or her appointment in a newspaper with a wide circulation in lesotho; (b) give address and telephone number to which enquiries may be directed; (c) prepare a list of every known creditor; (d) prepare a creditors payment schedule and lodge it with the Com￾missioner. Completion of voluntary dissolution and liquidation 36. Before one year expires, and after all known liabilities are paid off, the board of a large financial cooperative shall deliver a notice of completion of liq￾uidation proceedings to the Commissioner, which shall - (a) state the name of the dissolved large financial cooperative; 1027

(b) have a written statement that all known claims have been dis￾posed of; (c) have a statement that all of the cooperative’s assets have been distributed to the members. Termination of corporate existence 37. Upon delivery of a notice of completion of dissolution proceedings to the Commissioner, the corporate existence of the large financial cooperative shall cease, and the Commissioner shall endorse in the register that the cooper￾ative has been dissolved. Dissolution by Commissioner 38. the Commissioner, jointly with the Commissioner for Cooperative De￾velopment, may apply for an order of court for winding up of a large financial cooperative where - (a) three-fourths of the members make a written application to the Commissioner for the winding up of the large financial cooper￾ative; (b) after making an examination, the Commissioner is of the opinion that a large financial cooperative ought to be wound up; (c) a large financial cooperative has ceased to carry on the business for which it was registered for a period of twelve consecutive months; (d) membership in a large financial cooperative has fallen below the required minimum under Cooperative societies act, 2000 or any law that amends or replaces it, and the large financial cooperative has continued to operate for six months or longer while mem￾bership is so reduced; (e) a large financial cooperative is unable to pay its debts. 1028

Appointment of the liquidator 39. Following an order for the winding up of a large financial cooperative under regulation 38, the Commissioner may appoint a liquidator and fix his or her remuneration. Powers and duties of the liquidator 40. (1) the liquidator shall - (a) take immediate possession of the assets belonging to the large financial cooperative and of the books, records and other documents pertaining to the business thereof; (b) carry out the business of the large financial cooperative so far as it may be necessary for winding up, except that he or she shall not for this purpose be entitled to grant any loan; (c) give directions in regard to the collection and realization of assets of the large financial cooperative as may be necessary in the course of winding up; (d) call meetings of members whenever necessary for the conduct of the liquidation, giving not less than 15 work￾ing days’ notice for the meeting; (e) compromise any claim by or against the large financial cooperative after obtaining the approval of the Com￾missioner; (f) institute and defend suits and other legal proceedings on behalf of the large financial cooperative; (g) give public notice of his or her appointment, and fix, by notice published in the gazette and in a newspaper with a wide circulation in the country, a date before which a creditor shall submit a claim; (h) prepare a list of every known creditor, and prepare a 1029

creditors payment schedule and lodge it with the Com￾missioner; (i) pay claims against the large financial cooperative acc￾ording to the respective priorities, if any, and in full or to such extent as the assets of the cooperative may per￾mit; (j) distribute the assets of the large financial cooperative to members after payment of all claims against the large fi￾nancial cooperative; (k) submit to the Commissioner, once in every 3 months, a report stating the progress made in winding up the affairs of the large financial cooperative, and on completion of the liquidation process, submit a final report and hand over to the Commissioner books, registers and accounts, and documents relating to such proceedings and are kept by him. Completion of dissolution by Commissioner 41. Upon submission of the report by the liquidator that the assets of the large financial cooperative have been distributed and its affairs and business wound up, the Commissioner shall - (a) endorse in the register that the cooperative has been dissolved; (b) revoke the licence of the large financial cooperative; (c) advise the Commissioner for Cooperative Development that the large financial cooperative has been wound up. PaRt iX – PROhiBiteD aCtiVities Unlawful use of word “large financial cooperative” or “conduct of financial services cooperatives” 42. (1) a person who is not registered as a large financial cooperative under these regulations shall not: 1030

(a) in connection with any business conducted by him, her or it - (i) use or refer to himself, herself or itself by any name, description or symbol indicating, or cal￾culated to lead the public to infer that such per￾son is a large financial cooperative registered as such under these regulations; or (ii) in any manner, purport to be a large financial co￾operative registered as such under these regul￾ations; or (b) use, in respect of any business a name or description that includes the expression “large financial cooperative”, “large financial co-op” or any derivative thereof. (2) a person shall not conduct the business of any large financial cooperative unless the person is registered as a large financial cooperative in terms of these regulations. Untrue information in connection with applications 43. a person shall not provide any information known by that person to be untrue or misleading in any material respect in an application for registration as a large financial cooperative. Criminal liability of director, managing director, executive officer and other persons 44. (1) it is an offence for - (a) a director, managing director or executive officer of a large financial cooperative to, directly or indirectly, be involved in or take part in the management of a large fi￾nancial cooperative while the business of the large fi￾nancial cooperative is carried on recklessly, with intent to defraud creditors of the cooperative or creditors of any other person, or for any fraudulent purpose; 1031

(b) a person other than a director, managing director or ex￾ecutive officer to knowingly, directly or indirectly, ben￾efit from, be involved in or take part in the management of a financial cooperative while the business of the large financial cooperative is carried on recklessly, with intent to defraud creditors of the large financial cooperative or creditors of any other person, or for any fraudulent pur￾pose; (c) a financial cooperative or other person - (i) to fail to comply with any provision and or di￾rective under these regulations; (ii) to submit a document or information or make a statement under these regulations that to the knowledge of such person is untrue or mislead￾ing. PaRt X – geNeRal PROVisiONs Certification of documents 45. a document required to be submitted to the Commissioner by a large fi￾nancial cooperative in terms of these regulations shall be certified as correct by the managing director and, in the case of financial information, also by the au￾ditor of the large financial cooperative. Indemnity 46. the Commissioner, a board member, employee, managing director, or member of a large financial institution incurs liability in respect of any act or omission performed in good faith under or by virtue of a provision in these reg￾ulations, unless that performance was negligent. Delegation of powers 47. the Commissioner may delegate any of its powers in terms of the reg￾ulations, excluding the power to make regulations. 1032

Exemptions 48. (1) the Commissioner may, where it considers it necessary for the development of a large financial cooperative, by notice published in the gazette, exempt a large financial cooperative for a specific period from any provision of these regulations or any other regulation administered by it. (2) an exemption given under subregulation (1) may - (a) apply to large financial cooperatives generally; or (b) be limited in its application to a particular large finan￾cial cooperative or kind of large financial cooperative which may be defined either in relation to a kind, type or budgetary size of a large financial cooperative or to any other matter. Transitional arrangements 49. Without prejudice to regulation 6(1), a cooperative society whose total savings and deposits have surpassed the amount established in regulation 5, shall continue to operate as such within a period of 6 months from the date of com￾mencement of these regulations. DATED: DR. RETŠELISITSOE MATLANYANE GOVERNOR CENTRAL BANK OF LESOTHO NOTE

1. act No. 3 of 2012
2. act No. 6 of 2000 1033

sCheDUle Offences and Penalities OFFeNCes PROVisiONs OF the FiNes iN RegUlatiONs MalOti

1. Renewal of a licence Regulation 8(3) 5000
2. amendment to the Constitution Regulation 10(5) 50 000
3. limitations Regulation 14(2) 40 000
4. accounts and audit Regulation 17(10) 50 000
5. supervision and Regulation 18(2) 5 000 powers of the Commissioner
6. exhibitions of licences Regulation 25(2) 5 000
7. Publication of balance Regulation 26(3) 5 000 sheet
8. Fidelity and secrecy Regulation 27(5) 40 000
9. Duties of directors and Regulations 29(6) 3 000 other officers of large Financial cooperatives 1034

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