NCR compliance reporting: a practical guide for registered credit providers.

Registration with the National Credit Regulator is not a once-off process. Registered credit providers must maintain proper accounting and credit records, submit prescribed reports and support the figures reported to the NCR.

Why NCR compliance reporting matters

NCR reports should not be completed separately from the credit provider’s accounting and loan-management systems. The information submitted should be traceable to the underlying records and capable of being explained by management.

The reporting file should normally be supported by:

• The annual trial balance and general ledger
• Bank statements and completed bank reconciliations
• The detailed loan-book listing
• Credit agreements and pre-agreement quotations
• Interest, initiation-fee and service-fee calculations
• Repayment, settlement and write-off information
• Arrears and impairment schedules
• Affordability assessments and supporting consumer information
• Consumer complaint and dispute records
• Policies, procedures and internal compliance controls

A return may be mathematically complete while still being unreliable if the loan book does not agree with the general ledger, if fees are not separately identifiable or if the annual financial statements contain later adjustments that were not reflected in the NCR return.

1. Annual compliance report

The annual compliance report addresses the credit provider’s compliance with the National Credit Act, the regulations and the conditions attached to its registration. It is broader than a financial return because it also considers the credit provider’s conduct, systems, documents and controls.

The review may cover:

• The credit activities conducted during the reporting period
• Compliance with registration conditions
• Affordability-assessment procedures
• Controls intended to prevent reckless credit granting
• Pre-agreement statements, quotations and credit agreements
• Interest rates, initiation fees, service fees and other charges
• Consumer statements of account
• Collection and enforcement procedures
• Complaint and dispute registers
• Record retention and document controls
• Staff training and internal compliance monitoring

The published reporting framework under regulations 62–68 provides the statutory structure for these reports. The exact submission format and current channel should be confirmed with the NCR before filing.

2. Form 39 statistical return

Form 39 reports statistical information about the credit provider’s lending activity and loan portfolio. It is not a substitute for annual financial statements and should be prepared from detailed operational information.

Depending on the applicable reporting category, Form 39 may include:

• The number and value of credit agreements entered into
• Credit granted during the reporting period
• Categories of credit agreements
• Opening and closing loan-book balances
• Repayments, settlements and write-offs
• Accounts in arrears
• Impaired or non-performing accounts
• Interest, fees and other prescribed information
• Product, consumer or geographical information where required

Reporting frequency

The NCR reporting framework distinguishes between annual and quarterly Form 39 reporting. The correct frequency should be confirmed against the credit provider’s NCR reporting profile and the latest NCR instructions. A credit provider should not assume that its accounting year-end determines the Form 39 reporting period.

Loan-book reconciliation

Form 39 should be supported by a movement reconciliation. A practical reconciliation is:

The closing loan-book balance should then be reconciled to the loan receivable reflected in the general ledger and annual financial statements. Any difference should be documented rather than carried forward without explanation.

3. Annual financial statements

Registered credit providers must maintain proper accounting records and prepare annual financial statements in accordance with the reporting framework applicable to the entity.

The financial statements may include:

• A statement of financial position
• A statement of profit or loss and other comprehensive income
• A statement of changes in equity
• A statement of cash flows
• Accounting policies and explanatory notes
• Loan-receivable and impairment disclosures
• Interest and fee-income disclosures
• Borrowings, funding and related-party disclosures
• Taxation and statutory-balance disclosures

Areas requiring particular attention

• Loan balances recorded outside the accounting system
• Repayments not allocated to individual consumer accounts
• Interest and fees combined into one income account
• Loans written off in the loan system but not in the general ledger
• Unsupported impairment journals
• Incorrect opening balances
• Unreconciled suspense accounts
• Cut-off differences near the financial year-end

4. Form 40 annual financial and operational return

Form 40 is the annual financial and operational return for registered credit providers. The return draws information from the annual financial statements, general ledger, ownership records and operating systems.

Information may include:

• Registered-entity and ownership information
• Employment and operational information
• Credit granted and loan-book information
• Total assets, liabilities, equity and reserves
• Revenue and expenditure
• Interest and fee income
• Impairments, bad debts and write-offs
• Funding and liquidity information
• Other prescribed financial information

Before completing Form 40

• Finalise the annual financial statements
• Ensure that the final trial balance agrees with the statements
• Reconcile the loan book to the general ledger
• Use consistent credit classifications in Forms 39 and 40
• Confirm that interest and fee disclosures are supported
• Review impairment provisions and write-offs
• Confirm that ownership information is current
• Prepare explanations for unusual movements and adjustments

5. Regulation 68 assurance engagement

Where an independent assurance report is required, the appointed practitioner evaluates specified reporting and compliance information against the applicable NCR requirements and the credit provider’s records.

The engagement file may include:

• The NCR registration certificate and registration conditions
• Annual and quarterly NCR returns
• Annual financial statements
• Loan-book listings and movement reconciliations
• Interest and fee calculations
• Credit agreements and consumer statements
• Affordability-assessment documentation
• Arrears and impairment reports
• Policies, procedures and compliance records
• Management representations

Independence and responsibility

The independent practitioner remains responsible for performing and signing the assurance report. Accounting and reporting support can be provided by another service provider, but the assurance practitioner must determine whether the engagement requirements and independence standards have been met.

Preparing a reliable NCR reporting file

Step 1: Confirm the reporting profile

Confirm:

• The registered name and NCR registration number
• The status of the NCR registration
• The conditions attached to the registration
• The financial year-end
• The applicable Form 39 frequency
• The annual reports required
• Outstanding reporting periods
• The applicable assurance requirement
• The current submission method and contact details

Step 2: Review prior submissions

Obtain copies of previous:

• Form 39 returns
• Form 40 returns
• Annual compliance reports
• Annual financial statements
• Assurance reports
• NCR correspondence and compliance notices

Prior submissions help establish opening balances and reporting classifications. They should, however, be reviewed critically. An unsupported prior-year amount should not automatically be carried forward.

Step 3: Reconcile the loan book

A detailed loan-book listing should normally identify:

• The consumer or account reference
• The agreement date and credit category
• The original principal debt
• The interest rate and instalment
• Initiation and service fees
• Repayments received
• Interest and fees accrued
• The closing balance
• The arrears balance and ageing
• The impairment and write-off status

Step 4: Reconcile income and charges

Interest and credit-related charges should be reconciled between the loan-management system, consumer statements, general ledger, annual financial statements and NCR returns.

Review the separate treatment of:

• Interest
• Initiation fees
• Monthly service fees
• Default administration charges
• Collection costs
• Credit-life insurance
• Legal costs
• Any additional products or services charged to consumers

Step 5: Review arrears, impairments and write-offs

Management should understand how arrears are calculated, how accounts are aged, when a loan becomes impaired, how expected losses are calculated and when balances are written off.

The impairment provision should be supported by the loan portfolio’s age, payment history and recoverability rather than being posted only as a balancing adjustment at year-end.

Step 6: Review credit agreements and affordability assessments

NCR compliance reporting is not only an accounting exercise. The supporting file may also need evidence of the credit decision and consumer documentation.

Files may include:

• Consumer applications and identification
• Income information and bank statements
• Credit-bureau information
• Existing debt obligations
• Living-expense calculations
• Affordability assessments
• Pre-agreement statements and quotations
• Signed credit agreements
• Statements of account and payment records
• Collection correspondence

Common NCR reporting problems

The loan book does not agree with the financial statements

This may result from separate systems, incomplete journals, incorrect opening balances, unrecorded repayments or write-offs recorded in only one system. The difference should be reconciled by movement or by account.

Form 39 is completed from estimates

Form 39 should be supported by detailed portfolio information. Unsupported estimates can create unexplained changes between reporting periods and inconsistencies with Form 40.

Form 40 is prepared before the financial statements are final

Later year-end adjustments may cause the submitted return to differ from the signed financial statements. Form 40 should be prepared from the final reporting numbers.

Interest and fees are combined

Interest, initiation fees, service fees, insurance and collection charges should be separately identifiable and supported by the underlying agreements.

Arrears information is incomplete

The credit provider should be able to identify accounts that are current, overdue, impaired or written off and explain how the ageing and impairment amounts were calculated.

Reporting periods are confused

Form 39 reporting periods may differ from the entity’s annual accounting period. The applicable reporting calendar should be confirmed before work starts.

Proof of submission is not retained

Keep emails, portal confirmations, acknowledgement correspondence and the final submitted version of every return.

Suggested NCR compliance calendar

The compliance calendar should also include CIPC, SARS, payroll, annual financial statement and internal policy-review deadlines so that the NCR reporting process is supported by current records.

Official NCR forms and resources

How MA Solutions can assist

Our support may include:

• Updating and correcting accounting records
• Reconciling bank accounts and control accounts
• Reconciling the loan book to the general ledger
• Preparing interest and fee schedules
• Preparing arrears, impairment and write-off schedules
• Preparing annual financial statements
• Assisting with Form 39 and Form 40
• Compiling annual compliance-report information
• Preparing the Regulation 68 engagement file
• Coordinating information requested by the independent practitioner
• Assisting with historical or overdue reporting periods
• Establishing an NCR compliance calendar

Get help with NCR compliance reporting