An effective capital adequacy structure should also include reporting requirements, which should be designed to provide supervisory authorities with information regarding the financial and operational health of securities firms and financial and operational problems being experienced by firms.
Securities firms should be required to file periodic reports with their supervisory authority so that the supervisory authority is aware of the firms' financial and operational condition. For example, monthly or more frequent reports could be required to be filed by a firm indicating its compliance with net capital requirements, profit or loss for the period, and firm positions. Detailed financial statements and capital adequacy computations should be filed on a reasonably frequent basis. The frequency and detail of the reports should depend on the type of business the firm conducts. Additionally, many countries require securities firms to obtain on an annual basis an audited financial report.
Securities firms should also be required to give supervisory authorities warning of financial or operational problems. For example, if a securities firm s capital falls below a "warning level" set by the supervisory authority, if it fails to have the required level of capital, or if it has books and records which are not current or accurate, prompt notice should be required to be given to a supervisory authority.
Finally, firms should be examined routinely and when possible problems exist by the supervisory authority for compliance with financial responsibility and recordkeeping requirements.
