Worldwide: Insurance Regulatory Update, January 2017

Last Updated: 15 February 2017
Article by Elizabeth Bothwell and Jennifer McCarthy

IN DOMESTIC NEWS...

THE CENTRAL BANK PUBLISHED GUIDANCE ON THE ANNUAL PCF CONFIRMATION RETURN WITH INSTRUCTIONS

On 30 January, the Central Bank published guidance and instructions on completion of the annual Pre-approval Controlled Functions (PCF) confirmation return.

The Central Bank has introduced an Annual PCF confirmation return as part of the continuing obligations in relation to fitness and probity. This annual confirmation is required from each regulated financial services provider in respect of each active PCF holder within the firm/funds, confirming that the PCF holder is compliant with the fitness and probity standards.

The requirement for the Board to confirm to the Central Bank of Ireland upon re-election/re-appointment of a PCF holder that his/her circumstances have not changed since pre-approval was granted will be satisfied by the completion of the PCF confirmation return.

A link to the guidance is here.

CENTRAL BANK PUBLISHES FITNESS AND PROBITY FAQS

On 4 January, the Central Bank published the latest version of the Fitness and Probity – Frequently Asked Questions (FAQs) to address commonly asked questions in relation to the operation of the Fitness and Probity Regime. It further addresses certain questions that arise in the context of the amendments made to the Central Bank Reform Act 2010 by the European Union (Single Supervisory Mechanism) Regulations 2014. The December 2016 FAQs (the last version of which was published in July 2015) contain the following updates:

  1. A new section has been added, which addresses FAQs relating to certified persons. Certified persons are not currently within the scope of the Fitness and Probity Regime, however, the section makes clear that the outsourcing exemption does not apply when outsourcing pre-approval controlled functions (PCFs) and controlled functions (CFs) to certified persons.
  2. Additional questions relating to PCFs that were previously published in the Central Bank's Guidance on Fitness and Probity Amendments have been included. The FAQs provide guidance on the following PCFs: Chief Operating Officer (PCF- 42), Head of Claims (PCF-43), Head of Client Asset Oversight (PCF-45) and Head of Actuarial Function as a new PCF introduced under Solvency II. The FAQs also clarify that those persons performing removed PCF roles of Chief Actuary (PCF-20) and Signing Actuary (PCF-44) cannot automatically become Head of Actuarial Function. Such proposed individuals will have to obtain the usual Central Bank pre-approval before being appointed to the role of Head of Actuarial Function.
  3. As part of the IQ process, applicants seeking pre-approval to the roles of Single Director (PCF-01) in a private company limited by shares or Sole Trader (PCF-10) within a regulated financial services provider (RFSP) must now obtain Garda Vetting clearance.
  4. Question 9.13 sets out the procedure for completing the Garda eVetting process that the roles of Single Director (PCF-01) and Sole Trader (PCF-10) are required to undergo. Question 9.1 also clarifies which aspects of the IQ process that are the RFSP's responsibility to complete and which are the responsibility of the proposed individual.

A link to the December 2016 FAQs is here.

THE CENTRAL BANK PUBLISHES SCR INTERNAL MODEL STRUCTURED TEMPLATES

Firms using internal or partial internal models approved by the Central Bank to calculate their SCR are required to report their outputs using the relevant SCR template. The relevant reporting template was published by the Central Bank on 11 January. SCR calculations must be made at least once a year and should cover both existing and new business that the firm expects to write over the next twelve months.

The SCR Internal Model Structured Template can be accessed here.

REMARKS BY DIRECTOR OF INSURANCE SUPERVISION, SYLVIA CRONIN, TO THE ASSOCIATION OF COMPLIANCE OFFICERS IN IRELAND (ACOI) ON THE ROLE OF CULTURE IN INSURANCE SUPERVISION WITHIN THE CENTRAL BANK

On 18 January, Sylvia Cronin, the Director of Insurance Supervision at the Central Bank, addressed the ACOI on the role of culture in insurance supervision within the Central Bank.

Ms. Cronin emphasised how assessing the culture and behaviours of the firms the Central Bank supervises is an important part of forward looking supervision. She commented that when the Central Bank are performing a review of firms' capital risks, investment risk or operative risks, they will look at how firms make and communicate decisions, the risk management framework and the implementation of action. She commented that Solvency II is a risk based regulatory regime and that a powerful driver in embedding Solvency II will be the risk culture established by insurers. Ms. Cronin stated that the Central Bank will conduct a thematic review of internal audit function in 2017 and culture will be an element of this review.

Ms. Cronin set out in her remarks a non-exhaustive list of factors that the Central Bank have identified and have regard to in identifying what the culture of a firm is like. She stated that regulations such as the Corporate Governance Code, the Fitness and Probity regime and the Consumer Protection Code help to move firms in the right direction in regards to their cultures but that it is ultimately up to each firm to design their own culture around the general principle of "doing the right thing" for all stakeholders. Ms. Cronin also emphasises how imperative it is that companies reflect the principles behind the regulations.

Most large (re)insurers do not have any specific tangible approach towards the culture agenda with very few carrying out specific culture assessments. (Re)insurers often have the right structures in place but the behaviours of the individuals in the firm often do not support this structure. Where the Central Bank sees weakness in a firm's culture the level of supervision may increase. Increased supervision may take the form of an investigation of board effectiveness or an assessment of the embeddedness of risk management in the firm concerned.

Ms. Cronin described what the Central Bank considers to be good practice to develop an effective culture and gave the following six recommendations: (1) ensuring senior figures live the culture; (2) conducting staff surveys to identify the real culture; (3) actively supporting the culture through reward systems; (4) identifying clear roles, responsibilities and accountabilities; (5) measuring and tracking the culture and (6) adhering to the culture in times of pressure and stress.

A link to Sylvia Cronin's remarks is here.

REMARKS BY CENTRAL BANK DIRECTOR OF POLICY AND RISK, AT THE BREXIT AND ASIA: IMPLICATIONS FOR FINANCIAL SERVICES IN IRELAND EVENT (BAIFSI)

On 23 January, Gerry Cross, the Director of Policy and Risk at the Central Bank, made remarks at the Brexit and Asia: Implications for Financial Services in Ireland event.

The Central Bank has received a substantial number of queries from firms as a result of Brexit. Firms are interested in getting to know the Central Bank as a regulator and the Central Bank is increasing staff numbers to deal with the large numbers of applications it has received.

Mr. Cross expressed that the Central Bank is focused on ensuring that before it authorises a firm in Ireland, it is satisfied that the firm will have a substantial business in Ireland enabling the Central Bank to supervise it effectively.

On the issue of outsourcing, Mr. Cross noted that although an activity may be outsourced, the responsibility for it cannot.

With regard to the Central Bank's opinion on group integrated approaches the Central Bank will want to have a clear understanding of: how risks are accepted, distributed, managed and mitigated within the group; how the local entity fits into this and how group solutions are adapted and suited for local application. The Central Bank will be looking to see that risks are well understood, appropriately tailored, effectively managed and applied locally. The Central Bank will also be solution orientated and their approach will be constructive. They are aware of the practical constrains firms are dealing with regarding logistics and timing and will work with the UK and other authorities to deal with issues efficiently and effectively.

The Central Bank has not ruled out and does not plan to rule out any particular business model on financial stability grounds.

A link to Gerry Cross's remarks can be found here.

IN EUROPEAN AND INTERNATIONAL NEWS...

INSURANCE EUROPE ISSUES POSITION PAPER ON COMPLEXITY AND COMPREHENSION FOR INSURANCE-BASED INVESTMENT PRODUCTS (IBIPS)

On 13 January, Insurance Europe published a position paper in response to EIOPA and the other European Supervisory Authorities' work on non-complex products and comprehension within the frameworks of the Insurance Distribution Directive (IDD) and the packaged retail and insurance-based investment products (PRIIPs) regulation.

The paper points out the difference between insurance-based investment products and other financial instruments under MIFID II. MIFID II financial products often have a high degree of opacity of the connection between the consumer's investment and the possible risks and returns to the customer. They also include elements of gambling. Most insurance-based investment products do not share these traits and the same risks don't apply to consumers. Insurance-based investment products usually reduce risk for customers and can provide a means of protecting them from the volatility of the market.

Insurance Europe advises that insurance-based investment products that reduce risk for customers should be seen as non-complex for the purposes of the IDD and therefore could be sold by means of execution-only transactions. It makes the following comments in regard to insurance-based investment products: whether the product has a guarantee should be taken into account; whether the product is protected by a national insurance compensation scheme should be taken into account; the surrender value of insurance-based investment products is not relevant for complexity; switching clauses should not be put on the same level as converting rights; that beneficiary clauses do not influence the performance or return of the product should be considered; that the relationship between an insurance-based investment product and tax regulations is not relevant should be considered; and it should also be considered the total commitment is fixed and does not vary overtime and that this is something that customers might have difficulty understanding.

The PRIIPs regulation provides for a comprehension alert to be provided to customers when selling a complex PRIIP. The paper sets out criteria which Insurance Europe believes should be taken into account to identify PRIIPs that should be considered as difficult to understand and not simple. These criteria are: the product invests in underlying assets in which retail investors do not commonly invest; it uses a number of different mechanisms to calculate the final return of the investment, creating a greater risk of misunderstanding on the part of the retail investor; and if the investment's pay-off takes advantage of retail investor's behavioural biases, such as a teaser rate followed by a much higher floating conditional rate, or an iterative formula.

A link to the paper is here.

THE COMMISSION AND THE U.S. DEPARTMENT OF TREASURY RELEASE THE EU-U.S COVERED AGREEMENT ON INSURANCE AND REINSURANCE MEASURES

On 13 January, the Commission and the U.S. Department of Treasury released the Covered Agreement (the Agreement) on (re)insurance measures between the EU and the U.S. EIOPA and Insurance Europe welcomed the Agreement.

The Agreement covers three areas of prudential insurance oversight: (re) insurance, group supervision and exchange of information. Insurance Europe believes that the Agreement will help with bilateral trade in (re)insurance, for the benefit of both consumers and economies and hopes all relevant authorities will apply both the provisions and spirit of the Agreement promptly.

A link to the EIOPA press release and the Insurance Europe press statement is here and here.

EIOPA AND THE BERMUDA MONETARY AUTHORITY SIGN A MEMORANDUM OF UNDERSTANDING

On 17 January, the European Insurance and Occupational Pensions Authority (EIOPA) and the Bermuda Monetary Authority (BMA) entered into a Memorandum of Understanding (MoU), which aims to formally strengthen cooperation between the two supervisory authorities. The MoU provides for regular exchanges of information on regulatory, supervisory and macro-prudential developments between EIOPA and BMA with a view to enabling optimal supervision for insurance and reinsurance groups with international activities in the EU and Bermuda.

Under the MoU, each authority has committed to support and assist the other when supervising insurance undertakings in their jurisdiction. The MoU may be terminated by either party provided the terminating authority gives ten days' written notice to the other authority.

A link to the MoU is here.

A link to the EIOPA press release is here.

THE EU – U.S. INSURANCE PROJECT ADDRESSES CYBER RISK

On 17 January, EIOPA met with the US Federal Insurance Office and the European Commission as part of an information exchange initiative known as the EU-U.S. Insurance Project, to discuss the issue of cyber security. Cyber security is a growing and evolving challenge for all sectors, but in particular for insurers who collect and manage large stores of personally identifiable information from consumers, claimants and beneficiaries.

Current initiatives underway in the EU and the US for monitoring the risk of cyber-attacks, protecting critical infrastructure and engaging with insurance sector stakeholders were addressed at the convening. The EU-U.S. Insurance Project aims to conduct further sessions throughout the course of 2017 to obtain further expert and technical input with a view to enhancing international best practices in the field of cyber security.

A link to the EIOPA press release is here.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.