The MFSA has just published a consultation document in relation
to new proposed Insurance Rules that will implement audit committee
requirements. This is a result of the new Regulation (EU) No.
537/2014 and changes to EU Directives on statutory audits, in
particular changes to Directive 2014/56/EU which removed the
previous discretion to exempt non-listed public interest entities
from the requirement to have an audit committee. Insurance and
reinsurance undertakings fall within the definition of "public
interest entities" which are now all required to have an audit
The proposed new Insurance Rules require the establishment of an
audit committee which fulfils the following requirements:
the audit committee must be a stand-alone committee composed of
at least 3 members;
all committee members must be non-executive directors;
the majority of the committee members must be independent of
at least one committee member must have competence in
accounting and/or auditing;
the committee, as a whole , must have competence relevant to
the business of re/insurance carried out by the undertaking;
the Chairman of the audit committee shall be independent and
should be appointed by the members of the audit committee.
The proposed Rules also list the functions to be performed by
the audit committee.
An insurance or reinsurance undertaking may benefit from a
derogation from the audit committee requirements if:
(i) It is a "small and
medium-sized enterprise" in terms of Directive 2003/71/EC
which provides that " small and medium-sized enterprises"
means companies, which, according to their last annual or
consolidated accounts, meet at least two of the following three
criteria: an average number of employees during the financial year
of less than 250, a total balance sheet not exceeding EUR
43,000,000 and an annual net turnover not exceeding EUR
(ii) It is a subsidiary undertaking
in terms of Article 2(10) of Directive 2013/34/EU, provided the
audit committee requirements are satisfied at group level.
If (i) above applies, the Board as a whole may perform the
functions of the audit committee. However, if the Chairman of the
Board has an executive role, such person shall not act as the
Chairman while the Board performs the functions of the audit
committee. The MFSA is proposing that where the audit committee
forms part of the Board of Directors, the Board shall be
responsible to perform the functions of the audit committee.
However, there is scope for clarification of the proposed Rule 1.5
to clarify whether the requirements in Rule 1.2 still apply.
If (ii) above applies, such that an insurance or reinsurance
undertaking is a subsidiary of a parent undertaking whose head
office is in a Member State or an EEA State and the parent
undertaking complies with the requirements of the Statutory Audit
Directive at group level, the insurance or reinsurance subsidiary
undertaking is exempted from the requirement to set up an audit
Listed insurance or reinsurance undertakings are required to
comply with the requirements of the audit committee as stipulated
by the Listing Rules issued under the Financial Markets Act.
The proposed new Insurance Rules also refer to and require
compliance with the requirements arising under Regulation 537/2014
, particularly Title III (Articles 16 to 19)in relation to the
appointment of statutory or audit firms by public interest
The consultation closes on the 14th June 2016.
The full text of the Consultation Document of the MFSA and the
new proposed Insurance Rules can be viewed by clicking here.
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