How rigorous is the supervisory and enforcement environment?
Insurance & Reinsurance
Ireland has a well-established efficient prudential regulatory infrastructure that complies with best international standards. The Central Bank’s prudential supervisory framework, PRISM, focuses on the most significant firms, the risks they pose and the level of damage they could cause to the financial system, the economy and consumers if they were to fail. Following the economic crash in Ireland, the Central Bank is intent on ensuring a rigorous and effective supervisory and enforcement framework is in place.
The Central Bank’s supervisory role involves overseeing an undertaking’s corporate governance, risk management and internal control systems. Insurance and reinsurance undertakings are required to submit annual and quarterly returns on solvency margins and technical reserves to the Central Bank for assessment. In addition, the Central Bank conducts regular themed inspections across the insurance and reinsurance industry.
The Central Bank’s Administrative Sanctions Regime provides it with a credible tool of enforcement and acts as an effective deterrent against breaches of financial services law. The Central Bank has the power, where a breach is identified, to issue a supervisory warning, take supervisory action, agree a settlement, or refer the case to formal inquiry for determination and sanction.
The UK’s two regulators have extensive statutory enforcement powers set out in FSMA. As mentioned above, where someone has breached the prohibition on carrying out a regulated activity without permission they may be imprisoned or fined. The withdrawal of authorisation is available to both regulators where a business ceases to meet the threshold conditions. The regulators can also vary permissions, censure firms and individuals publicly for breaches of regulatory requirements and impose financial penalties, apply for an injunction where either regulator believes that a person or business will contravene a requirement of FSMA, seek a restitution order to recover assets received in contravention of a regulatory requirement and issue a prohibition order against an individual carrying on a regulated activity.
Both the PRA and FCA have investigatory powers. The PRA has the ability to outsource investigations to either the FCA or a third party. All regulated businesses are under an obligation to inform the regulator of anything relating to the firm of which the regulator would reasonably expect notice.
After the financial crisis of 2008 the predecessor to the FCA stepped up the number of enforcement actions undertaken in a programme called ‘credible deterrence’. The policy has been continued by the FCA which has issued some significant fines where firms have breached regulatory rules or principles. In 2015 Barclays Bank Plc was fined £284.4m for failing to control business practices in its foreign exchange business in London.
Since the implementation of the Solvency II-directive, insurance companies operating on the Swedish market are operating in an increasingly tougher supervisory and enforcement environment. This is evident in the FSA’s choice to, inter alia, withdraw several insurance companies’ licenses, such as Aspis Liv Försäkrings AB’s in 2009 and E.N. Sak Försäkring i Europa AB’s in 2011.
The FSA has in its latest report also concluded that there generally are deficiencies in insurance companies’ practical management of surplus, as well as articulated that a current area of focus is how life insurance companies handle the current low-rate environment. The FSA is in other words active in its role as supervisory authority, working both proactively, by informing and educating insurance companies and the market alike, and reactively, by sanctioning illegal behaviour.
BaFin has extensive statutory enforcement powers set out in the German Insurance Supervision Act. Furthermore, BaFin has extensive investigatory powers. BaFin may, inter alia, request any information relating to the business of the individual carrying out a regulated activity and conduct site visits, including investigations regarding any provider of outsourced activities.
The FSAN is generally active in its role as a market supervisor, working both proactively (by informing and educating insurance companies) and reactively by sanctioning unlawful behavior. The supervisory environment has become generally tougher following the implementation of the Solvency II-directive on 1 January 2016.
Withdrawal of insurance companies’ licenses is still very unusual in Norway, but several insurance intermediaries have had their authorisation withdrawn over the last few years due to i.e. unlawful sales methods and/or breach of the “fit and proper” requirements (see question 13).
Insurance and reinsurance operations in Mexico are regulated by both the Ministry of the Treasury and Public Credit (“SHCP”) and the CNSF.
The SHCP has authority to interpret, implement and execute the LISF for administrative purposes.
The CNSF has authority to grant and revoke authorisations to incorporate and operate insurance companies in Mexico, register reinsurance companies with the RGRE to take reinsurance from Mexican insurance companies.
The CNSF is also responsible for supervising the operation of insurance and reinsurance companies and has authority to supervise, inspect and issue regulations applicable to the operations of Mexican insurance and reinsurance companies. All the applicable regulations issued by the CNSF are compiled in a single circular (“Circular”).
The CNSF is rigorous in the supervision and enforcement of regulations applicable to the operation of Mexican insurance companies. There are no significant precedents of enforcement actions against entities or individuals conducting non-admitted insurance operations on a cross-border basis or in certain activities that are deemed insurance operations such as prepaid health services.
Until recently, the UAE regulatory atmosphere has been lax when compared with that prevalent in more developed jurisdictions. However, the regulators with jurisdiction over the market have in the last several years, significantly increased both the number and scope of applicable regulations. Additionally, not only have the regulations themselves increased, but the enforcement thereof has also become much more rigorous. The regulatory schemes for brokers, claims administrators, and insurers have each been recently altered, with the IA promulgating much more stringent requirements for the licensing, reporting obligations, and financial solvency, of the various market participants. The result of this an increase in the interaction between the regulators and the industry participants, as well as a concomitant increase in the expectations and standards that the regulators require that market participants adhere to.
Certain Emirate level regulators also have developed frameworks that have resulted in greater scrutiny. For example, and as noted in Query 7, HAAD, which regulates medical insurers and TPA’s in Abu Dhabi, has ramped up its oversight in recent years, and its licensees are thus now on notice that they can expect frequent inspections of both their records and offices, as well as fines should anything be out of compliance.
Regulation within the DIFC is generally more strenuous than in onshore UAE, at least with respect to issues of corporate governance and compliance - with the DFSA being considered a very proactive regulator which has modeled its regulatory framework upon that of established English speaking jurisdictions such as the UK and US.
States’ regulatory approaches to insurance supervision and enforcement differ depending on various factors, including the nature and magnitude of a violation, the extent of any harm to policyholders (or specific classes of policyholders, such as senior citizens), the political environment (both local and national) and the limits imposed on administrative action by the relevant state laws.
Despite variations in supervision and enforcement, states have been regulating the business of insurance for over a century and are accustomed to enforcing fundamental insurance safeguards and requirements consistently, especially those that relate to solvency, sales practices, rebating and consumer protection.
With the implementation of the Solvency II Directive (2009/138/EC), the supervisory environment for insurance undertakings has become more stringent. In particular, the new regulatory regime introduced stricter rules as to solvency and capital requirements as well as reporting duties.
The FMA is vested with a wide range of powers to supervise insurance undertakings and enforce compliance with the supervisory rules. For example, the FMA monitors insurers closely, requires extensive stress tests and can conduct supervisory activities on-site. It can impose fines of up to EUR 100,000 for violations of supervisory rules.
As a general rule, the Insurance Regulator is very active in its monitoring and enforcement of insurance regulations. Locally registered insurance and reinsurance companies have many reporting duties, which require them to periodically file several relevant documents to the Insurance Regulator (e.g., financial statements, internal policies, client’s claims, etc). Upon reviewing and analysing this information, it is very common for the Insurance Regulator to initiate administrative investigations and apply sanctions upon detecting violations of insurance regulations.
There are separate and distinct monitoring processes for each kind of regulated insurance entity (insurance companies, insurance brokers, loss adjustors, etc.), as they each have specific legal and administrative regulations.
Penalties for violations of insurance laws and administrative regulations can range between: (i) a written reprimand; (ii) a fine of up to UF 15,000 (approximately USD 613,000). In case of repeated offences applicable fines may increase to up to 3 or 5 times the original fined amount or to 30% of the value of the non-compliant operation; (iii) the suspension of the insurance company’s management for up to 6 months; (iv) the suspension of all or some of the insurance company’s operations for up to 6 months; and/or (v) the cancellation of its license (existence authorisation).
There are also other sanctions to specific violations, such as carrying out the insurance business without being duly authorised to do so [please refer to question 7 above].
Over the last few years the insurance industry has been transitioning towards a risk based supervision system, whose purpose is to strengthen the risk management of insurers, develop a preventive monitoring system, customize the supervision involving the insurer in the process, and to smartly allocate resources available for monitoring. The Insurance Regulator has published its monitoring policy since 2015.
We view FINMA as being relatively strict in enforcing any violations against the applicable laws and in particular if companies operate in Switzerland without appropriate authorisation.
Quite rigorous. The SBS is a solid entity in terms of audit, supervision and sanction. The General Law contains a development of its attributions and specific functions, providing the SBS with an appropriate control system over natural and legal persons under its supervision.
The insurance regulatory regime is highly regulated in India. The IRDAI has suo motu powers for undertaking inspection, conducting enquiries and investigations (including audit) of the insurers, insurance intermediaries and other organizations connected with insurance business.
Further, by way of the Insurance Laws (Amendment) Act 2015, the maximum penalty for non-compliance of the applicable regulations or directions issued by the IRDAI has been significantly increased from INR 5 lakh (c. US$ 7,500) to INR 1 crore (c. US$ 150,000).
Singapore maintains a rigorous regime of supervision and regulation of the financial services sector, including the insurance industry, to ensure the stability of the domestic financial system.
SUSEP has comprehensive, adequate and rigorous legislation to punish administrative infractions. However, there is a general consensus amongst practitioners that the regulatory body needs to be modernized and better equipped to fulfill its institutional mission.
The Commissioner of Insurance in Israel is very active. He has several teams who perform reviews and unexpected checks of insurance companies and insurance brokers. It investigates all complaints and issues appropriate sanctions, including revoking licenses.
Since the introduction of a ‘Twin Peaks’ model in 2011, the supervising authorities are the Belgian National Bank, the NBB (focusing on prudential and financial supervision) and the Financial Services and Market Authority, the FSMA (focusing on contract law and consumer law).
Both authorities perform their supervisory tasks in a very active manner and have recruited additional staff. Both of these supervising authorities are known for being rigorous.
The French regulatory body with jurisdiction over the insurance sector is the ACPR.
The ACPR is responsible for ensuring the preservation of the stability of the financial system as well as the protection of the insureds, policyholders and customers. As a result, the ACPR is principally responsible for (i) issuing licences and authorisations of regulated entities (ii) conducting on-going supervision of the financial position and operating conditions of insurers/reinsurers, and (iii) ensuring that regulated entities comply with conduct of business and other rules such as those applicable to insurance contracts or the protection of customers and with the rules governing acquisitions and equity investments.
In order to carry out its mission, the ACPR has a right to access all relevant information needed concerning the regulated entities under its supervision (through inspection of the regulated entities and their commercial partners) and may impose safeguarding measures and/or disciplinary sanctions, as described above.
In the case of international insurance groups or financial conglomerates, the ACPR supervises the entities located in France and may request from such companies the communication of data and information relating to “affiliated companies” (to be understood as both subsidiaries of the French licensed companies and companies holding an interest of more than 20% in such companies).
The ACPR determines (in its annual policy) the focuses it intends to make in terms of sectorial supervision (for example: on-line brokers, unclaimed life assurance contracts, compliance with AML-FT rules…) and launches “supervision campaigns” of the main actors in the identified areas. In average, the ACPR performs ca. 250 on-site inspections on a yearly basis, the average outcome of which are ca. 15 disciplinary proceedings and sanctions. The ACPR shows a growing trend in using disciplinary fines, which may amount (in principle) to EUR 100 million. The highest disciplinary fine pronounced by the ACPR amounted to EUR 50 million against an insurance undertaking (2014) and to EUR 200,000 against an insurance intermediary (2016).
The Canadian supervisory environment is composed of a professional and very competent body of regulators, both federally and provincially, as well as in the local self-regulatory organizations. These regulators are generally quite cooperative with companies in search of solutions but will not hesitate to take action if they believe a company is acting in violation of their rules.