Do senior managers have to meet fit and proper requirements and/or be approved?
Insurance & Reinsurance
Article 8-2 of the Insurance Business Act requires directors who are engaged in the business of running an insurance company to have the knowledge and experience to appropriately, fairly, and efficiently manage such business and to have adequate social trust (“Fit and Proper Principle”). These matters are dealt in more detail in the Guidelines.
APRA's Prudential Standard CPS 520 requires that a responsible person of a general or life insurer (which includes directors, senior managers and employees who perform activities for a subsidiary that may materially affect the insurer's financial standing) must satisfy a "fit and proper" person test. This test requires responsible persons to possess the competence, character, diligence and judgment necessary for them to perform their duties. The test also requires the person not to be the subject of a disqualification order and not have a conflict which would create a material risk of failing to perform their duties. For foreign insurers operating a branch in Australia, these requirements only apply to those managers who are ordinarily resident in Australia. The insurer must maintain a "fit and proper" person policy which outlines the process used by the insurer to assess whether a responsible person satisfies the test.
"Fit and proper" requirements apply to the CEO of an insurance company and to the members of the board. In addition, owners of qualified holdings of the company's share capital or votes must be fit and proper to own such holdings (question 5).
The DFSA shall be notified of the fulfilment of the fit and proper requirements when a CEO or member of the board are appointed or changed.
The Insurance Law provides for specific fit and proper requirements for management board members and senior managers (so-called "key managers"). The KNF approves the appointment of two members of the management board of an insurance company - the president thereof and the member responsible for risk management.
At least half of the management board members, including both of the management board members approved by the KNF must demonstrate their knowledge of the Polish language.
All management board members as well as key managers must meet specific education requirements and have no criminal record.
At least half of the management board members, including both of the management board members approved by the KNF as well as all key managers must have relevant experience necessary to perform their functions.
According to Article 4 of the IA, members of the board of directors of insurance companies should meet the required qualifications of founders of an insurance company and reinsurance company apart from financial power requirement; the required qualifications regarding education and work experience are stipulated in the IA. The general manager and deputy general managers of insurance companies shall meet the required qualifications of founders of an insurance company and reinsurance companies apart from ones regarding financial strength.
The Central Bank has the power to designate certain positions within a regulated firm as being Pre-approval Controlled Functions (“PCFs”). The main implication is that a person in a PCF role needs to comply on an ongoing basis with the Fitness and Probity Standards issued by the Central Bank. The PCF will need to confirm this in writing annually. Also there is an obligation PCFs to inform the Central Bank of breaches of financial services law which may be of interest to the Central Bank – this obligation is set out in the Central Bank (Supervision and Enforcement) Act 2013.
The approval of the Central Bank must be sought prior to appointing a person to act as a PCF. In summary, a PCF is a function through which a person may exercise a significant influence on the conduct of a regulated financial service provider’s affairs. Therefore, as part of the Central Bank’s Fitness and Probity regime, all proposed directors and senior management will have to apply to the Central Bank for prior approval.
In order to comply with the Central Bank’s Fitness and Probity standards a person is required to be:
- competent and capable;
- honest, ethical and act with integrity; and
- financially sound.
For the purposes of considering whether or not to approve a person to carry on a PCF, the Central Bank has a broad range of powers and in particular may request that the person or an individual on behalf of the undertaking provide certain specified information to it. The person may also be required to attend before a specified officer or employee of the Central Bank for an interview. This is to ensure that the undertaking has the necessary people, skills, processes and structures to successfully manage its insurance or reinsurance business. This includes, in particular, close scrutiny of the undertaking’s management structures, board and senior management appointments, key committees and key statutory roles.
With effect from 3 January 2018, the Minimum Competency Code 2017 (the “MCC”) (as attached) and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48 (1) Minimum Competency Regulations 2017 (the “Minimum Competency Regulations 2017”) together replaced the existing Minimum Competency Code 2011. The MCC and the Minimum Competency Regulations 2017 is closely linked to the Fitness and Probity regime.
Parts 1 and 2 of the MCC specifies certain minimum competency standards with which persons falling within its scope must comply when performing controlled functions and/or providing certain financial services, in particular when dealing with consumers. Part 3 of the MCC sets out details on the recognition of qualifications in respect of retail financial products for the purposes of the code. The aim is to ensure that consumers obtain a minimum acceptable level of competence from individuals acting for and on behalf of regulated firms in the provision of advice and information and associated activities in connection with retail financial products. The Minimum Competency Regulations 2017 are associated with the MCC and impose certain obligations on regulated firms.
Persons are expected to comply with the letter and spirit of the MCC. Any right acquired or obligation or liability incurred, in respect of a contravention of, or act of misconduct under, the previous Minimum Competency Code 2011 survives the replacement of the previous Minimum Competency Code 2011 with the MCC and the Minimum Competency Regulations.
Please note that compliance with the MCC where applicable is one of a number of considerations which may be taken into account in deciding whether a person is of such Fitness and Probity as is appropriate to the performance of a controlled function within the meaning of Part 3 of the Central Bank Reform Act 2010.
FSMA requires that individuals in certain ‘controlled’ functions must be approved by the regulators. Certain roles in the business are therefore either classified as Senior Insurance Management Functions (the list of functions identified by the PRA) or Approved Persons (the list of functions identified by the FCA). It is possible for an individual in a PRA function to also require approval for one of the FCA functions. Before taking up any controlled function an application must be made to the relevant regulator for approval. Both the PRA and FCA will seek to ensure that the individual is fit and proper for the role. They will consider the individual’s honesty, integrity and reputation as well as their competence and capability and financial soundness.
Solvency II requires that individuals in key functions within a (re)insurance business are fit and proper for their roles. This requirement exists alongside the Senior Insurance Management Functions and Approved Persons. Key function holders include all “persons who effectively run the undertaking” and those in “other key functions”, likely to include the board and senior management and other individuals who lead significant business units.
On 26 July 2017, the FCA and PRA published their proposals to extend the senior managers and certification regimes ("SM&CR") to the UK insurance sector. Fundamentally, via this extension, the Regulators aim to put the insurance industry under the same level of scrutiny as the banking sector, by enforcing individual accountability as a means of ensuring policyholder protection. The SM&CR proposals are likely to have a significant impact for UK firms currently subject to the PRA's senior accountability regimes.
Certain persons in senior management have to meet fit and proper requirements. This means that an insurance company under the FSA’s supervision shall notify the FSA, which then will assess the person’s experience, knowledge and reputation, when any of the following persons are appointed or changed:
- chairman of the board or his/her representative,
- members and alternate members of the board,
- the CEO or his/her representative, and
- the manager responsible for central functions (risk management, compliance, internal audit and the actuarial function).
Since 2009, BaFin has been responsible for the supervision of the members of administrative and supervisory bodies. Over the years, BaFin has provided a number of guidance notices on fitness and propriety in order to assist insurers with the various requirements they have to meet. In accordance with the German Audit Reform Act, for example, insurers within the scope of Solvency II must ensure that when appointing members of the supervisory board, at least one member has professional knowledge of accounting or the audit of financial statements. Additionally, the members of the supervisory board as a whole must be familiar with the industry in which the company operates. To this end, the members of the supervisory board must demonstrate that they have sufficient basic knowledge of the insurance sector, the extent of which is based on the undertaking's individual risk profile, pursuant to the principle of proportionality.
“Fit and proper" requirements apply to the CEO of an insurance company, to any other factual leader, and to the board of directors. In addition, owners of qualified holdings of the company's shares or votes must be fit and proper to own such holdings (see question 5).
“Fit and proper” requirements also apply to the CEO and any factual leader of an insurance intermediary, and for any broker or insurance agent who practices through an intermediary entity.
According to Article 58 of the LISF, senior managers must be persons with a good credit record and honorability, and meet the following requirements:
- Be residents in Mexican territory in terms of the provisions of the Federal Tax Code;
- Have served for at least five years in high-level decision-making positions, Performance requires knowledge and experience in financial, legal or administrative matters;
- Not fall under any of the impediments to act as advisers listed in article 56 of the LISF; and
- Not perform functions as regulator of insurance companies.
The IA does require that the senior officers of its licensees meet certain requirements, as per Article 32 of the Insurance Law and IA Resolution 2 of 2009. For insurers, this includes the General Manager who must meet set educational and experiential requirements. As per this Resolution, various “key employees” must also be qualified, but the regulation does not set out these specifics at length; the IA license application and renewal process does however, require submission of the credentials of the “management team” for each separate line of business, which will be scrutinized by the IA.
The relevant controlling regulations also specify that a TPA must have its senior manager, professional medical officer, and consulting doctor meet specified educational and experiential levels. Likewise, brokers must appoint employees and technical staff qualified to perform their functions. There are also set requirements for agents, actuaries, and loss adjusters.
The regulations require differing levels of staffing for each type of insurance business. For example, pursuant to IA Resolution No. 15 of 2013, as amended, a brokerage must have at least the following staffing levels: General Manager (or CEO), Operations Manager, Internal Auditor (Controller), and a specialized professional for each type of insurance the broker handles. These positions may not be combined into one role; each role must be held by a separate individual on a full time basis. Furthermore, each of these persons must meet strict educational and experiential requirements, which generally consist of a University Degree or equivalent educational credentials depending on the role, and a minimal set amount of practical experience, again varying depending on the specific role and whether or not the person is a UAE national.
All such licensees must also meet standards of good conduct and may be required to submit a good conduct letter from the relevant Emirate’s law enforcement body to demonstrate the absence of any impediment.
Demonstrating the proper educational and experiential requirements is often a time consuming task, especially for those employees who are not UAE nationals. The employee must first obtain a Certificate of Equivalence from the Ministry of Higher Education, and the Ministry of Education as well for certain educational degrees, demonstrating that the foreign educational qualifications meet the requisite standards. These documents must be attested from their source through the level of the UAE Embassy in the foreign jurisdiction where such were initially granted, and then stamped by the UAE Ministry of Foreign Affairs. Only at the point that the Certificate of Equivalence is issued by the Ministry of Higher Education can the educational credentials be submitted to the IA for their approval. Likewise, the IA requires submission of Certificates of Experience demonstrating the employees’ practical experience, which will require attestation if issued by a foreign source.
Most states require that directors, executive officers, and owners of 10% or more of the voting securities of insurance companies submit certain biographical information, pass criminal background checks, and be approved by the state insurance regulator.
Yes, pursuant to Article 120 VAG, managing directors and key personnel are required to meet fit and proper requirements. In particular, insurance and reinsurance undertakings need to ensure that all persons who effectively run the undertaking have adequate professional qualifications, knowledge and experience to enable sound and prudent management (fit) and are of good repute and integrity (proper).
At least two managing directors are required to have sufficient theoretical and practical knowledge in the insurance sector as well as general management experience. As a general rule, these criteria will be met if a person has a minimum of three years of management experience in an insurance undertaking of a comparable size and business sector. In addition, at least one member of the board of directors must be fluent in German.
Insurance and reinsurance undertakings shall notify the FMA of any intention to appoint or change key personnel together with all information needed to assess whether such persons comply with the fit and proper requirements. With regards to members of the board of directors, the FMA has to be notified at least one month before the scheduled appointment and, with respect to other key personnel, immediately after appointment. The FMA is authorised to impede appointments.
There are no specific provisions establishing requirements or approval for senior managers, other than presenting their CV to the regulator (this applies also to actuaries). The regulator ordinarily requires antecedents, background and insurance experience of senior managers to be provided, particularly in the case of new companies seeking authorization.
Senior management, i.e. the board of directors (Verwaltungsrat), the top management, and the appointed actuary have to ensure (by character and qualification) the flawless operation of the insurance company. Art 14, 23 para 2 ISA in connection with Art 12 et seqq ISO.
The eligibility of the senior management is assessed in the course of the licensing process, Art 4 para 2 lit g and h ISA (see no 4 above) and continuously monitored by FINMA. Changes in the senior management must be notified to FINMA (and in case of the appointed actuary, approved by it).
The administrative staff at managerial or executive level of insurance companies must comply with moral and technical criteria. In this sense, directors, managers and main officials (such as the heads of risk management areas) should have not have any negative management records or have been sanctioned administratively or criminally, as well as have not held any evidence of non-compliance regarding commercial, financial and tax payments or other acts involving dishonesty and/or willful misconduct. Moreover, they should have good references of their professionalism, which is related to the requirement to have an appropriate professional career for the position, that is to say, experience in specialized activities and/or directives related to their profession, in the financial system and/or academic specialization accredited with university degrees or postgraduate degrees.
All directors and key managerial personnel of insurers and insurance intermediaries are required to be compliant with the fit and proper criteria stipulated by the IRDAI under the respective regulations.
Only appointments of relevant persons having control or effective control of the insurer's activities is subject to supervision by MAS. These persons include a principal officer, director or chief executive officer of a registered insurer, a Certifying Actuary, a substantial shareholder, and the Singapore representative who is responsible for the activities of the insurer's local representative office.
The election of directors and officers of local insurers and reinsurers must be approved by SUSEP, which verifies the fulfillment of requirements of moral suitability and technical qualification.
The qualification requirements for directors are detailed in the Control Over Financial Services (Insurance) Regulations (the Board of Directors and its Committees), 2007. We will refer only to the main requirements set therein.
Every member of the board of directors must be a natural person who fulfils at least one of the following:
- holds an academic degree in one of the following: insurance, law, economy, accountancy, statistics, business management, actuary, international auditing or any other field approved by the Commissioner;
- is qualified to serve as an actuary or risk manager in an insurance company;
- has managerial experience as detailed in the regulations; or
- holds a licence as an accountant, pension adviser, investment adviser, portfolio manager or an insurance broker and has been engaged in such field for at least four years.
The Commissioner is entitled to approve the appointment of a qualified director even if he or she does not fulfil any of the above terms.
A person may not be appointed as a director for an insurance company if:
- his or her other business activities do not leave sufficient time to fulfil the duties of a director;
- he or she is an employee of the insurer;
- he or she serves as a director or officer of another institutional body, unless the Commissioner confirms that no conflict of interest exists; or
- he or she has been convicted of a criminal offence as listed in the regulations.
At least one-third of the board members shall be external directors who have no connection with the main shareholders. At least half of the external directors must have clear and proven expertise in the insurance field or three years’ experience as a CEO, or have held another senior officer’s position in a financial institution. In addition, at least half of the external directors must have expertise in accounting and finance.
Prior to the appointment of a director or officer of an insurance company, a notice must be sent to the Commissioner, who may object to the appointment within 60 days.
According to the Control Law, the Commissioner has the right to supervise the nomination of directors and officers of an Insurer. The insurance company must submit annually the list of their D&Os to the Commissioner, specifying the qualifications of such D&Os.
Yes, they do, as the “fit and proper” assessment is part of the prudential supervision carried out by the NBB. There are two assessment standards which are the most important: expertise and professional integrity (Article 40 of the Supervision Act). The circular letter of the NBB of 17 June 2013 provides additional details about the way in which the NBB interprets the “fit and proper” legal requirements.
The expertise (fitness) standard covers a number of areas, including appropriate knowledge and experience, skills, and professional behaviour. As far as professional integrity (property) is concerned, a distinction is made between the professional disqualification technique, which is an automatic mechanism (there is no room for appraisal by the NBB) and the wider-ranging assessment of professional integrity (to which, on the other hand, the NBB’s power of appraisal does apply).
Senior managers must meet fit and proper requirements, which take into account good repute, competency, required experience and the absence of any criminal records.
Insurance and reinsurance companies seeking licenses and already-licensed undertakings making changes to its senior management need to provide information to, and get approval from, the ACPR regarding the following individuals:
- any person who effectively runs the (re)insurance undertaking (i.e. CEO, deputy chief executive officers, and, when appropriate, the members of the board of directors), or
- any person responsible for key functions (such as risk management, internal auditing, compliance and actuarial services).
OSFI expects (i) Boards of Canadian insurers to select managers who have the required expertise, skills, experience and perspectives, taking into consideration the insurer’s strategy, risk profile and overall operations, and (ii) foreign insurers to select a chief agent that is able to properly oversee the management of the foreign company branch, including matters of a corporate governance nature that relate to the branch, and who will be accountable for its operations. Candidates for such positions also have to undergo security checks prior to their confirmation.
The Ordination Supervision and Solvency of Insurance and Reinsurance Companies Act 2015
requires that the directors and officers of insurance and reinsurance companies and of the parent of insurance or reinsurance groups shall have a recognized commercial and professional reputation and be in possession of adequate knowledge and experience for a healthy and prudent management of the company.
PIRL sets forth that insurance and reinsurance undertakings must guarantee that the following individuals meet fit and proper requirements:
a. Directors and other individuals responsible for the management of the insurance or reinsurance undertaking;
b. Members of the supervisory board and the certified public accountant responsible for the issuance of the accountancy certificate;
c. Top executives and other individuals in charge of key-functions;
d. Other individuals that perform key-functions.
The aforementioned individuals (except for those provided under (d) above) must be registered with ASF. The registration procedure is set forth under Regulatory Rule 3/2017-R, of 18 May, issued by ASF.
While reviewing the application for an authorization IVASS performs a limited background investigation on the officers and directors the new company to ensure that they all meet the applicable legal requirements. Notably directors, officers, statutory auditors and general directors must all meet the prescribed requirements of probity, independence and trustworthiness according to the relevant Civil Code provisions, of Article 4 of Ministerial Decree n.186/1997 and Ministerial Decree n.162/2000, to ensure sound and prudent management of the insurance or reinsurance company. Article 36 of Decree-Law n. 201 of 6 December 2011 addressed the issue of ‘interlocking directorates’, introducing the prohibition for an individual to be member of two or more boards of insurance companies, financial institutions or banks; that too is controlled by IVASS.