How rigorous is the supervisory and enforcement environment?
Insurance & Reinsurance
Based on the Insurance Business Act, the regulatory authorities have the power to issue administrative dispositions to insurance companies, including orders to change the basic documents, orders for business improvement, orders for suspension of business, or orders for cancellation of a licence. In fact, a broad discretion has been given to the regulatory authorities, and those administrative dispositions against insurance companies invoked by the regulatory authorities are not necessarily based on the assumption that violations of law by insurance companies have taken place. With that as a background, entities targeted for supervision not only have to make sure that laws and regulations are being observed but must also follow the guidelines officially promulgated by the regulatory authorities (Comprehensive Guidelines for the Supervision of Insurers; the “Guidelines”).
When investigating breaches of the governing Acts, both APRA and ASIC have wide investigative powers to require all relevant information or persons with information to be produced or examined. The supervisory and enforcement approach of the regulators is dependent on the nature and severity of the contravention committed.
Unless significant contraventions have occurred, the focus for ASIC is on corrective and compensatory enforcement. The majority of contraventions are resolved through the issuing of infringement notices, recovering losses on behalf of entities, corrective disclosure orders and entering enforceable undertakings. Where the contravention is more serious, ASIC may seek criminal or civil penalties on the entities and individuals involved, extending to disqualifying individuals from providing financial services or managing a company.
With the overlap in the supervisory and enforcement responsibilities for APRA and ASIC, both regulators have a cooperation framework to guide their joint enforcement functions.
Following the implementation of the EU Solvency II Directive in 2016, the supervision and enforcement environment of insurance companies in Denmark has become increasingly tougher. Withdrawal of insurance companies’ licenses is, however, still very unusual in Denmark, and it has only been seen effectuated in very severe cases.
The KNF exercises supervision and control over insurance and insurance intermediation activity within the scope set out in the Insurance Law, the Insurance Intermediation Law (which will remain in force until 30 September 2018), the Insurance Distribution Law (which will come into force as of 1 October 2018) as well as in the Act of 21 July 2006 on Financial Market Supervision.
The KNF is generally responsible for granting authorisations and licences regarding regulated insurance and/or reinsurance activity, and carrying out inspections in the regulated companies. It also performs disciplinary functions and initiates and/or opines on legislative changes. Its supervision of the financial market is aimed at ensuring its proper functioning, stability, security and transparency, trust in the financial market and protection of the interests of the participants by providing reliable information on the market.
The KNF issues recommendations, in which it sets out specific requirements for insurers in order to ensure compliance with the law, protect the interests of policyholders, to limit the risk occurring in their activities etc.
In the past, the KNF has also issued a number of guidelines for insurers. Such guidelines are not a formal source of law but rather a general indication of the KNF’s views on and interpretations of the law, nevertheless in practice they are observed by the market players.
The KNF analyses reports submitted by financial institutions and assesses whether they satisfy the capital requirements defined by law.
The KNF is generally open to cooperation with regulated entities but frequently takes a strict approach to the applicable regulations.
In the case of a violation of legal regulations, the KNF may impose financial penalties on regulated entities or their management board members or even withdraw the licence held by the financial institution.
From 2006 (i.e. the moment when the KNF was established) to the end of March 2018 the KNF has imposed 603 fines on regulated entities, with the highest one in the amount of PLN 5,700,000. The highest fine imposed on an insurance company amounted to PLN 2,300,000 (imposed in 2016 for delaying payments of insurance benefits and infringement of the information obligations).
The regulations regarding insurance activities are developed and enforced by the Undersecretariat in order to ensure that participants of insurance sector operate in accordance with the legislations and professional guidelines. All activities of insurance companies are closely overseen by the Undersecretariat.
Ireland has a well-established efficient prudential regulatory infrastructure that complies with best international standards. As above, 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 Administrative Sanctions Regime 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 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 PRA and the FCA have extensive statutory enforcement powers set out in FSMA. Where someone has breached the prohibition on carrying out a regulated activity without permission they may be imprisoned or fined. The sanction of withdrawal of authorisation is available to the Regulators where a business ceases to meet the threshold conditions (that is the minimum requirements both Regulators require for authorisation). 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 expert ("skilled person").
All regulated businesses are under an ongoing obligation to inform the regulator of anything relating to the firm of which the regulator would reasonably expect notice.
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 supervisory powers which are, in particular, set out in Sections 294 to 310 of the Insurance Supervisory Act. In order to provide guidance on their supervisory practice, BaFin issues Interpretative Decisions (Auslegungsentscheidungen), Guidance Notices (Merkblätter) or Circular Letters (Rundschreiben) on several topics. Even though not technically legally binding, the Circular Letters in particular are usually deemed to be a clear indication of the regulator's expectations. Moreover, these publications will usually constitute a binding principle with the effect that BaFin has to treat similar cases alike.
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 supervisory and enforcement environment contemplated in the LISF adopts a surveillance standard and framework similar to those established in the Securities Market Law and in the Banking Law, redefining the roles of the SHCP and the CNSF. In this regard, the LISF grants specific authority on a ‘macro’ level to the SHCP with respect to the design and operation of the insurance and bonding system, while the CNSF has the authority on all aspects related to the licensing and authorization procedures to insurance companies, going from their incorporation and operation to the revocation of their license and liquidation. Within this redistribution of capacities, the authority of the CNSF is broadened to grant such entity authority to issue general regulations aiming to regulate the insurance companies, which originally resided within the SHCP.
The new structure intends to standardize the legal framework of insurance and surety companies to that of other financial entities and regulators, which, in our opinion, creates an imbalance among the traditional authorities given to the SHCP as Ministry of State and regulator of financial activities, and the attributions now granted to the CNSF under the LISF, which, from being a technical and surveillance authority becomes a much more robust regulator of the insurance and bonding sectors, with new authorities while maintaining its supervisory role.
As a general rule, 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 and manage and operate the different registries contemplated in the LISF and CUSF, including the RGRE.
The CNSF is also responsible for supervising the operation of insurance and reinsurance companies and has authority to inspect, sanction and issue regulations applicable to the operations of Mexican insurance and reinsurance companies. All applicable regulations issued by the CNSF are compiled in the Circular.
The CNSF tends to be rigorous in the supervision and enforcement of regulations applicable to the operation of Mexican insurance companies and other market participants. However, such rigor is not evenly applied to all the aspects of insurance operations in Mexico, in some instances due to the difficulties to support breaches to the applicable laws and regulation as it is the case with the lack of significant precedents in the enforcement of legal and criminal 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.
Finally, insurance companies are also regulated by the National Commission for the Protection and Defence of Users of Financial Services (“CONDUSEF”), regarding protection to consumers of financial services (see Question 11 below).
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.
The regulatory framework confers upon the insurance regulator ample faculties to supervise and enforce the regulation in respect of local insurers and intermediaries or brokers registered in Chile. The scope and thoroughness of this supervision has increased in the last years, and timing required to process submissions and requests has increased accordingly. The recently created “Comisión para el Mercado Financiero” (CMF), the regulator that replaced the Superintendence of Securities and Insurance, has contributed to this. In future, the CMF will also take over the supervision of banking and financial entities. Insurance supervision so far could be considered less demanding than securities and banking, and this trend may continue once the CMF absorbs banking and finance. This will take place once the new Banking Act, currently processed by the Senate, is enacted.
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 insurers, reinsurers, insurance intermediaries and other organizations who provide services within the insurance market.
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$ 7,705) to INR 1 crore (c. US$ 154,100).
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, the ACPR, has two missions, namely: (i) the preservation of the stability of the financial system, and (ii) the protection of the clients, insureds, policyholders and beneficiaries of the insurers, reinsurers and intermediaries who operate under its control.
To these ends, the ACPR is empowered, inter alia, to:
- grant licenses,
- issue professional rules applicable to all insurance undertakings,
- investigate insurance undertakings, and
- hand down possible sanctions, such as warnings, reprimands, prohibitions from carrying out certain operations, temporary suspensions of entities’ directors and officers and partial or total withdrawal of entities’ licenses. The ACPR can also impose fines of up to 100 million euros or 10% of the entity’s annual turnover. It should be noted that the ACPR’s sanctions are published on its website and are not anonymized, which naturally constitutes an additional symbolic sanction and a significant deterrent.
Moreover, and as indicated above, certain violations of the applicable regulatory framework constitute criminal offences and can give rise to significant sanctions.
In light of the above, there can be little doubt as to the fact that the supervisory and enforcement environment is indeed a rigorous one.
In recent years, the ACPR mainly focused its efforts on professional requirements (especially for insurance intermediaries), unclaimed life insurance policies, insurers’ duties to inform and advise potential insureds, corporate governance, unlawful writing of insurance contracts and anti-money laundering procedures.
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.
This has to be checked on a case by case basis but, generally speaking:
- For non-admitted insurers the Spanish regulator has been very rigorous in the
application of the relevant measures/penalties.
- For local / Spanish and EU insurers operating in Spain, penalties are imposed taking
into account the type of infringement concerned, such as the continuous nature of the
infringement and existence of previous requirements / warnings from regulators, the
degree of intention, whether this or other infringement was committed in the past, the
extent of the loss or damage caused and number of policyholders affected, etc. Also, in
case of EU insurers, the law provides that, before imposing any penalty, the Spanish.
Regulator would have, among other issues, to notify the Insurance supervisory and
regulatory authority of the home Member State in the EU so that this authority may
adopt the necessary measures to have insurer rectifying its conduct.
As it was mentioned above, the Portuguese insurance regulator is ASF – Autoridade de Supervisão de Seguros e Fundos de Pensões. It is responsible for supervising the activities carried out by insurance and reinsurance undertakings with registered office in Portugal, including the activity carried out by such undertakings in other EU member states (through a branch or under the principle of freedom to provide services), as well as the activity pursued in third countries. It is also responsible for supervising the activity of insurance undertakings with registered office in a third country that pursue their activity in Portugal through a branch. Finally, ASF also checks compliance with legal, regulatory and administrative provisions by insurance and reinsurance undertakings with registered office in a EU member state, that pursue their activity in Portugal (through a branch or under the principle of freedom to provide services).
The supervisory duties of ASF include the verification of solvency status, the constitution of technical provisions, the assets and eligible own funds of the insurance and reinsurance undertakings, as well as their accounting regime, corporate governance and their behavioural action.
ASF has a wide range of powers so as to guarantee and perform the aforementioned duties, including the power to (i) verify technical, financial, accounting and legal conformity of the activities pursued by insurance and reinsurance undertakings under its supervision, (ii) request detailed information on the situation of insurance and reinsurance undertakings, as well as to proceed with inspection to their respective facilities, (iii) adopt all preventive and corrective measures deemed necessary, (iv) develop quantitative instruments so as to evaluate the solvency of the insurance and reinsurance undertakings, and (v) demand the correction of deficiencies and irregularities detected.