The MFSA has issued a circular to insurance market participants on amendments to Chapter 1 and Chapter 2 of the Insurance Business Rules issued under the Insurance Business Act (Chapter 403 of the Laws of Malta). These amendments are being made effective immediately.
Chapter 1 of the Insurance Business Rules provides for the requirements to by complied with by applicants seeking authorisation to establish an insurance undertaking; or a reinsurance undertaking; or a cell of a protected cell company; or a branch of a third country insurance undertaking or reinsurance undertaking in Malta; or intending to apply for an extension of authorisation.
Chapter 2 of the Insurance Business Rules on the Fit and Proper Criteria, Notification and Assessment is also being amended in order to integrate the competency form in the personal questionnaire and the assessment.
Report on the adequacy of the scheme of operations
Currently applicants are requested by the MFSA to provide a report drawn up by an approved auditor or where the undertaking is managed, by the insurance manager, on the adequacy of the undertaking’s business plan and that the business plan has been properly prepared on the basis of the assumptions stated. In addition, currently the scheme of operations also needs to be signed by either an accountant or an actuary. It is to be noted that these two requirements have now been amalgamated into one. Therefore, the MFSA is now requesting only one report. The said report on the adequacy of the scheme of operations and the basis of its assumptions can thus now be signed by either an auditor, an accountant, an actuary or an insurance manager.
In relation to the shareholding structure of the applicant entity, the MFSA may require qualifying individual shareholders to submit a Statement of Wealth. The statement must contain details on the net worth of the individual and information as to the source of his wealth. The statement must be verified by a qualified accountant or auditor in his/her professional capacity.
Furthermore, where a qualifying shareholder is a set up in the form of trust, the MFSA is now requesting full information on the trustee, settlor, protector, any named beneficiaries and any other person exercising control.
Source of Business
Applicants will now be required to provide the following information:
- details of the target market
- details in relation to inducements that will be granted to intermediaries. The MFSA would like to note that when setting up such commission, it is recommended that this is not based solely or to a large extent on sales generated but it should take into account other factors such as regulatory compliance and complaints records.
- submission of Insurance Product Information Document (IPID)
- submission of Product Oversight and Governance policy
- details of how the applicant is ensuring that the necessary disclosures are being met
- details on the manner in which complaints will be handled
- questions that will be used to carry out the demands and needs test or the suitability test and appropriateness test, as applicable.
The applicant must also provide details on the procedure that will be used to approve appointed distributors and information on the on-going due diligence that will be carried out.
Through these amendments the MFSA has amplified the Risk Management section. Applicants are now required to include details of the business that falls outside their risk appetite. Furthermore, the application will also contain specific questions in relation to:
- Underwriting and reserving risk
- Operational risk
- Reinsurance and other risk-mitigation techniques
- Strategic and reputational risk
- Asset-liability management
- Investment risk management
- Liquidity risk management
Applicants are no longer required to submit policy wordings but the MFSA reserves the right to request such documents if it deems necessary.
Financial Crime Analysis
A new section in relation to Financial Crime Analysis has been included in order to specify the requirements which an applicant is required to provide to the MFSA when submitting an application. This requirement applies to all subject persons in terms of the Prevention of Money Laundering and Funding of Terrorism Regulations.
Further detailed requirements have also been included in relation to IT Systems. Applicants are now required to include more details on the dependency and complexity of systems; on data protection and data security; and whether the applicant will be relying on cloud infrastructure.
The MFSA has noted that applicants may not always have available draft reinsurance agreements. In this respect, the applicant will instead be required to confirm in the scheme of operations, the anticipated reinsurance arrangements that will be put in place. Nevertheless, the MFSA reserves the right to request a copy of the reinsurance agreement at any point in time.
Submission of the scheme of operations
The information found in Chapter 1 in relation to the contents of the scheme of operations has now also been templated. Therefore, applicants are now requested to submit their plans in a structured format by completing the scheme of operations found underneath each Schedule, as applicable. The MFSA expects to receive fully completed forms; nevertheless, if any requirement does not apply to an applicant, then such requirement may be left blank.
Disclaimer: This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.