Qualification and business reputation requirements have been introduced for Russian insurance organisation executives. Prior approval of candidates to the executive positions in Russian insurance companies by the Central Bank of Russia (the “CBR”), the sector regulator, will also be needed. These changes will come into force on 28 January 2018 in accordance with the amendments* to the law of the Russian Federation No. 4015-1 “On the Organisation of Insurance Business in the Russian Federation” dated 27 November 1992 (the “Amendments”).

The new requirements

The CBR has the right to assess whether the top management executives and officials of insurance organisations comply with the qualification and business reputation requirements as set out below. The executives must abide by these requirements throughout the duration of their authority. 

Qualification requirements

The Amendments have set out a list of executive positions in insurance organisations that will have to meet qualification requirements, namely:

  • persons serving as a company's sole executive body and their deputies;
  • members of a company's collegial executive body; and
  • heads of a company's branches.

Such executives must have a higher education degree and at least two years of experience in managing a financial organisation or its structural division, or work experience in senior positions in bodies of state power of the Russian Federation or its regions or with the insurance sector regulatory authority.

The Amendments provide for a five-year transitional period, which may be applied depending on the circumstances. Accordingly, if an executive, as of 28 January 2018, already holds a position that is subject to qualification requirements, such requirements will apply after the expiry of five years, i.e. from 29 January 2023. However, if an existing executive is re-appointed for a new term after 28 January 2018, then the five-year postponement of these requirements will not apply. 

Business reputation requirements 

The executives of insurance organisations listed above (except the heads of branches), as well as the chief accountants of insurance organisations and their branches, as well as their deputies, auditors, internal auditors, members of the board of directors (supervisory board) and the officials responsible for the implementation of the rules of internal control must meet the business reputation requirements established by the Amendments.

The Amendments contain a broad list of cases where these executives and officials are deemed to be in violation of the business reputation requirements. Many of such cases relate to the participation of these executives in the management of a financial or credit organisation which has been declared bankrupt, or its licence has been revoked or cancelled. Such cases include, for example:

  • presence of an unexpunged or outstanding conviction for premeditated crimes;
  • ongoing disqualification from office;
  • subsidiary liability for the obligations of a financial organisation;
  • repeated instances of administrative liability for misconduct in the bankruptcy of a legal entity in the period of three years preceding the day of appointment;
  • declaration of bankruptcy (either as a private individual or an entrepreneur) within five years from the date of the completion of the assets disposal procedures or termination of the bankruptcy case during such a procedure;
  • possession in the previous five years of the right to give binding instructions or the possibility to determine the actions of a financial organisation that has been declared bankrupt;
  • presence of a criminal record in the previous five years for misconduct in the bankruptcy of a legal entity, deliberate and/or fictitious bankruptcy of a legal entity;
  • termination of an employment contract in the three previous years as a result of losing the employer’s trust (as stipulated under para. 7 of the first part of article 81 of the Russian Labour Code) or conflict of interest (under para. 7.1 of the first part of article 81 of the Russian Labour Code).

It should be noted that the CBR may check the compliance of the executives and other officials of insurance organisations appointed before 28 January 2018. However, according to the Amendments, the CBR, when assessing such compliance, will take into account the facts that amount to the grounds for declaring them in violation of the new business reputation requirements, only if such facts occur after 28 January 2018.

Approval of candidates and notifications

After the Amendments have come into force, insurance organisations will be required to obtain prior approval of the CBR for the appointment of candidates to the positions of:

  • a company’s sole executive body and his/her deputy; 
  • member of a company’s collective executive body; 
  • chief accountant; 
  • deputy chief accountant; and 
  • internal auditor and head of the internal audit department. 

The CBR will have up to 30 working days to consider the applications for the approval of a candidate. The procedure for sending the applications for the approval of a candidate, the standard application form and the list of required documents will be established by the CBR.

In addition to getting approvals for the appointment of candidates to the above-listed positions, the insurance organisations will be obliged to notify the CBR in writing about the actual appointment and removal of such executives. 

It will also be necessary to notify the CBR of the election and termination of the authority of a member of the board of directors (supervisory board), as well as of the appointment and removal of the auditor, the official responsible for the implementation of the rules of internal control and the head or chief accountant of a branch of an insurance organisation. 

Consequences of non-compliance with the new requirements

Consequences of non-compliance with the qualification or business reputation requirements

If, after the appointment of an executive or official to a position, it is discovered that he/she does not meet the qualification or business reputation requirements, then the insurance organisation will be obliged to notify the CBR within two working days, as well as to remove the executive or official from office not later than one month from the date of discovering these facts. 

Consequences of non-compliance with the prior approval requirements

If an insurance organisation fails to comply with the requirement for obtaining a prior approval of the CBR for the appointment of candidates to the positions listed in the Amendments, the CBR has the right to order the insurance organisation to rectify the violation. Non-fulfilment of the order may lead to the limitation or suspension of the licence of the insurance organisation and eventually to its revocation in the future.

Comment

We recommend that our clients start checking whether their top management executives and officials meet the qualification and business reputation requirements established by the Amendments. In addition, insurance organisations and their shareholders, when planning to make changes in their top executive management positions, will have to comply with the new procedures of approving such candidates by the CBR and later notifying the CBR about their appointment.