Qatar is continuing to drive forward its legislative and regulatory agenda for financial services; particularly taking measures to strengthen the requirements in the insurance sector where recent growth has been significant. New Qatar Central Bank regulations for insurance intermediaries represent one of the remaining areas for regulatory provisions in Qatar; below we examine the key aspects.
New QCB Regulations for Insurers now in force and bedding in
The QCB has established its own Insurance Division with separate teams covering insurers and intermediaries.
In April 2016, the QCB issued its Executive Instructions for Insurers ('Insurer Rules') with comprehensive rules covering licensing of insurers operating in the State and with extensive requirements for prudential and financial compliance as well as conduct of business rules. These requirements have been bedding in.
New QCB Regulations for insurance distribution and servicing – in 'draft' but licensing already well under way
In October 2016, the QCB also issued 'in draft' its Instructions for Insurance Intermediaries, Representatives and Service Providers (' Intermediary Rules'). These are expected to become final in the next few months.
Categorisation of intermediaries, company representatives and service providers
The Intermediary Rules apply to various businesses carrying on activities relating to insurance. These include intermediaries, insurance company representatives and service providers:
- Intermediaries: persons conducting insurance mediation – insurance mediation excludes one insurance company selling another insurance company's products as well as the activities of insurance company representative offices.
- Company representatives: persons conducting insurance agency business. Company representatives can only represent one insurance company in respect of each category of insurance i.e. one insurer for each of general, life assurance or long term. Company representatives must have contracts of agency with the relevant insurance company in compliance with the QCB Insurer Rules.
- Service providers: businesses providing third party services such as actuarial, insurance consultancy or loss adjusting services to insurers. With regard to insurance consultancy, these include areas such as risk assessment or compliance.
Service providers applying for licences are not strictly required to be resident in Qatar but, if they are based outside of Qatar, the QCB will need to consider and take into account the applicant's home state jurisdiction and 'whether the applicant's jurisdiction or legal system allows it to carry on insurance services efficiently and does not prevent the QCB from appropriately supervising the applicant effectively'.
Service providers will also need to register with the QCB their employees that provide the services to clients. These employees will need to be appropriately skilled, experienced and qualified.
Intermediaries and company representatives must have licences from the QCB. Service providers should also be licensed to operate in Qatar but, in exceptional circumstances, the QCB may register a foreign service provider to provide actuarial or loss adjusting services without a licence in Qatar. This exception allows for possible skill gaps or particular expertise not immediately available in Qatar.
Neither intermediaries nor company representative are permitted to hold client money.
How is licensing progressing?
The QCB has already been accepting applications for licences and periodically issues a list of licensed intermediaries to QCB insurers and there are over 35 now licensed. However, there is currently no public register yet in place so it is not easy to get up to date information without polite enquiry direct to the QCB.
Application requirements for intermediaries include the need to confirm details of professional indemnity insurance and a 3 year business plan. An applicant for insurance mediation, agency or insurance services must be a natural or corporate person.
Insurance mediation and agency business cannot be done together. A QCB licensed bank can operate as an insurance agent.
Annual fees for licensing are QR15,000 for intermediaries and agencies and QR10,000 for service providers.
Regulations covering prudential, financial and conduct of business requirements
The Intermediary Rules include significant prudential and conduct of business requirements for licensed firms. There are some transition provisions to the new requirements but many require compliance from day one of licensing.
In terms of financial resources for intermediaries and company representatives, they must have financial resources 'adequate for the nature, scale and complexity of the proposed insurance mediation or agency business'. There must be requisite systems of control and adequate staffing and anti-money laundering and counter terrorism financing procedures.
Chapter 5 of the Intermediary Rules for intermediaries and company representatives provide for corporate governance and systems of control requirements. These include a requirement to meet Principles of Governance and require a governance framework to be in place and operational. There is also a requirement to have appropriate senior management including, as a minimum, a CEO and Compliance Officer. There are also typical regulatory provisions requiring internal management and organisational structures, policies and procedures to ensure appropriate allocation and segregation of responsibilities and oversight of controls including a documented 'register of allocated responsibilities'. The systems of control must be assessed independently each year with a report on findings to the governing body so that an action plan for any improvements can be prepared and approved.
Remuneration of advisers – an area for continuing development
Other noteworthy obligations under Chapter 5 include a requirement for an approved Remuneration Policy with 'forms and mix of remuneration' needing to be 'consistent with sound risk management and performance-based rewards'.
Remuneration structures for advisers are under continuing scrutiny in many jurisdictions worldwide and regulation in this area is likely to become more detailed. For the moment, requirements are more 'high level' in nature.
For customer-facing roles such as insurance advisers, the remuneration structure 'must not create any improper incentives that might have undesirable outcomes contrary to customer interests'. There is no prescription or detail beyond this but it is likely more transparency will be required and more detail will follow from the regulators around commission and fee structures that are acceptable – it is important firms are seen to be proactive and can demonstrate positive outcomes for clients from the advisory processes and remuneration models in place.
Training and competency – framework with limited prescription
There are provisions that look to raise standards of competency and encourage learning. The requirements for training and suitability of staff are initially focused on broad 'skills, qualifications and experience' for the key people in the business including the governing body, senior management and customer-facing roles and advisers. There must be policies and procedures in place to demonstrate assessments of competency, but there is no prescription on the approach.
For customer-facing roles, there are, however; examples given of appropriate professional qualifications. It is understood and expected that the requirements may become more prescriptive in the years to come. In the guidance notes to the relevant requirements it states ' requisite experience is determined by the nature and complexity of the insurance business. A person involved in complicated insurance (e.g. reinsurance contracts) or long-term insurance (e.g. savings plans) is expected to have wider experience than those involved in retail insurance (e.g. motor).'
There is a mandatory requirement to periodically assess competency for persons in governing, senior management and customer-facing roles to ensure ongoing skills and suitability for the roles they undertake. Training programmes must be evidenced in support and the compliance function must monitor the training and competency programme and report to the governing body at least once a year.
Significant Financial Requirements
Chapter 7 of the Intermediary Rules states that the governing body must continually assess the capital required for the business.
Under Chapter 7.1.3, an intermediary or company representative must have share capital of at least QR1million. In addition, the net asset value of the business must not be less than 50% of the required minimum capital requirement. Any breaches of the requirements must be reported immediately to the QCB.
There are also very detailed provisions covering professional indemnity arrangements for intermediaries and company representatives, including a need to secure QCB approval to the insurance arrangements. For cover, the requirements stipulate an annual limit of indemnity of QR4million for a single claim and, in aggregate, the greater of QR6million or 10% of the intermediary or company representative's annual income.
Service providers must also have requisite professional indemnity insurance arrangements.
Conduct of Business Requirements – in line with global trends
The conduct of business requirements of the QCB provide a number of key provisions within its framework of 'Fair Dealing Principles' of Conduct. These changes are extensive, but largely consistent with the regulation of advisers in other parts of the world.
There is prohibition against volume overrides and commission enhancements such as marketing or other allowances, where commission is enhanced for multiple transactions. Any replacement of existing insurance policies must be accompanied by a disclosure document, demonstrating the replacement policy is 'in the customer's best interests'.
Chapter 10.7 of the Intermediary Rules detail provisions for status and product disclosures. This requires a prescribed terms of business document for the adviser including name, types of services, data protection policies and procedures and disclosure of remuneration i.e. fees or commissions as well as applicable regulation by the QCB.
There are extensive prohibitions against the selling of most foreign 'non-admitted' insurance classes such as property and general insurance lines. Where provision is allowed for sale of some limited classes of insurances (i.e. long term insurance) offered by foreign insurers that are not licensed in Qatar, this can only be done with insurers that are duly licensed in their home country. Explicit disclosure of information requirements relating to any sale of these foreign insurances must also be made by the intermediary concerned in accordance with the Intermediary Rules and with ongoing monitoring of the insurer to be carried out by the intermediary to ensure that customers are kept fully informed and protected against exposure to inappropriate risks and any limitations of foreign cover and regulation that apply to the foreign insurer.
In terms of Product Disclosure, before the customer becomes committed to an insurance contract, the intermediary or company representative must also provide a disclosure document compliant with the Insurer Rules and which demonstrates key terms and risks of the product.
Further requirements for the adviser also include 'know your customer' and 'suitability assessment' provisions in support of sales. These provisions include requirement for the intermediary or company representative to provide the customer with a signed written 'statement of suitability' in support of a recommended sale.
Data Protection – QCB and new State law provisions to observe
There are provisions requiring policy and procedures for data protection in Chapter 10.5 of the Intermediary Rules. These new requirements need to be reviewed closely to ensure that compliance is also consistent and in in line with the new Qatar law, concerning Personal Data Protection, Law No. 13 of 2016, which requires full compliance from 29 June 2017. Particular attention is required to ensure appropriate disclosures and client consents are secured for processing of data, including sensitive data such as that relating to health.
Outsourcing arrangements – QCB approvals required in advance
Many insurance businesses outsource many parts of their business operations. The Intermediary Rules include rules on outsourcing and requirements for formal and prescriptive legal agreements to be in place and with a need for prior notification to and approval to be obtained from the QCB before they are effective – outsourcing includes intra-group as well as third party arrangements. The arrangements must also be formally reviewed each year.
Much to do and only limited transition
These new requirements are extensive, and will require ongoing monitoring and compliance as well as reporting to the QCB. There are significant consequences for non-compliance including fines and prohibitions under the applicable law and regulation.
There are some transitional rules in Chapter 12 to assist firms in achieving effective compliance – these include a transition period of 12 months from licence for compliance with areas involving governance and systems of controls as well as for meeting advertising and disclosure requirements under conduct of business rules to allow for new systems and documentation to be developed. However, most provisions are in place 'day one', as from the effective date of the rules, including the significant financial requirements. There is quite limited time to get the extensive and necessary arrangements in place.
So, is the final part of the regulatory jigsaw for Qatar's insurance sector in place? Certainly, when the new 'draft' regulations are confirmed as final, there is a wide-ranging and comprehensive base of rules from which the Qatar supervisors can set internationally aligned requirements and effectively monitor day to day market insurance practices. The previous examples of unlicensed activities in the State should now diminish with this new regime and the changes provide certainty and represent a very big step forward.
It is very significant that only QCB and Qatar Financial Centre Regulatory Authority authorised intermediaries are now able to carry on insurance mediation business in Qatar. Anyone dealing with unlicensed intermediaries is potentially at risk of fines.