The specific fit and proper requirements that apply to relevant persons in the insurance sector have now been clarified and prescribed by the Registrar of Long-Term Insurance and Short-Term Insurance (Registrar) in Board Notice 158 of 2015 (the Notice) published on 14 August 2015.
The requirement that the relevant persons be ‘fit and proper’ is already part of our law in terms of section 1 of the Long-Term Insurance Act, 1998 (LTIA) and the Short-Term Insurance Act, 1998 (STIA). What the Notice does is prescribe how one assesses compliance with this requirement. This lends greater clarity to the question of when an insurer might be prohibited from continuing business on the basis that its senior officers or significant owners are not ‘fit and proper’ persons.
Who do the fit and proper requirements apply to?
The prescribed requirements apply to the following persons in the insurance sector:
- a director, managing executive, public officer, auditor, statutory actuary or any of their alternatives (collectively referred to as Senior Officers); or
- a Significant Owner (being a person that acquires shares or any other financial interest in an insurer within the meaning of section 26 of the LTIA or section 25 of the STIA).
What do the fit and proper requirements relate to?
In respect of Senior Officers, the prescribed requirements relate to competency and integrity and include, amongst others, that the relevant person must:
- at all times have satisfactory educational qualifications, experience or expertise, and relevant skills and knowledge relating to the duties that he or she performs;
- be a person of integrity and must not have been previously convicted, or be the subject of any pending proceedings which may lead to such a conviction, under any law in any jurisdiction for any offence including, amongst others, fraud, forgery, perjury or any offence involving dishonesty or violence;
- not have been the subject of frequent or severe preventative, remedial or enforcement action taken by the Registrar or another regulatory authority; and
- must have never been, nor be in the process of being, disciplined, reprimanded, disqualified or removed in relation to matters relating to honesty, integrity or business conduct by a professional body or regulatory authority.
The Notice lists a range of offences generally and under specified pieces of legislation that constitute prima facie evidence that a person does not meet the requirements to be regarded as a person of integrity.
In respect of a Significant Owner, the prescribed requirements relate to good financial standing and integrity. The following will constitute prima facie evidence that a Significant Owner is not in good financial standing:
- he, she or it does not have adequate financing or funding and future access to capital;
- he, she or it is not able, or likely to be able, to meet any financial obligations (including debts) as they fall due; or
- has been the subject of a civil judgment in respect of unpaid debts (which remain unpaid), or is the subject of any pending proceedings which may lead to such a judgment.
Significant Owners are subject to the same requirements pertaining to integrity that are applicable to Senior Officers. The Notice also prescribes how integrity is to be determined in the case of a Significant Owner that is a juristic entity.
How are insurers expected to manage compliance with these fit and proper requirements?
In terms of the Governance and Risk Management Framework of 2014 (Governance Framework), published under the LTIA and the STIA, an insurer is required to maintain a Fit and Proper Policy (the Policy). Amongst other things, that Policy must, at least:
- provide for the prudent management of the risks that a responsible person (ie a Senior Officer, Significant Owner or the head of any control function) who is not fit and proper poses to its insurance business, financial soundness and fair treatment of policyholders;
- include the assessment and decision-making processes to be undertaken to determine whether a responsible person is fit and proper;
- specify the actions to be taken where the insurer assesses a responsible person as not being fit and proper, which must include notifying the Registrar of such an assessment and the actions taken; and
- require periodic (at least annual) fit and proper assessments for each responsible person.
If the Registrar is of the opinion that an insurer is not managed or owned by persons who are fit and proper, or is not managed in accordance with the Governance Framework, this could compromise the insurers ability to continue business.
The Notice takes effect on 1 October 2015 and can be accessed here.