technical session iv - dvs ramesh
DESCRIPTION
tttTRANSCRIPT
Workshop On
Financial Sector Assessment Programme
Hyderabad29th December, 2010
DVS Ramesh
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Objectives
ICP – 14 – Preventive and Corrective Measures Regulators are adequately backed by
comprehensive legal structure with powers to safeguard the public interest.
ICP – 15 – Enforcement or Sanctions Regulators are legally empowered to take
action, where necessary, to ensure compliance to the Act and Regulations.
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Preventive and Corrective Measures
Core Principle: “Supervisory authority takes preventive and corrective measures that are ‘timely’, ‘suitable’ and ‘necessary’ to achieve the objectives of insurance supervision”. Regulatory intervention to protect
policyholders Regulatory Response is based on problem
detected Overall Enabling Tools: Insurance Act, 1938;
IRDA Act, 1999 adequately equipped IRDA. Section 14 (2) – An Omnibus Provision
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Essential Criteriaa. Availability of Adequate Instruments for timely preventive and
corrective measures Specified returns within 6 months from the end of FY (Sec 15),
Qly Accounts & Investment Returns, Solvency Margin returns, Monthly Business / Other Returns etc.
b. Progressive Escalation of action or remedial measures Call for Information, Inspection, Examine Books / Accounts /
Officers on oath Investigation into the affairs of Insurer (Sec 33) and Search and seizure (Sec 34 H); Penalties (Sec 102) , Suspension / Cancellation of License (Sec 3 (4))
Formal Advise to Warning Letters / Letters of Caution Proposed Insurance legislation makes individuals jointly and
severally liable to make good the loss for contravening investment provisions
Enhances certain penalties to Rs 25 Crores
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Contd....c. Authority shall have capacity and standing to communicate
From formal communications to Directions u/s 34, 110 C; d. Require insurers to develop an acceptable plan for correction of
problems, if necessary Financial Plan (Sec 64VA (2A); Modification of rates, terms
and conditions of life policies (Sec 3B); requires insurer to take action (Sec 33(6)); directions regarding reinsurance treaties (Sec 34 F)
e. Measures to prevent breach of law and promptly and effectively deals with non – compliance with regulation
Call for further information (Sec 21); Order the revaluation (Sec 22) Review of Returns, Examination of Grievances
Areas to Strengthen Risk Based Supervision Powers to prescribe higher initial capital requirements in
specific cases
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Enforcement and Sanctions
Core Principle: “The Supervisory authority enforces corrective action and where needed imposes sanctions based on clear and objective criteria that are publicly disclosed. “ Decision making lines for remedial actions
to be structured A range of actions available say from
withholding approval for expansion to revoking the license
Overall Enabling Tools: Fines and Penalties & Suspension and Cancellation of Licenses
Essential Criteriaa. Issue formal directions and failure to
comply has serious consequences Advices / Formal communications Directions u/s 27 D (3), 33 (6), 34, 14 (1)
b. Power to prevent issuing new policies Sec 34 E (a) empowers IRDA to prohibit
Insurers / any Insurer entering a particular transaction / Class of transactions
Reg 27 Cease to transact new business 7
Contd…c. Compulsory Transfer of obligations from
failing insurers Sec 37 A empowers to prepare a scheme of
amalgamationd. Requiring Capital levels to increase, restrict
or suspend dividend or other payments to shareholders, restrict share transfer
Capital Levels not insurer specific, Prior approval for share transfer beyond a percentage and restriction on dividend (on Par Fund)
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Contd…e. Effective means to address Management
Problems and powers to impose conservatorship Sec 34 A prior approval for appointment of CEOs/whole
time directors; Sec 34 B empowers to remove managerial personnel; 34 C additional directors and 34 E (b) call for meeting of directors or depute its officers to watch the proceedings; Approval for Appointed Actuary
Sec 52 A Power to recommend appointment of Administrator for Life Insurance Business
Sec 52 H Power of Central Government to acquire undertakings of Insurers
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Contd…f. Periodical checks to determine the compliance
Regular Reviews, additional returns or a follow up inspection (where necessary)
g. Fines against Individuals and Insurers Fine on individuals for acting as insurance
intermediaries and for rebating Rs 500, proposed to be escalated to Rs
10000 and to Rs 500000 respectively Fine on Insurers for accepting business from
other than licensed intermediaries Rs 5000, proposed to be increased to
Rs 1 Crores 10
Contd…h. Sanctions for withholding the
information or misleading information Sec 104 Empowers to penalize for false
statements in the investment returnsi. Barring individuals from acting in
responsible positions Part of overall due diligence – Scope for
strengthening the procedures by disclosures
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Contd…j. Process of Sanctions do not delay preventive and
corrective measures Procedures in place to independently review these
respective linesk. Powers to withdraw the license
Reg 23 Suspension of Certificate, Section 3 (4) empowers
l. Powers to protect one or more insurers from financial difficulties of other parts of the group
Insurance business is relatively insulated and Policyholder’s funds are maintained separately
Abilities to infuse additional capital / Solvency Margin Review an ongoing process
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Contd…m. Authority enforces the sanctions
Section 110 AA of the proposed Bill classifies the penalty imposed is recoverable as arrears of land revenue
Escalation Provisions ensure the compliance to sanctions
n. Ensuring consistency in imposing sanctions
Procedures are in place13
Contd…o. Authority takes action against
individuals / entities operating insurance business without a licence.
Section 103 – Rs 5 lakhs penalty or with imprisonment up to 3 years
Issues Public Statements cautioning the public
In the Proposed Bill the penalty was escalated to Rs 25 Crores with imprisonment up to 10 years
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151527/04/2327/04/23
Thank YouThank You