The legislative framework introduces three levels of supervision: -
- Level 1 is the supervision of financial institutions on a standalone basis.
- Level 2 is specialist group supervision, where the supervised group operates primarily in one industry.
- Level 3 is the supervision of a financial conglomerate, which operates in more than one industry.
The designation of insurance groups, controlling companies and financial conglomerates strengthens prudential oversight and makes enhanced supervision possible.
The designation of insurance groups and controlling companies.
The Insurance Act empowers the Prudential Authority (PA) to designate insurance groups and to licence controlling companies. The PA may designate a person an insurer, a juristic person that is part of a group of companies and a person that is related to this juristic person as a financial conglomerate. An insurer that is part of a group of companies must by 1 September 2018 notify the PA thereof. The notification must include detailed information regarding the structure of the group, the holding company and all intra-group transactions.
The designation of an insurance group includes the designation of a holding company that must apply for a licence to be the controlling company of that group. This means that a person cannot apply to be for licensing as a controlling company without having been designated by the PA as a holding company or juristic person that must apply for a licence as a controlling company of that insurance group.
The PA will follow a 5-step process for the designation of an insurance group and a controlling company, once it has received notification and information from an insurer that is part of a group of companies. The PA will: -
- Scope the insurance group and identify the holding company that in their view should be designated as the controlling company of the insurance group.
- Inform the insurer and the identified controlling company of the intended scope of the insurance group and the PA’s intention to designate that as the insurance group and the holding company as the controlling company.
- Provide the insurer and the holding company an opportunity to make representations
- Consider the representations.
- Inform the insurer and the holding company of its decision.
The designation of financial conglomerates
The PA has also published a guidance note which provides the criteria to be followed by the PA when designating financial conglomerates for informal public consultation. The guidance note states that the PA will consider the following characteristic of the group for level 3 supervision: -
- The involvement of group in financial sector industries.
- The interconnectedness of a bank, insurer or a securities services provider with other entities within the group.
- The complexity of the financial group, its business model and group structure.
- The number and materiality of non-regulated entities.
- The inclusion of a systemically important financial institution within the group.
Both the controlling company of the insurance group and the holding company of financial conglomerate must comply with certain standards.
The PA may reconsider designations depending on changes in the risk profile changes of any members of the insurance group or financial conglomerate.
For more information contact:
Mashudu Mabogo, SAIA Legal Manager