Page 1 FIT & PROPER REQUIREMENTS Paola PERSANO ADORNO, ISVAP MALTA, 8 April 2010

CEIOPS OVERVIEW CEIOPS  PART I – FIT AND PROPER REQUIREMENTS  PART II -NOTIFICATION REQUIREMENTS  PART III – ASSESSMENT  PART IV - COOPERATION AND SUPERVISORY POWERS Page 2

Page 3 PART I FIT and PROPER REQUIREMENTS

CEIOPSCEIOPS  Persons who effectively run the undertaking: not only members of administrative, management or supervisory body; it could include other people such as senior managers (persons who are responsible for high level decisions making, and implementation of the strategies and policies approved by the administrative, management or supervisory bodies).  Persons who have the other key functions  Key functions holders: people who perform the key functions identified by the directive i.e. those functions considered critical or important in the system of governance (risk management function, compliance function, internal audit function, actuarial function).  Other key function holders: people who perform other key functions identified by the undertaking and considered relevant by the supervisor (usually functions that are fundamental to carry on core business). Function is an administrative capacity to undertake particular governance tasks. Function does not equal “department” or “unit”. Persons concerned Page 4

CEIOPSCEIOPS  Professional competence  The management competence: previous experience in the management area, not necessarily in the financial sector (i.e. people who can bring management culture in the identification of models of business such as in the marketing strategies or in the customer care).  The business competence: technical competence, experience in the financial sector (the person should demonstrate due skill, care, diligence, and compliance with the relevant standards of the area/sector he /she has worked in). Professional competence is the result of the level of a person‘s previous experience, knowledge and professional qualifications or relevant experience within the insurance and financial industries or other business. Not all the members of the administrative, management or supervisory bodies have to possess the same qualifications but collectively they have to be able to provide for the sound and prudent management. Fitness under CEIOPS Advice Page 5

CEIOPSCEIOPS  Good reputation and integrity  Past business conduct that shows that a person may not be able to discharge his/her duties in line with applicable rules, regulations and guidelines.  Integrity requirements imply the absence of “negative records”. Integrity arises from the lack of convictions of a relevant criminal offence, lack of financial antecedents, supervisory experience with that person, etc. Propriety under CEIOPS Advice Page 6

CEIOPSCEIOPS Proportionality The proportionality principle has to be applied when deciding on the persons falling under the provisions of art. 42 of the Solvency II directive, especially with regard to the other key function holders identified by the undertaking. Consequently, due consideration has to be given to:  the nature, scale and complexity of the business of the re(insurance) undertaking;  the function itself;  the way the undertaking is organised. The competence and experience required may vary according to the position and the responsibility of the person within the (re)insurer. Scope of fitness and propriety requirements Page 7

CEIOPSCEIOPS Proportionality principle does not apply in the propriety requirements Each person should be proper. The proportionality principle does not result in different standards in the case of the propriety requirements, since the reputation and integrity of the persons concerned should be on the same adequate level irrespectively of the nature, scale and complexity of the business or the undertaking’s risk profile. Propriety under CEIOPS Advice Page 8

CEIOPSCEIOPS Fitness and propriety must be fulfilled at all times (art.42 Solvency II directive)  meeting fit and proper requirements is not a single event, but an ongoing duty that requires continuous education and training;  compliance with fit and proper requirements is critical to the long - term interests of the (re)insurer;  boards may engage in self-evaluations to monitor how well the whole board and each board member performs. When the requirements must be fulfilled Page 9

Page 10 PART II NOTIFICATION REQUIREMENTS

CEIOPS Notification requirements CEIOPS The Supervisory Authority must be notified of:  the identity of the persons who effectively run the undertaking or are responsible for other key functions;  all information necessary to enable the Supervisory Authority to assess their fitness and propriety;  information about the persons concerned that have been replaced because they no longer fulfill the fitness and propriety requirements. Page 11

CEIOPS The Supervisory Authority must be notified:  prior granting the authorisation (art. 18, par. 1, lett. g, Solvency II)  on on-going basis: notification as condition governing business (art. 42). Time of notification Page 12

CEIOPS  It is the undertaking’s responsibility to assess the fitness and propriety of the persons concerned. The assessment of the professional requirements and of the reputation and integrity should be made in the first place by the undertaking. Therefore the role of the Supervisory Authorities should be to oversee the assessment made by the undertaking and if the evaluation does not satisfy the above mentioned requirements or the evaluation has not been done, the Supervisory Authority performs its own assessment or modifies the evaluations made by the undertaking in a correct way.  The undertakings must notify in a timely manner the persons concerned and their assessment in order to give the possibility to the Supervisory Authority, in case any doubts arise, to question the appointment of a person.  The Supervisor must have an active role and should avoid to perform just a “tick the box” exercise. Notification process Page 13

Page 14 PART III ASSESSMENT

CEIOPS  The undertaking or the group shall provide the Supervisor with details of policies and processes it has established to ensure that it is satisfied that those person subject to article 42 of the Solvency II directive are fit and proper.  The undertaking shall disclose the following information regarding its fit and proper policy:  a description of the undertaking’s specific minimum requirements concerning skills, knowledge and expertise applicable to the persons effectively running the undertaking and the persons responsible for other key functions;  information on the process for assessing the fitness and the propriety of the persons effectively running the undertaking and the persons responsible for other key functions. Assessment of the fitness and the propriety Page 15

CEIOPS  In considering fitness and propriety, it is not important whether MS provide for preapproval or not; what is relevant is that persons not meeting the requirements must be replaced by the undertaking or if not, by the Supervisor.  In assessing fitness an propriety the Supervisor will look at whether the person’s competence and reputation might have an adverse impact upon the tasks performed. Assessment of the fitness and the propriety Page 16

CEIOPS  No specific CEIOPS guidance on the subject up to now.  3L3 guidelines for the prudential assessment of acquisitions and increases in holdings in the financial sector required by directive 2007/44/EC;  IAIS supervisory standard on fit and proper requirements and assessment for insurers (October 2005) Assessment of fitness and propriety Page 17

CEIOPS As a sample the Supervisory Authority may request:  a self-assessment declaration to be filled and signed under the personal responsibility of the individuals;  a curriculum vitae indicating the professional qualifications, detailing relevant education and training as well as the previous professional experience and current position of the person;  any other information necessary to perform the assessment. Assessment of fitness Page 18

CEIOPS General principle: In general a person is assumed to be trustworthy (good reputation) if there is no evidence to the contrary; Integrity implies the absence of negative records. This notion is further specified in national laws or regulations. Lack of conviction for a relevant criminal offence. Consideration should be given to: a) any offence under the laws governing banking, securities or insurance activity or money laundering, market manipulation, insider dealing, usury; b) any offence of dishonesty, fraud or financial crime; c) other offences under legislation relating to companies, bankruptcy, insolvency or consumer protection. Supervisors may judge the relevance of criminal records differently according to the type of conviction, the level of appeal (definitive or non definitive convictions), the type of punishment (imprisonment or less severe punishment), the length of the conviction (more or less than a specified period) the phase of the judicial process reached (conviction, trial, indictment) and the effects of rehabilitation. Assessment of Integrity Page 19

CEIOPS As a sample it should be tested whether:  the person has been subject of any adverse findings or settlement in civil proceeding, particularly in connection with investment or any other business, misconduct, fraud etc.;  the person has been subject to disciplinary proceedings;  the person has contravened any of the requirements and standards of the regulatory system;  the person has been subject to any justified complaint relating to regulated activities;  a person has been a member of administrative, management or supervisory bodies of a business that has gone into insolvency, liquidation or administration;  a person has been refused the right to carry on a trade, business or profession requiring a license, authorisation or registration; Consideration could be given to the lapse of time since the misconduct or conviction and its severity as well as the person’s subsequent conduct. Fitness and the propriety – other elements to be tested Page 20

CEIOPS Supervisor can also evaluate if a person:  has not been transparent, open and cooperative in its dealings with Supervisors;  has been refused a registration, authorisation or licence to carry out a trade, a profession, etc.;  has been dismissed from employment or a position of trust, fiduciary relationship or has been asked to resign from his/her position;  has been disqualified as a person who runs the business. The relevance of each situation should be assessed on a case by case basis, recognising that the characteristics of each situation may be more or less severe and that some situations may be significant when considered together, even though each of them in isolation maybe not significant. Supervisory experience Page 21

CEIOPS  Under art. 43 Solvency II directive where a member State requires of its own nationals proof of good repute, proof of no previous bankruptcy, that Member State shall accept as sufficient evidence in respect of nationals of other Member States the extract from judicial records or of an equivalent document issued by a competent judicial or administrative authority.  The documents may be replaced by a declaration on oath or by a solemn declaration made before a competent judicial or administrative authority or notary that shall issue a certificate attesting the authenticity of the declaration.  The documents and certificates shall not be presented more than three months after date of issue. Proof of good repute Page 22

CEIOPS  Supervisors should disallow Board members, Senior management and the other key function holders from simultaneously holding two positions in a (re)insurance undertaking where this could result in a material conflict of interests.  The (re)insurer should be able to put in place satisfactory measures to avoid or mitigate such a conflict. Conflicts of interests Page 23

Page 24 PART IV COOPERATION AND SUPERVISORY POWERS

CEIOPS Under the general Protocol relating to the collaboration of the insurance supervisory Authorities of the Member States of the European Union (March 2008), regular collaboration among supervisors is already foreseen. In particular both during the process of authorisation and on on – going basis the supervisors shall endeavour, where possible, to share information on:  the good reputation, competence and professional experience of directors, managers and other persons who effectively run the business;  the good reputation and financial soundness of the shareholders. Cooperation between supervisors Page 25

CEIOPS  The Supervisors shall exchange information that might be of interest when assessing the good reputation, competence and professional experience of the persons concerned;  the Authorities establish a contact point for the exchange of information on the person concerned;  if the Supervisor already possesses some information or can obtain it from another Supervisory Authority, the Supervisor should avoid the burden for the (re)insurance undertaking to provide for the information;  if the information is not sufficient the Supervisor may ask for additional information. Cooperation between supervisors (2) Page 26

CEIOPS Supervisors should have at their disposal various preventive or corrective measures such as to:  prevent the appointment;  suspend or dismiss an individual in a key position;  appoint individuals in a position as key person either directly or by ordering the (re)insurer to take these measures;  withdraw or impose conditions on the business authorisation. Powers of supervisors Page 27

CEIOPS  EU proposal for implementing measures on the system of governance  Possible CEIOPS Level 3 guidance on fit and proper. Next steps Page 28

Page 29 Thank you Thank you Paola Persano Adorno International Affairs Department ISVAP