Chapter 1: Regulatory and Legal Environment of Underwriting PDF

Chapter 1 The Regulatory and Legal Environment of Underwriting Subject : Insurance Underwriting 1.1 Statutory and Regulatory Framework of The Underwriting function Insurance industry is classified under Banking & financial institution and involves the interest of the public directly and indirec...

Chapter 1 The Regulatory and Legal Environment of Underwriting Subject : Insurance Underwriting 1.1 Statutory and Regulatory Framework of The Underwriting function Insurance industry is classified under Banking & financial institution and involves the interest of the public directly and indirectly, therefore subject to greater degree of regulatory controls. An effective and efficient insurance market will support economic growth of the country, makes the government to be keen to in it’s development. Involvement: 1) Legislation – laws i.e. licensing, capital requirements, mandatory ins 2) Regulation – framework i.e. requirements, guidance 3) Direct participation – involvement i.e SOSCO, WC & EIS 1.1 Statutory and Regulatory Framework of The Underwriting function Why regulatory? Govt must look to create a situation whereby: 1) Customer can buy appropriate product at affordable prices 2) Customers are protected from malpractice & mismanagement 3) Confidence that insurance will pay claims 4) Insurers are allowed to generate return on capital investment – worthwhile 5) Participation in the market can continue 6) The market is seen to operate in an environment of openness, confidence & trust. 1.1 Statutory and Regulatory Framework of The Underwriting function Bank Negara Malaysia (BNM) – Central bank Key objectives: 1) Fostering fair & professional conduct 2) Striving to protect the rights & interest of consumers 3) Keeping close watch of solvency & market conduct to enhance professional standards and consumer confidence 4) Promoting monetary & financial stability conducive to sustainable growth of economy. 1.1 Statutory and Regulatory Framework of The Underwriting function FSA – Financial Services Act 2013 – Conventional Empowers BNM to specify standards relating to: Capital adequacy Liquidity Corporate governance Risk management Maintenance of reserve fund Insurance fund Prevents FI from being used for illegal activities 1.1 Statutory and Regulatory Framework of The Underwriting function IFSA – Islamic Financial Services Act 2013 – Takaful (Strengthen Syariah governance - end-to-end compliance policies, procedures & ops) Empowers BNM to issue standards on Syariah requirements and other specific provisions on Syariah compliance to ensure end-to-end compliance. 1.1 Statutory and Regulatory Framework of The Underwriting function Ancillary legislation A.Contracts Act 1950 Online Contracts Data message Writing requirement Time & place of dispatch and receipt of data message 1.1 Statutory and Regulatory Framework of The Underwriting function Ancillary legislation B.Companies Act 1965 Registration of a company Preparation & submission of annual account and accompanying statements Method of valuing assets and provision of depreciations Method of valuing liabilities 1.1 Statutory and Regulatory Framework of The Underwriting function Ancillary legislation B.Companies Act 1965 Commonly adopted principles include: Should respect shareholders rights & help shareholders to exercise them Should recognise that they may have obligations to other stakeholders Board needs skills and understanding to review and challenge management performance Should develop a code of conduct for their directors and manager that promote ethical & responsible decision making Should make public role & responsibility of the Board and management to provide shareholders with level of accountability Should have procedures to independently verify the financial reporting 1.1 Statutory and Regulatory Framework of The Underwriting function Ancillary legislation C.Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFA) Provides for offences of money laundering and measures to be taken for prevention of money laundering and terrorism financing offences for forfeiture of terrorist’s related properties. FI to perform obligations to promptly report to the competent authority (Compliance) of any transaction: Exceeding such amount as set by the authority Where the identity of personal involved, the transaction itself or circumstance. 1.1 Statutory and Regulatory Framework of The Underwriting function What is Money Laundering? Definition of Money Laundering: “is a process of converting cash/property which is derived from criminal activities to give it the appearance of having been obtained from legitimate source”. (Vijayaraj R. Kannian, Advocate & Solicitor) Is a process by which the illicit source of asset obtained or generated by criminal activity is concealed to obscure the link between the funds and the original criminal activity. Requiring an underlying, primary, profit-making crime (i.e. corruption, drug trafficking, fraud) along with intend to conceal the proceeds of the crime or the further the crime enterprise. 1.1 Statutory and Regulatory Framework of The Underwriting function Money Laundering activity involves: 1) Placement Physical deposit of proceeds derived from illegal/criminal activities. 2) Layering Separating the illicit proceeds from their source through transactions that disguise the audit trail and provide anonymity. 3) Integration Integrating the laundered proceeds into the economy as normal funds.