Working Together
Chapter

7 Insurance and Banking Supervision Cooperation in the Insurance Sector

Author(s):
International Monetary Fund
Published Date:
June 2007
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PETER NEVILLE

1. Background

  • 1.1. The International Association of Insurance Supervisors (IAIS) is pleased to be invited to contribute to this book on cross-border cooperation and information exchange. I am writing this chapter as a member of the Executive Committee of the IAIS on behalf of the IAIS as a whole.

2. Insurance Core Principles

  • 2.1. The standards established by the IAIS apply to all insurers and insurance intermediaries, whether they are onshore or offshore. What is important from the perspective of the IAIS is whether or not a jurisdiction is well regulated and cooperative—not whether it is onshore or offshore. Any jurisdiction that is unable to meet the required standards of supervision and cooperation is expected to change its regime. A jurisdiction’s small size and arguments that it lacks sufficient staff resources do not justify a failure to meet international standards. One of the IAIS’s important roles is to provide technical assistance and training to jurisdictions that have the willingness to meet our standards but lack the technical knowledge to do so.

  • 2.2. The standards set by the IAIS are embodied in 28 Insurance Core Principles (ICPs). The ICPs cover the supervision of insurers, reinsurers, and insurance intermediaries. They establish detailed provisions for the overall structure of a supervisory system and the standards that should be in place for supervised entities, ongoing supervision, prudential requirements, and protection of consumers and the market.

  • 2.3. ICP 5 deals specifically with supervisory cooperation and information sharing. It states that efficient and timely exchange of information among supervisory bodies, both within the insurance sector and across all the financial services sectors, is critical to effective supervision, particularly in the case of internationally active insurers, including financial conglomerates. It also states that the information to be exchanged should include

    • 2.3.1. relevant supervisory information, including specific information requested by another supervisor and gathered from a supervised entity;

    • 2.3.2. relevant financial information; and

    • 2.3.3. information on individuals holding positions of responsibility.

  • 2.4. Not just ICP 5, however, but all of the IAIS Core Principles are relevant to international cooperation. All the ICPs work together. For example, they identify who should be supervised, and they require that supervised entities have appropriate information to manage their risks. The ICPs also clearly state that supervisors should have the power to undertake on-site inspections.

3. Memoranda of Understanding (MoUs)

  • 3.1. ICP 5 states that a formal agreement with another supervisor is not a prerequisite for information sharing and that supervisors should provide information to their counterparts even where they consider that the other supervisor cannot reciprocate. The problem is that, currently, some supervisors require MoUs to have been signed before they will disclose information. Obviously, this inhibits information flows—especially if an MoU is not sought until a request for information is made between the two supervisory bodies in question—which is far from being ideal.

  • 3.2. From the IAIS’s perspective, it is paramount that a supervisor have the legal ability to disclose information to other supervisors and be able to obtain and disclose information at the request of other supervisors. Such requests can cover a wide range of matters, including basic due diligence where supervisors need to ascertain the standing of applicants for licenses (and their controllers, associated companies, and directors) where they have a track record in other jurisdictions; the spontaneous disclosure of information to other supervisors where one part of a global group develops a problem; or the proactive investigation of problems by supervisors with their counterparts in other jurisdictions. As long as the legal framework is sufficiently robust, it should not matter whether an MoU is in place.

4. Regional Cooperation

  • 4.1. The distinction that is sometimes drawn between regional and international cooperation is artificial. As humans, we are probably, naturally, more helpful and open to people we know well or who share the same culture. These people are often likely to be in neighboring jurisdictions. Although groups such as the IAIS enable supervisors from around the world to meet each other and develop contacts (and I very much welcome the establishment and deepening of relationships in this way), this is no substitute for a positive attitude toward assisting fellow pro-fessionals—wherever they are based—in carrying out their supervisory functions. Insurers and their clients are becoming more global, and we supervisors must follow suit.

5. Confidentiality

  • 5.1. ICP 5 emphasizes that cooperation and sharing of information should be subject to confidentiality requirements. The IAIS requires supervisors to take reasonable steps to ensure that any information they release will be treated as confidential by the recipient and that it will be used only for supervisory purposes. This can be achieved either through formal agreements, such as MoUs, or by attaching a condition to the information when it is disclosed.

  • 5.2. This issue of confidentiality can be a difficult one, but, as with most other problems in relation to cooperation, if there is a difficulty in respect of ensuring that information provided to another regulator remains confidential, one solution is for supervisors to talk to each other. A telephone call really can help. There is usually a form of words that can be found either to put into a formal agreement or specify as a condition, attached to the information itself, which solves the problem. For example, a condition might allow the receiving supervisor to use the information only for regulatory purposes or for onward transmission only to specific law-enforcement or prosecuting authorities.

6. Links Between Supervisory and Law-Enforcement Authorities

  • 6.1. ICP 5 recognizes that supervisory authorities increasingly nee to share information relating to anti-money laundering (AML) and the combating of the financing of terrorism (CFT) and fraud. It is easy to imagine situations where a supervisor finds information during an on-site inspection that provokes suspicion that a crime has been committed and where the intelligence should be discussed with law-enforcement agencies.

  • 6.2. ICPs 27 and 28 impose on supervisory authorities the responsibility to require insurers and intermediaries to combat fraud and to comply with the Financial Action Task Force (FATF) Recommendations. They also require supervisory authorities to communicate with law-enforcement authorities and financial intelligence units (FIUs) as well as other supervisors. The need for cooperation is emphasized in the revised AML/CFT Guidance Notes issued by the IAIS after the IAIS Annual Conference held in Amman in October 2004. I want to stress that the Guidance Notes apply to all insurance supervisors and all kinds of insurance business—not just the life and other investment-related business included in the FATF’s recommendations.

  • 6.3. We are now living in a world where supervisors should have routine contact with domestic law-enforcement authorities and FIUs. Much of this contact will need to be achieved without formal agreements—if for no other reason than because it is not yet routine for MoUs to be signed between supervisory and law-enforcement agencies. Historically, the disclosure of information by most supervisory agencies to law-enforcement authorities has been difficult, both philosophically and practically. With the increasing involvement of supervisors in AML/CFT and countering fraud, however, there is every reason for regulatory legislation to provide gateways for supervisors to exchange information with those authorities concerned with the prevention, detection, investigation, or prosecution of financial crime. This does not mean bypassing the normal checks and balances that apply to the collection and use of information by law-enforcement authorities. I am not suggesting that supervisory bodies should be used in place of law-enforcement bodies to obtain intelligence or evidence; but in the course of carrying out their regulatory functions, supervisors can and do come across information that can usefully be provided to law-enforcement agencies. Supervisors and law enforcers are working toward common goals in countering economic crime—there is no reason why a partnership approach cannot be adopted, even in the absence of an MoU. My experience, in various jurisdictions—and in relation to all areas of financial services regulation, not just insurance—is that the cooperative approach works.

7. The IAIS’s AML/CFT Guidance Notes also stress that, in respect of sharing information between supervisors,

  • 7.1. supervisors should not refuse a request for assistance on the ground that the request is considered to involve fiscal matters; and

  • 7.2. supervisors should be able to conduct inquiries on behalf of foreign supervisors.

8. Cooperation Between Financial Service Businesses

  • 8.1. The IAIS AML/CFT Guidance Notes address the need for the transmission of information between regulated institutions, not just between supervisors—for example, where business is introduced. It is important that the information be adequate, timely, and from a reliable source.

9. Role of International Financial Institutions

  • 9.1. I consider that international financial institutions such as the IMF can assist the process of cooperation in two ways.

    • 9.1.1. First, they can help achieve better coordination between—and greater involvement of—all the standard-setting bodies to ensure there is a level playing field for all financial centers and between financial sectors.

    • 9.1.2. Second, in light of their increasing experience in such areas, they could engage with the standard-setting bodies to gather information—case studies perhaps—on the problems that inhibit cooperation, whether these are legislative, administrative, procedural, or simply the result of human reluctance. Information and case studies of this kind would be very useful and could be shared, so that we can learn from them. Safeguarding the international financial system depends not only on good regulation but also on good cooperation.

10. Conclusion

  • 10.1. The IAIS has clear standards on cooperation, both in the general context and specifically in relation to AML/CFT. The IAIS guidance paper on AML/CFT has now been published. The IAIS has also published a model MoU that supervisors can draw upon, but our experience in insurance is that cooperation and information exchange work well between supervisors even in the absence of MoUs.

  • 10.2. The IAIS welcomes the use of MoUs where they open gateways and ease cooperation, but what is much more important—indeed it is a prerequisite for having an MoU—is that each jurisdiction have the legislation that gives the supervisor the power to collect the information it needs and then creates the gateways required to share that information with other supervisors that need it.

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