Proposed amendments to the MFSA Insurance Distribution Rules

In a webinar held on the 18^th January 2023, the Malta Financial Services Authority launched its consultation process to amend the Insurance Distribution Rules. The amendments have mainly been prompted following feedback from the insurance industry, with the aim of aligning the Insurance Distribution Rule with amendments at European Union level as well as market practice. The chapters proposed to be amended are the following:

Chapter 1 – The Application Process of Insurance Agents, Insurance Managers and Insurance Brokers

Chapter 2 – The Application Process of Tied Insurance and Ancillary Insurance Intermediaries

Chapter 4 – Own Funds of Persons Enrolled in the Agents List or Brokers List carrying out Insurance Distribution Activities and Reinsurance Distribution Activities

Chapter 8 – Monies held in a Fiduciary Capacity

Chapter 9 – Fidelity Bond

Chapter 10 – Information to be provided to the Competent Authority for Supervisory Purposes

The following is a synopsis of the most important amendments being proposed by the MFSA:

1. Introduction of a new limit of Euro 100,000 when it comes to covering the loss of and damage to documents and records and excess in a sum not exceeding 1% of the limit of indemnity and subject to a maximum of Euro 50,000 under the professional indemnity insurance, which service providers are required to maintain. Moreover, MFSA is proposing to amend the governing law of professional indemnity policies to be either EU or UK law;
2. Introduction of minimum requirements that need to be included in a pre-enrolment course for tied insurance intermediaries or ancillary insurance intermediaries. The requirements will be similar to the knowledge and ability requirements;
3. Removal of pre-requisite bank reference letter as part of the fit and proper assessment;
4. With respect to credit risk transfer, the MFSA is proposing the removal of 10-working-day notification requirement. Insurance intermediaries may notify the MFSA on the date they enter into a credit risk transfer arrangement. The MFSA is also proposing to extend the definition of insurance undertaking to also take into account third country insurance undertakings;
5. In order to align with the requirements of Commission Delegated Regulation (EU) 2019/1935, the MFSA is proposing to increase the own funds and paid-up share capital with respect to insurance managers to Euro 19,510;
6. With respect to insurance managers with an authority to enter into contract, insurance agents and insurance brokers, the value of own funds and share capital will be reviewed to Euro 58,250 or 4% of the annual gross premium receivable up to a maximum of Euro 1,000,000 whichever is higher. This will ensure that the 4% requirement is not too burdensome on insurance intermediaries;
7. The requirement to pay insurance monies in the tied insurance intermediaries account or into an ancillary insurance intermediaries accounts will be extended to 15 business days; and
8. Introduction of Audit Management Letter for insurance intermediaries together with the submission of enrolled intermediary’s reply thereto.

Moreover, MFSA is proposing a new Annex to Chapter 2 of the Insurance Distribution Rules with respect to tied insurance intermediaries and ancillary insurance intermediaries, which will be divided as follows:

Part I – The Insurance Sector (including Long-Term Business and Insurance-Based Investment Products)

Part II – Applicable Laws

Part III – Insurance Needs and Business Ethics

Part IV – Disclosure Requirements

Part V – Record Keeping

Part VI – Product Distribution Arrangements

Part VII – Financial Competency

Part VIII – Assessment

Part IX – Responsibilities of the Appointing Licence Holder

The MFSA issued its consultation paper on 26th January 2023 – feedback is to be submitted to the MFSA by not later than 8th March 2023.