Introduction

The clock is ticking and the Malta Financial Services Authority (“MFSA”) has only seven months left to transpose Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (recast), (the “Insurance Distribution Directive” or “IDD”) into national law. This means that affected parties have even less time to comply with the new requirements by 23rd February 2018, the deadline date for transposition.

More than 40 pages long, as opposed to the eight pages of the IMD, the IDD makes a number of significant changes to the earlier regime. On the 3rd July 2017, the MFSA issued a number of documents for consultation, primarily as a consequence of transposing the Insurance Distribution Directive.

The documents issued for Consultation consist of the following:

  1. Consultation Document highlighting the main changes proposed to be carried out to the Insurance Intermediaries Act (Cap. 487) and the Insurance Business Act (Cap. 403);
  2. A Draft Bill amending the Insurance Intermediaries Act, (Cap. 487);
  3. A Consolidated Draft version of the Insurance Distribution Act reflecting the changes being proposed;
  4. A Draft Bill amending the Insurance Business Act, (Cap. 403); and
  5. Draft Insurance Distribution (Exemption) Regulations, 2017.

The above proposals do not cover all the changes being introduced by the IDD, and further consultations from the MFSA are expected in the near future.

 

A. Amendments to the Insurance Intermediaries Act (Cap. 487)

Since all insurance distributors are captured by the IDD, the MFSA is proposing to amend the title of the Insurance Intermediaries Act to read the ‘Insurance Distribution Act’. The amended Act will now not only apply to intermediaries, but to all persons carrying out insurance distribution and reinsurance distribution activities, including agents, managers, brokers, tied insurance intermediaries, ancillary insurance intermediaries and undertakings authorised under the Insurance Business Act (Cap. 403) to carry out distribution activities.

The IDD focuses on an activity-based definition of “insurance intermediary”, carving out “ancillary insurance intermediary” from its definition. “Ancillary insurance intermediary” is now defined as a separate activity under the proposed Insurance Distribution Act. Even though “tied insurance intermediaries” do not feature in the IDD, the MFSA is proposing to retain this regime, but amending the current definition to avoid any possible overlap with the ancillary insurance intermediary regime. Under the IDD, tied insurance intermediaries are to be treated as insurance intermediaries, and consequently subject to the same requirements applicable to insurance intermediaries under the IDD.

In line with the requirements of the IDD, agents, managers, brokers and tied insurance intermediaries are now required to have appropriate knowledge and ability in order to complete tasks and perform duties adequately, in relation to the respective distribution activities. The details of such requirement are still not known, as these will be determined by the Insurance Distribution Rules. Moreover, an applicant which is a company enrolling as an agent, manager, broker or tied insurance intermediary will be required to disclose the identity of the shareholders, direct or indirect, whether natural or legal persons, who will have qualifying holdings in that intermediary and the amounts of those holdings, as well as the identity of persons who have close links with the applicant. Where the applicant is an individual, such person will be required to disclose the identity of persons who have close links with such intermediary.

Following the experience of other financial services sectors, the IDD has introduced the continuous professional development system. In view of this, the MFSA is proposing that an insurance agent, manager, broker, tied insurance intermediary, and its employees, carrying out their respective distribution activities, will be required to comply with continuing professional training and development requirements in order to maintain an adequate level of performance corresponding to the role they perform and the relative market. Further details relating to the said requirement still need to be determined by means of Insurance Distribution Rules and/or Conduct of Business Rules.

The MFSA is proposing to add a new Part VIIIA introducing the regime of the ancillary insurance intermediary. The same definition adopted in the IDD is being proposed in the local legislation, where the ancillary insurance intermediary acts under the full responsibility of authorised undertakings, provided that certain stipulated conditions are met. The appointment and registration of an ancillary insurance intermediary with an authorised insurance undertaking and an insurance agent only requires the fulfilment of a fit and proper test and knowledge and ability test carried out by such undertaking or agent. Again, further details about such tests still need be determined by means of Insurance Distribution Rules. As opposed to the rest of the intermediaries, ancillary insurance intermediaries will only be required to at least know the terms and conditions of the policies they distribute and, where applicable, rules on handling claims and complaints.

An authorised insurance undertaking or an insurance agent desirous of enrolling an ancillary insurance intermediary is required to disclose to the MFSA the relevant information relating to close links and qualifying holdings of the ancillary insurance intermediary. The MFSA is proposing to limit the number of appointments of an ancillary insurance intermediary, who may be appointed and registered with not more than two authorised undertakings carrying on general business, as long as the appointment relates to products which are not in competition, and one authorised undertaking carrying on long term business.

The draft proposals do not provide for the possible appointment of an ancillary insurance intermediary by an insurance broker or an insurance manager. Furthermore, it is being proposed that, an authorised insurance undertaking registering and enrolling an ancillary insurance intermediary would be held responsible for the acts or omissions of its appointed ancillary insurance intermediaries. An ancillary insurance intermediary is to maintain an ancillary insurance intermediaries’ account, where the monies collected and held by such intermediary in relation to a policy of insurance will be kept separate from the monies of such intermediary.

Since the provisions of the IDD also apply to the distribution activities and sales carried out by insurance and reinsurance undertakings and their employees, it is being proposed to add a new Part VIIB relating to provisions applicable to authorised insurance undertakings and authorised reinsurance undertakings carrying out insurance and reinsurance distribution activities. Such undertakings are not required to be enrolled, nonetheless, the MFSA proposes to establish and maintain a register, the “Insurance Distribution Register”, which will specify the names of the individuals within management who are responsible for its insurance distribution activities or reinsurance distribution activities.

 

B. Amendments to the Insurance Business Act (Cap. 403)

The MFSA is proposing to carry out consequential amendments to the Insurance Business Act so as to align the said Act with the proposed terminology and amendments to the Insurance Intermediaries Act. The proposals relate to changes to some definitions to be aligned across the board, the introduction of new ground in terms of which the MFSA may suspend or revoke an authorisation, and reference to the new ancillary insurance intermediary regime. Furthermore, it is proposed to rename Part X of the current Insurance Business Act from “Conduct of Business of Insurance” to “Obligations on Undertakings”.

 

C. The proposed Insurance Distribution (Exemption) Regulations, 2017

The proposed new Insurance Distribution (Exemption) Regulations, 2017 repeal the current Insurance Intermediaries (Exemption) Regulations 2006 (S.L. 487.05) and sets out the cumulative conditions that need to be satisfied for an ancillary insurance intermediary to be exempt from the requirements set out in the IDD. The IDD only permits an ancillary insurance intermediary, unlike all intermediaries under the current regime, to obtain limited exemption from the requirements of the Directive when certain conditions are met. Despite the exemptions, certain basic requirements still need to be fulfilled.

 

What’s next?

Copies of the above mentioned documents are available on the MFSA website in draft format and subject to changes and revision. In this respect, relevant parties are invited to forward their comments on the above proposals to the MFSA by not later than 1st August 2017. Additionally, further consultations are expected to be issued with draft regulations, draft Insurance Distribution Rules and draft Conduct of Business Rulebook, providing further details on the transposition. In the meantime, Delegated Acts are also in the pipeline to be published from the European Commission.

 

How can we help?

We at GANADO Advocates have been following the developments of the Insurance Distribution Directive for the past couple of years and have gained insightful knowledge about the requirements of such Directive. Preparations are ongoing to hold a series of webinar sessions and workshops on how the requirements of the IDD will impact various stakeholders. We therefore invite you to register your interest by forwarding your details here to ensure that you keep up-to-date with the latest developments and the dates of such webinars and workshops. In the meantime, should you have any queries about the consultation documents or any area of the Insurance Distribution Directive, please do not hesitate to contact either Mr. Stefan Josef Vella or Dr. Elaine Magri.