MFSA consultation on knowledge and ability requirements and continuous professional development in terms of the IDD

On the 16th March 2018 the MFSA issued a Consultation Document on two additional chapters which will form part of a Single Rulebook containing all the Insurance Distribution Rules to be issued under the Insurance Distribution Act (“IDA”). This Consultation Document follows from the earlier proposed amendments to the Insurance Intermediaries Act (“IIA”) and the Insurance Business Act (“IBA”) for the purposes of transposing the Insurance Distribution Directive (“”IDD”).

The two new proposed chapters relate to:

(a) Knowledge and Ability; and

(b) Continuous Professional Development.

Who will these requirements apply to?

  • authorised insurance and reinsurance undertakings carrying out insurance distribution activities and reinsurance distribution activities and their employees who are directly involved in the carrying out of distribution activities;
  • persons enrolled in the Agents List, the Managers List or Brokers List and their employees who are directly involved in the carrying out of insurance distribution activities and reinsurance distribution activities;
  • tied insurance intermediaries;
  • ancillary insurance intermediaries.

Key Messages of the Consultation Document

  • Re/insurance undertakings and persons registered or enrolled under the IIA carrying out re/insurance distribution activities, are required to possess appropriate knowledge and ability in order to complete their tasks and perform their duties adequately and to comply with continuing professional training and development requirements in order to maintain an adequate level of performance corresponding to the role performed and the relevant market
  • Employees of re/insurance undertakings and of persons enrolled under the IIA who are directly involved in re/insurance distribution are also required to possess appropriate knowledge and ability and comply with continuing professional training and development requirements
  • Captive re/insurance undertakings are out of scope of the said chapters

Key proposed requirements

i.            Knowledge and Ability

The Chapter on knowledge and ability is divided in two parts:

Part A deals with the criteria for approval or registration and enrolment which apply to the persons described above that are carrying out re/insurance distribution activities, while Part B relates to the knowledge and ability requirements.

 a.     Re/Insurance undertakings will be required to identify:

    • A Board member who will be responsible for the oversight of the re/insurance distribution activities carried out by the undertakings concerned; and
    • A person within the management structure of such undertaking to be responsible for the distribution in respect of re/insurance products.

The above identified persons will be collectively referred to as “Relevant Persons”.  Prior to their approval, such Relevant Persons are required to complete a Personal Questionnaire and the Competency Form currently in use in terms of the Insurance Rules.

Employees of the re/insurance undertakings who are directly involved in the distribution activities (sales and underwriting processes) related to re/insurance products are referred to as “Relevant Employees”. Employees involved in claims processes are not captured within these Rules.

The Relevant Persons are required to identify which requirements the Relevant Employees ought to possess in order to complete their tasks and perform their duties adequately.

b.     Persons registered under the IIA

For persons desirous to be registered in the Agents Register, the Managers Register and the Brokers Register in terms of Part III of the IIA, Part A of this chapter will continue to reflect the current requirements. In addition, persons enrolled in the Agents List, Managers List or Brokers List will be required to identify:

    • A person registered under the IIA to be responsible for the distribution activities in respect of re/insurance products (the” Relevant Person”);
    • Employees directly involved in the carrying out of distribution activities of a person enrolled in the Agents List, Managers List or Brokers List (“Relevant Employees”).

The Relevant Person and Relevant Employees are required to possess the knowledge and ability requirements necessary in order to complete their tasks and perform their duties adequately.

 The Relevant Person is required to identify which requirements the Relevant Employee ought to possess in order to complete its tasks and perform its duties adequately.

The Relevant Persons together with all Relevant Employees are required to possess the knowledge and ability necessary in order to complete their tasks and perform their duties adequately. Therefore regular training and continuous professional development (“CPD”) requirements will apply. Section 1.9 (applicable to general business), Section 1.10 (applicable to long term business) and Section 1.11 (applicable to insurance based investment products) of Part B of the proposed chapter on knowledge and ability lay down the main criteria, which need to be complied with by the Relevant Persons and Relevant Employees, being: Legal Aspects, The Insurance Sector, Ethics and Professional Conduct, Assessment of client needs, Information Disclosure and Financial Competency. 

As a result of the above, the re/insurance undertakings and persons enrolled under the IIA will be required to develop internal policies and procedures that implement the above requirements including the identification of a function that ensures the proper implementation of same and the preparation of a knowledge and ability report and a CPD report.  The knowledge and ability report will also cover any appointed tied insurance intermediaries or ancillary insurance intermediaries of the re/insurance undertaking or the enrolled person.

c.     Tied Insurance Intermediaries and Ancillary Insurance Intermediaries

Prior to their enrolment, tied insurance intermediaries (“TIIs”) and ancillary insurance intermediaries are requested to successfully complete a training course in the classes of business of insurance in respect of which the application is being made, organised accordingly by a local or foreign institution or by an authorised insurance undertaking, and recognised by the MFSA.

An authorised insurance undertaking and an insurance agent enrolled under the IIA are requested to, prior to appointing a person to act of its behalf as a TII, ensure that such TII, as a minimum, fulfils the knowledge and ability requirements referred to in Section 1.9 (applicable to general business), Section 1.10 (applicable to long term business) and Section 1.11 (applicable to insurance based investment products) of Part B of the proposed chapter on knowledge and ability, being: Legal Aspects, The Insurance Sector, Ethics and Professional Conduct, Assessment of client needs, Information Disclosure and Financial Competency. 

An authorised insurance undertaking, an insurance agent and an insurance broker enrolled under the IIA are requested to, prior to appointing a person to act on his behalf as an ancillary insurance intermediary, ensure that such ancillary insurance intermediary, as a minimum, knows the terms and conditions of the policies it distributes and knows how a policyholder is to make a claim and file a complaint.

              

ii.            Continuous Professional Development (CPD)

The Chapter on CPD lays down the requirements which persons carrying out re/insurance distribution activities need to fulfil in order to update their knowledge and ability requirements.

In line with the requirements of the IDD, the MFSA is proposing to adopt the minimum 15 hours of CPD training per year, taking into account the nature of the product sold, the type of distributor, the role performed and the activity being carried out. The MFSA is also minded to increase the amount of CPD hours over the next three years.

The Chapter on CPD training is applicable to Relevant Persons and Relevant Employees of re/insurance undertakings and of person registered in the Agents Register, the Managers Register or Brokers Register and their TIIs. The MFSA is proposing that the CPD training may take the form of:

-12 hours of structured CPD; and

-3 hours of unstructured CPD.

The criteria of relevance, measurability and verifiability are to be satisfied in order for CPD training to qualify as structured CPD. The study activities identified in the proposed Chapter which may qualify as structured CPD training are courses, conferences, seminars, workshops, organised technical discussion meetings, service on technical committees or panels, web-based learning activities, lecture preparation and lecturing, and relevant insurance courses.

On the other hand, the study activities which may qualify as unstructured CPD training are individual home study (such as the general viewing of videos, television programmes, audio recordings or any alternative form of learning which is not measurable or verifiable, but which is relevant to a relevant person or a relevant employee’s technical, professional and interpersonal development), private reading relating to technical, professional, managerial and ethical issues in the subject matters indicated in Sections 1.9 to 1.11 of the proposed Chapter on Knowledge and Ability, service on technical committees or panels (which do not fulfil the requirements of structured CPD training) and web-based learning activities (which do not fulfil the requirements of structured CPD training).

A Relevant Person shall ensure that it establishes, maintains and keeps appropriate records and retains all the supporting evidence required of all the CPD training activities to demonstrate compliance with the CPD requirements of such relevant person and relevant employee. Such records shall be maintained for a minimum of five (5) years and such records shall be made available for inspection to the MFSA, upon request.

A written declaration confirming that the Relevant Person and the Relevant Employees have successfully completed the relevant professional training and developments shall be forwarded to the MFSA together with the annual supervisory fee paid under the Insurance Business (Fees) Regulations or the Insurance Intermediaries (Fees) Regulations, as applicable.

 

Further details on the above two chapters can be accessed here.

 

Timelines

  • An insurance intermediary enrolled under the IIA is requested to comply with the requirements on knowledge and ability by the 23rd February 2019.
  • A TII enrolled under the IIA is requested to comply with the requirements on knowledge and ability by the 23rd February 2019.
  • Any comments and feedback in relation to the above shall be submitted to the MFSA by not later than Friday 13th April 2018.

This article was written by Tanya Causon and co-authored by Stefan Vella.