On 11 December 2019 the Financial Sector Conduct Authority ("FSCA") released a position paper titled "Position Paper- Final Policy Proposals for Conduct Related Requirements Applicable to Third Party Cell Captive Insurance Business" (the "Position Paper").
The Position Paper serves as confirmation to interested parties and regulated entities on the policy direction taken by the FSCA regarding the regulation of conduct in third party cell captive insurance business. The Position Paper is issued for communication purposes only and does not invite public comment. However, the FSCA will update the previous draft conduct standard issued for public comment on 20 July 2018 to incorporate the proposal set out in the Position Paper.
The FSCA has indicated that it intends to publish the updated draft conduct standard in early 2020.
The Position Paper identifies specific risks in conducting insurance through third party cell structures, which the proposals mooted in the Position Paper seeks to address.
In this regard, the following conduct-related risks are stated in the Position Paper:
The risk of regulatory arbitrage, resulting in uneven playing fields for non-mandated intermediaries and underwriting managers;
The risk exacerbated by the nature and business models of cell captive insurers; and
Supervisory and oversight challenges.
The following proposals are mooted in the Position Paper to address the aforesaid risks, including:
In addition, the Position Paper sets out specific proposals in respect of complaints management and product design requirements which will be imposed on cell captive insurers.
The Position Paper states that the proposals will apply to both new and existing cell structures, and that an appropriate transitional period will be allowed for such alignment. Notably, the previously mooted exemption from the cell ownership limitations in order to promote transformation of the insurance sector will not be proceeded with. However, a general exemption application process will be permitted as part of the broader exemption powers contained in the Financial Sector Regulation Act, 9 of 2017.
A copy of The Position Paper can be accessed here