Decision of the Board of Directors of the Financial Regulatory Authority No. 205 for 2021 Regarding Proportionality and Suitability Rules for Key Executive Positions in Insurance and Reinsurance Companies

FINANCIAL REGULATORY AUTHORITY
Chairman of the Authority

Decision of the Board of Directors of the Financial Regulatory Authority No. (205) for 2021 dated 2021/12/21 Regarding the Rules and Guidelines of Proportionality and Suitability Principles in Nominating or Continuing to Hold Positions for Key Executive Positions in Insurance and Reinsurance Companies

Board of Directors of the Financial Regulatory Authority Having reviewed Law No. 10 of 1981 issuing the Supervision and Regulation of Insurance Act in Egypt; and Law No. 10 of 2009 regulating supervision over non-banking financial markets and instruments; and the Statute of the Financial Regulatory Authority issued by Presidential Decree No. 192 of 2009; and the approval of the Authority's Board of Directors in its session held on 2021/12/21.

Has Decided:
(Article One)
Objectives
These rules and guidelines aim to determine the minimum conditions for selecting and appointing responsible managers in insurance and reinsurance companies (key executive positions).

(Article Two)
Definition of Proportionality and Suitability The proportionality and suitability criteria are the legal and technical basis for evaluating integrity, experience, and competence, and determining relationships for related persons.

(Article Three)
Scope of Application
The scope of application covers key executive positions in insurance and reinsurance companies, including responsible managers of the following departments or operations:
(1) Underwriting
(2) Claims
(3) Reinsurance
(4) Investment as well as the following operations and departments:
(1) Internal Audit
(2) Financial Affairs
(3) Risk Management
(4) Compliance
(5) Money Laundering Reporting
(6) Actuaries
(7) Surveyors and loss assessors, whether from within or outside the company (8) Regional heads.

The Authority reviews companies to ensure the continuous application of proportionality and suitability criteria, and assessments must be conducted in the following cases:

• Field inspection results indicate or reveal information that may affect the ongoing suitability and appropriateness of the concerned person.
• In response to a regulatory cooperation request.
• The Authority is notified of information that may negatively affect the proportionality and suitability of the person.

(Article Four)
Notification
Without prejudice to Article (31) of Law No. (10) of 1981, the insurance or reinsurance company is obligated to notify the Chairman of the Board of Directors of the Financial Regulatory Authority in the following cases:

1. Nominations of persons intended to be appointed to key executive positions.
2. Dismissal, resignation, or leaving the position for any reason.
3. Termination of service for any of the holders of those positions for any reason.
4. Any circumstances making any related person ineligible to hold the position.
   Within two weeks from the date of nomination, dismissal, resignation, leaving office, termination decision, or ineligibility cases, along with all related data on the form established by the Authority for this purpose.

The insurance or reinsurance company is also obligated to notify the Authority of the policy approved by its Board of Directors regarding the suitability and proportionality rules for nominated or holding key executive positions as stipulated in Article Five of this decision, immediately upon its approval by the company's Board of Directors.

(Article Five)
Periodic Assessment
The insurance or reinsurance company is obligated to conduct an annual periodic assessment of the ongoing suitability and proportionality of appointed persons in key executive positions within the company. The insurance or reinsurance company is obligated to immediately notify the Financial Regulatory Authority of any information, observations, or data revealed through the annual periodic assessment that have a material impact on the holders of those key executive positions meeting the rules and guidelines stipulated in this decision.

(Article Six)
Responsibilities and Role of the Board of Directors and its Arising Nomination and Remuneration Committee The Board of Directors of the insurance or reinsurance company and its arising Nomination and Remuneration Committee (if any) bear the responsibility to ensure that persons nominated for key executive positions are indeed suitable and appropriate, and comply with the rules, guidelines, conditions, policies, and procedures approved by the Authority in this regard, including, but not limited to:

1. The existence of an approved Board document outlining the company's policy for nominating and selecting qualified persons to hold key executive positions, and procedures for obtaining required approvals from the Authority as applicable, with this policy being independent yet complementary to the company's employment regulations.
2. The existence of an approved Board document outlining the company's policy to ensure and maintain the suitability and proportionality of nominated or holding persons for key executive positions, which must include, among others, the following criteria:
   a. The minimum suitability and proportionality conditions as stipulated in this decision. b. Verification of the accuracy and validity of information provided by nominated or holding persons for key executive positions from independent sources, with the necessity of maintaining confidentiality of such information and verification results.
   c. Annual assessment procedures for the ongoing suitability and proportionality of persons holding those positions.
   d. Determination of procedures and provision of internal control tools to ensure that all key executive positions comply with the proportionality and suitability rules stipulated in this decision, as well as their ongoing compliance throughout their tenure. e. Determination of factors to be considered when evaluating suitability and proportionality for each key executive position. f. Procedures to be taken in case of unsuitability or disproportionality of a nominated or holding person for a key executive position. g. Periodic review and updating of the policy from time to time or as needed.

Chapter Two
Proportionality and Suitability Rules and Guidelines The proportionality and suitability rules for persons nominated or holding key executive positions in insurance and reinsurance companies are divided into three main parts:
(1) Honesty, integrity, good reputation, and conflict of interest avoidance.
(2) Ability and competence
(3) Financial soundness

(Article Seven)
Honesty, Integrity, and Reputation
A nominated or holding person for a key executive position in an insurance or reinsurance company must possess the qualities of honesty, integrity, and good reputation, with integrity proven through the individual's personal behavior, work conduct, and evidence related to their character. When evaluating integrity, prior practices or behaviors of the person that may indicate a lack or absence of integrity, such as dishonest or unethical acts, should be considered. Matters indicating a lack of integrity, rendering the person unsuitable and non-compliant with the rules and guidelines, include:

• If the person is subject to any penalties or measures stipulated in Law No. (10) of 1981.
• If the person is subject or has been subject to any disciplinary actions by their current or former employer, professional associations, etc., or if a warning, reprimand, censure, or other administrative penalty has been issued by any regulatory or supervisory authority.
• If the person is directly responsible for the insolvency, bankruptcy, or liquidation of any financial institution, whether inside or outside Egypt.
• If the person is responsible for managing operations that resulted in regulatory violations and/or regulatory measures, whether in their current or previous company, and whether by the Financial Regulatory Authority or any equivalent authority, inside or outside Egypt.
• If the person was dismissed or requested to resign and resigned from any profession, trade, position, or job, whether paid or unpaid.
• If the person has been convicted of:
  • Money laundering or terrorism financing (or their equivalents).
  • An offense affecting honor or related to the person's ability to perform the relevant function.
    Or
• Has a result, judgment, or order against them involving fraud, forgery, breach of trust, or is subject to any current proceedings due to fraud, forgery, lack of honesty, or breach of trust.
• If the person was not truthful or provided false or misleading information to either the company or the Authority.
• If it is established by any regulatory authority that the person has committed or participated in any act or professional practice involving negligence, deception, or lack of honesty.
  An integrity assessment as a proportionality and suitability element is conducted by considering all relevant circumstances, on a case-by-case basis.

(Article Eight)
Conflict of Interest Policy
The insurance and reinsurance company must maintain complete separation between key executive positions for underwriting, claims settlement, and reinsurance operations, where one person should not hold these executive functions simultaneously, nor should these persons be under the management or responsibility of a single person. The proportionality and suitability policy for holding key executive positions must include clear rules and guidelines for conflict of interest, disclosure, and immediate removal once the executive management becomes aware of it. Each person holding those key positions must disclose kinship or marriage relationships with any employees in the insurance brokerage field, or with any senior managers, key executives, or shareholders of the company.

(Article Nine)
Ability and Competence
The insurance and reinsurance company must ensure that all persons holding or nominated to hold key positions stipulated in this decision possess the necessary knowledge, skills, and experience for their current and future roles, and have the ability (i.e., sufficient time) to perform tasks and fulfill their responsibilities effectively. The person must hold a Bachelor's degree in Insurance, Business Administration, Accounting, Finance, or any suitable academic qualification for the role - whether nominated or holding it - from one of the accredited Egyptian universities or equivalent from other countries, provided they are accredited by the Arab Republic of Egypt, with preference given to those holding higher degrees (Master's or Doctorate, or Fellow/Associate of specialized institutes). The person must have at least 5 years of experience in the same specialty as the proposed key executive position they hold or are nominated for, except for positions related to Oil, Aviation, and Engineering branches, which require actual experience of at least 10 years in the required specialty. Generally, persons holding or applying for key executive positions must possess the following:
a) Professional expertise and ability to perform assigned duties and responsibilities, as well as excellent knowledge of the company's various operations and organizational structure at different levels and reporting/notification requirements, through training or experience, and specific responsibilities to be reviewed in the relevant position. b) Clear and comprehensive understanding and good knowledge of the appropriate legislative and legal environment for the relevant position. c) Appropriate skills and experience to understand, implement, manage, or supervise activities related to the position. d) Professional qualifications or other suitable qualifications for the relevant position.

(Article Ten)
Academic, Professional Qualifications, and Training The Authority issues a training and competency framework specifying academic or professional qualifications, specialized or general training courses, which constitute the minimum requirements necessary to hold each of the key executive positions.

(Article Eleven)
Financial Soundness
When evaluating a person's financial soundness, matters such as whether the person (whether inside or outside Egypt) has ever been declared bankrupt or is currently bankrupt without being discharged should be considered. Any judgment debt obtained against the person must be disclosed, according to the form prepared by the Authority for this purpose.

Chapter Three
Reporting Policy, Whistleblower Protection, and Corrective Procedures (Article Twelve) Reporting Policy The proportionality and suitability policy of the insurance and reinsurance company - approved by the Financial Regulatory Authority - must include provisions stipulating the ability of employees and managers to report to the Financial Regulatory Authority in the following cases:
(1) Cases where the responsible person is unsuitable and inappropriate but still works at the company.
(2) Cases where the company fails to act regarding a responsible person previously declared by the Authority as unsuitable and inappropriate, who still works at the insurance or reinsurance company, especially those holding key executive positions without Authority approval. (3) If the insurance and reinsurance company does not comply with its proportionality and suitability policy. (4) If the insurance and reinsurance company does not comply with any other policies issued by the Authority.

(Article Thirteen)
Whistleblower Protection Policy
The proportionality and suitability policy approved by the Board of Directors of the insurance and reinsurance company must include mechanisms to protect employees who disclose in good faith or notify the Board of Directors or the Authority, in accordance with the requirements of the aforementioned proportionality and suitability policy, or any practices under the responsibility of holders of key executive positions that violate the regulatory rules and guidelines issued by the Authority in this regard, to ensure they are not exposed to harm or threat thereof.

(Article Fourteen)
Compliance and Alignment
Insurance and reinsurance companies are obligated to apply the rules and guidelines stipulated in this decision and align their status regarding the compliance of holders of key executive positions with them, within a maximum period ending on 31 December 2022.

(Article Fifteen)
This decision shall be published in the Egyptian Gazette and on the Authority's website, and shall take effect from the day following the publication date, and the concerned sectors shall implement it, each according to its scope.

Chairman of the Board of Directors
Dr. Mohamed Omran