Following a number of high-profile corporate demises such as Enron and Parmalat, the world of corporate governance underwent significant changes.
We saw the sprouting of legislation and codes, such as the OECD Principles of Corporate Governance, the Sarbanes-Oxley Act and various European national corporate governance codes, to mention but a few. These sought to put governance and boards under the microscope and highlight universal principles that are primarily aimed at avoiding the corporate failures of the past and enhancing awareness of the critical importance of good governance.
Good governance is a key ingredient to the success of any corporate entity, and a strong board is fundamental to good governance. The board is the heart that pumps blood across the organisation. It is the organ entrusted with setting the right tone at the top. Therefore, it is crucial that at board level there is the appropriate mix of competencies, expertise, experience, gender diversity, independence and challenge. These elements form the basis of a robust board.
Regulators across the world have put increasing emphasis on this pillar, and the financial services industry is no exception. From a European perspective, the European Supervisory Authorities (ESAs), namely the European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA) and European Securities and Markets Authority (ESMA), have introduced specific governance frameworks such as the EBA Guidelines on Internal Governance, EIOPA Guidelines on Systems of Governance under Solvency II and the Joint ESMA and EBA Guidelines, on the assessment of the suitability of members of the management body.
Locally, we have seen the Malta Financial Services Authority (MFSA) identifying corporate governance and culture as one of its four cross-sectoral supervisory themes identified for 2022.
Furthermore, one of the MFSA insurance sector-specific priorities for 2022 will be to continue focusing on how regulated entities are implementing an effective system of governance, taking into consideration a number of areas, in particular the collective knowledge, skills and qualifications of the board of directors.
Insurance boards are being confronted with numerous challenges in a fast-changing environment, as well as constant changes in the regulatory landscape
The MFSA also plans to launch a corporate governance code, which was recently issued for a second public consultation. This will apply to all insurance undertakings and corporate insurance intermediaries regulated by the authority.
Insurance boards are also being confronted with numerous challenges in a fast-changing environment, as well as constant changes in the regulatory landscape – environmental, social and governance (ESG) issues, the intensified risk of cyberattacks on insurers and digital advancements. Other factors include the economic impact of the Ukraine war, increasing interest rates and inflation.
The above developments are accompanied by the introduction of new laws and guidance, such as the Sustainable Finance Disclosures Regulation, EBA guidelines on ICT and security risk management, EIOPA guidelines on outsourcing to cloud service providers and the MFSA’s guidance on technology arrangements, ICT and security risk management and outsourcing arrangements, among others.
Recent developments are also arising from the 2020 Solvency II review, in particular with the proposed introduction of the EU recovery and resolution directive (IRRD), aimed at creating a harmonised recovery and resolution planning framework for EU (re) insurance undertakings and groups.
This year will not be an easy one for insurance boards. If you are a director or aspirant board member of insurance undertakings or intermediaries interested in exchanging your views or learning about the legal and regulatory developments on the above topics, we invite you to join our upcoming webinar series titled ‘Inside the Boardroom – An Insurance Perspective’. This will be held between Wednesday, April 6, and June 15. More information is available here.
Romina Bonnici is a senior regulatory adviser at Ganado Advocates.