"Rules of Conduct and Governance for Insurance and Reinsurance Carriers"

Transcription

1 "Rules of Conduct and Governance for Insurance and Reinsurance Carriers" AIDA - Swiss Chapter, Zurich, 5 November 2012 Association Internationale de Droit des Assurances Swiss Chapter

2 Program of today Time Topic Speakers Opening / Introduction Christian Felderer Introduction to the topic Peter Kalberer - Legal nature of the Rules of Conduct and Governance - Statutory basis in the Swiss Code of Obligations, the SIX-Regulation and the Insurance Supervision Act - Swiss Code of Best Practice / FINMA-Circular 08/32 - Role of the regulatory authorities in Switzerland (statutory basis for supervision) - Areas of common weaknesses among companies perceived in the areas of Rules of Conduct and Governance International and National Experience Gabe Shawn Varges - International standards and trends in governance supervision - Swiss approach and comparison to other jurisdictions Practical Experience of a smaller (re-)insurance company Sylva de Fluiter Practical Experience of a large (re-)insurance company Adrian Williams The role of the internal and external auditor Denise Wipf Panel discussion Moderation: Christian Felderer from Apéro riche AIDA Swiss Chapter Event - 5 November 2012

3 AIDA Swiss Chapter We thank our sponsors of today s event: AIDA Swiss Chapter Event - 5 November 2012

4 AIDA Swiss Chapter AIDA Europe Conference took place on 13/14 September 2012 in London. Documentation is published on the AIDA Europe-website. In order to ensure that all interested persons receive direct information on AIDA Swiss Chapter, please inform any colleagues in your organization about our activities event schedule: Please provide us with your topic suggestions or other inputs by ing to Sponsorship Please let us know should you be willing to provide a contribution. Flyers for membership in SGHVR (Schweizerische Gesellschaft für Haftpflicht- und Versicherungsrecht). AIDA Swiss Chapter Event - 5 November 2012

5 No..of pages* Current Situation Corp.Governance ERM Corporate Responsibility Sustainability** AIDA Swiss Chapter Event - 5 November 2012 Ethos Overview (2009)

6 Swiss Compliance Benchmark financial sector-

7 Globally Participants Company sector, size and function Company sector Apart from investment banking all FS disciplines were represented in the survey. The category others largely consists of companies working in the field of Health, Accident and Reinsurance. The participating companies have a strong Swiss footprint; a relatively large percentage of the employees (including the compliance function) are based in Switzerland. Company sector Company size Most companies participating in this benchmark employ less then 10,000 employees globally. Number of employees in compliance function In Switzerland 2012 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss legal entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

8 No. of companies In compliance functions Findings Most companies are comfortable with the maturity of their programs Mature programs Most respondents were positive about the maturity of their compliance program and indicated it to be managed (all measures are operational and are continuously monitored, rolled out across all divisions) or optimized (organisation adapts regularly to new requirements). Only one respondent indicated the program to be fundamental (risk areas and key elements are identified). Number of employees (in compliance / global) / maturity of compliance framework Maturity level: Initial Total Fundamental Defined Managed Optimised Maturity level of companies Initial Fundamental Defined Managed Optimised 2012 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss legal entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

9 No. of companies Findings Compliance organization set-up Reporting lines in the compliance function Reporting lines For most compliance functions there are reporting lines to the Legal / General GC, combined with a dotted line to the AC. Dual reporting lines for the Compliance function are very common. Other functions mentioned are the Chief Operating Officer, Executive Management and the (chairman of the) Board of Directors. Audit Committee Legal / General Council CEO Risk 3 CFO 2 Internal Audit 0 Security Compliance organization structure The size of the company usually impacts the compliance structure as well. As most companies are midsized companies with a strong presence in Switzerland it to be expected there is a more central (lead) compliance structure KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss legal entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International Organization s compliance structure 9 5 Central Central lead, local support 1 Local lead, central support No. of responses 0 Local 2 Other

10 Findings Legal requirements as a key driver for compliance Reasons for compliance management Compliance with legal requirements is a key driver for most companies in developing a compliance program. Also, the protection of reputation and compliance with internal guidelines are key drivers for most companies. To comply with the legal requirements To protect / improve company reputation Key drivers To comply with internal guidelines 15 To improve staff behaviour 8 To comply with contractual requirements 6 No. of responses 2012 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss legal entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

11 Findings Compliance risks and key challenges Key compliance risks When assessing the key risks and challenges, there are differences between companies. Many respondents referred to the risks in broad terms, where they relate to compliance with laws, regulations and contracts. New regulation, cross-border issues and FATCA are often mentioned as key risks and challenges. Furthermore, data protection, data security and AML are still challenging issues. Next to that, some companies identified specific risks related to: Fraud Suitability Governance & Strategy Integrated Assurance Resources Compliance Framework Cost Pressure Cross Border Contact with Regulator FATCA New Regulation Regulatory Changes Anti-Trust Tax Compliance Other challenges noted are limited resources and cost pressure. For some respondents a thorough approach for risk assessment (including operational risks) seems to be an issues. Record Management / Archiving Suitability Data Protection Anti-Money Laundering Data Security Fraud Tax Compliance Risk Assessment Bribery Embargo / Sanctions Compliance Implementation Training & Awareness Insider trading Conflict of Interest Operational Risk Risk Monitoring 2012 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss legal entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

12 Findings Most common control weaknesses are related to employees Control weaknesses that allow for non-compliance Control Weaknesses Lack of competent personnel in oversight roles and Lack of management review are rated by the respondents of this survey as the most common weaknesses that allow non-compliance to occur. Lack of competent personnel in oversight roles Lack of management review Lack of internal controls, Tone at the top and Lack of employee compliance education are also listed as more common weaknesses. Other control weaknesses, mentioned by the participating companies were: weak culture, wrong incentives, bad management, and wrong compliance staff. Lack of understanding when to involve Compliance for business decisions was also mentioned. Lack of internal controls Tone at the top Lack of employee compliance education Lack of independent checks / audits Lack of clear lines of authority Weak culture of integrity Override of existing internal controls 5 5 Lack of reporting mechanism 2 No. of responses 2012 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss legal entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

13 Contact Peter Kalberer Director Advisory KPMG Badenerstrasse 172 P.O. Box 8026 Zurich Phone KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss legal entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

14 "Rules of Conduct and Governance for Insurance and Reinsurance Carriers" AIDA - Swiss Chapter, Zurich, 5 November 2012 Gabe Shawn Varges: International and National Experience Association Internationale de Droit des Assurances Swiss Chapter

15 Gabe Shawn Varges In personal capacity Views expressed are only of the presenter Not for citation 2012 Gabe Shawn Varges

16 1. Context Financial crisis: Weight of the (ongoing) financial crisis; Euroland and beyond The concern: not just TBTF or SIFIs but systemic instability from whatever source and the resulting impact on all industries, including insurance, and on public trust in the market. What to do with lower sovereign debt reliability? With plummeted interest rates? 10,320,106,100,000 as per end Gabe Shawn Varges Source: EU Eurostat 2/12 Learning from the financial crisis: What lessons? 2009 OECD: the financial crisis can be to an important extent attributed to failures and weaknesses in corporate governance

17 Context (cont.) More active and forceful international standard setters: Significant push from the international standard setters. Increased use of peer reviews. Plus IMF pressure through country assessments. But also from the private sector (Group of 30, UNEP initiative for companies on Sustainable Insurance, Economiesuisse, ABI, CRO Forum etc.) More cooperation among regulators: Greater interaction among national regulators ad-hoc bilaterally and multilaterally and in a planned way through periodic so-called supervisory colleges More interest in macro-economic and macro-prudential issues: Looking beyond the single-company focus to industry-wide and economy-wide impacts, also on a trans-border-basis (contagion); hence also interest on emergency planning and resolution topics, i.e. planning in case institutions lack sufficient capital or liquidity or go bankrupt More interest in groups and conglomerates: New principles issued by the Joint Forum and extensive work now at the IAIS on a common supervisory approach for groups Gabe Shawn Varges

18 Context (cont.) Other factors: Together with unhappily continuing cases of governance or compliance related corporate lapses since 2008 (in financial and non-financial industries), and public and shareholder pressure (e.g. on remuneration), the above is creating a heightened dynamic. Industry-led (not only regulator-led) initiatives can also be expected. Financial Times September 21, 2012 Banks admit reforms needed to restore trust Britain's biggest banks have admitted that radical changes are needed to improve behaviour and restore public trust after a wave of damaging scandals rocked the City in recent months Gabe Shawn Varges

19 2. Three Areas of Increased Emphasis or Reframing 1. The Role of the Board of Directors Increased expectation of true oversight of Management by the Board of Directors, including on capital, risk and compliance; the Board s own governance or Board practices also under scrutiny, as is the engagement and competence of its members. 2. The (Existence) and Role of the Control Functions Increased expectation of independence and impact of the Risk, Compliance and Audit functions; part of the governance checks-and-balances; beyond observing and reporting on risks ; HSBC s July announcement: Compliance will not just advise but control and enforce 3. The Role of Incentives Avoidance of wrong incentives but increasingly also the motivation of the right behaviors; important role of the FSB remuneration principles and 2012 shareholder spring ; but issue complicated when infused by more political considerations 2012 Gabe Shawn Varges

20 3. Three supervisory options (also internally within a company) Violations-based: Wait until a lapse or failure takes place; aim for deterring effect through sanctions Single Issues-based: Do periodic inspections or reviews in areas of perceived risk or at random; hope that from the specific general lessons can be drawn Prevention-based: Assess not only specific risks but also how prepared the company (or unit) is to meet its key risks and meet its key legal and regulatory obligations; can allow for a more preventive, comprehensive, and systematic approach and permit a more reliable view of the risk picture of a company (or business unit) 2012 Gabe Shawn Varges

21 "Rules of Conduct and Governance for Insurance and Reinsurance Carriers" Infrassure Ltd. Dr. Sylva de Fluiter, Deputy Chief Risk Officer and Legal Counsel AIDA - Swiss Chapter, Zurich, 5 November 2012 Association Internationale de Droit des Assurances Swiss Chapter

22 Infrassure Ltd Key Figures Founded employees CHF 26m premium Today 110 employees CHF 160m premium Business Infrastructure and industry projects and operational business in: power, oil, gas, petro, civil construction, mining, electronics, telecom International (Re-) Insurance business covering all continents Underwriting and Claims Managers: exclusively engineers Offices Zürich (CH) all under one roof operational office + Vaduz (FL) AIDA Swiss Chapter Event - 5 November 2012

23 Rules of Conduct and Governance: implementation and challenges Internal needs Structure and processes follow business development External requirements Increasing and tightening requirements in all markets Designed for large (Re-)Insurance carriers Implementation of regulatory requirements Translation to Infrassure s business model and business Dialogue with regulators and other authorities worldwide Challenges Keeping up to date with all international rules and regulations Increase awareness of all employees AIDA Swiss Chapter Event - 5 November 2012

24 Rules of Conduct and Governance: impact on a smaller organisation Impact on the organisation Resources and priorities Company growth = business growth? Cost / Benefit considerations Necessity clearly acknowledged, extent to be challenged Costs disproportionate to threat scenarios for smaller organisations Interaction with regulatory authorities Ongoing dialogue required Is the loop closed from requirements to fulfillment to approval? Needs going forward Relevant requirements; realistic timelines; clear and differentiated rules AIDA Swiss Chapter Event - 5 November 2012

25 "Rules of Conduct and Governance for Insurance and Reinsurance Carriers" The view from Swiss Re: Adrian Williams, GC Reinsurance EMEA AIDA - Swiss Chapter, Zurich, 5 November 2012 Association Internationale de Droit des Assurances Swiss Chapter

26 What is Corporate Governance and what is it for? "Corporate governance is the framework comprising a company's organisation, structure, management and assurance functions." "It is designed to ensure a corporation's transparency, protecting the interests of shareholders and creating value for all stakeholders." AIDA Swiss Chapter Event - 5 November 2012

27 How are we governed? Organisation Governing bodies Articles of Association Corporate Bylaws Code of Conduct Group Guidelines Compliance AIDA Swiss Chapter Event - 5 November 2012

28 World-wide regulation FINMA CAA (Luxembourg) "common good" in other EEA member-states US State Insurance Regulators South America Asia-Pacific SIX SEC AIDA Swiss Chapter Event - 5 November 2012

29 Challenges or Opportunities? Solvency II MiFID II IMD II AIDA Swiss Chapter Event - 5 November 2012

30 Panel Discussion Peter Kalberer, KPMG AG Gabe Shawn Varges Sylva de Fluiter, Infrassure Ltd. Adrian Williams, Swiss Re Denise Wipf, Mazars Coresa SA Moderation: Christian Felderer, Chairman of the Organizing Committee of AIDA Swiss Chapter Association Internationale de Droit des Assurances Swiss Chapter

31 Thank you for your attention!...and now it s time for the apéro! Association Internationale de Droit des Assurances Swiss Chapter