The Role and Functions of Regulatory Boards

1. The Role and Functions of Regulatory Boards David Parody Commonwealth Secretariat Insurance Regulator’s Board Responsibility & Oversight Uganda, 9-11 March 2011

2. Agenda • Regulatory Objectives • Functions of Board Members • Functions of the Regulator • Ethics & Code of Conduct of Board Members

3. Ugandan Insurance Commission - Functions establishing standards for the conduct of insurance and reinsurance business; licensing all persons involved in or connected with insurance business including insurance and reinsurance companies, insurance and reinsurance intermediaries, loss adjusters and assessors; safeguarding the rights of policyholders and insurance beneficiaries to any insurance contract; providing a bureau to which complaints may be submitted by members of the public; promoting a sound and efficient insurance market in the country; supervising and controlling transactions between insurers and reinsurers; ensuring strict compliance with the provisions of the Insurance Act and regulations made under it and any other law relating to insurance; etc.

4. the promotion of market confidence; the reduction of systemic risk; the promotion of public awareness; the protection of the good reputation of Gibraltar; the protection of consumers and Financial Services Commission ; the reduction of financial crime. Regulatory Objectives of the GFSC

5. Discharge by Commission of its functions (1) the need to use resources in the most efficient and effective way; the principle that the duty to manage a business falls upon the senior management of that business; the principle that a burden or restriction which is imposed on a person, or on the carrying on of an activity, should be proportionate to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction; the desirability of facilitating innovation in connection with financial services business;

6. Discharge by Commission of its functions (2) the international character of financial services and markets and the desirability of maintaining the competitive position of Gibraltar; the desirability of minimising, as far as reasonably practicable, the adverse effects of regulation on competition and consumer choice; the need to maintain the good international reputation of Gibraltar generally and as a jurisdiction for the conduct of financial services business; the policy of the Government, as advised to the Commission by the Minister, where it relates to matters of general application regarding the authorisation, licensing, recognition and registration of financial services business which, in the judgement of the Minister, affects or relates to the macro economic or other public interest of Gibraltar.

7. Functions of the Commission (1) to supervise Authorised persons in accordance with this Act and the Supervisory Acts; to consider and determine applications for authorisations, licences, recognitions and registrations made under the Supervisory Acts; to monitor compliance by Authorised persons with such legislation, rules, codes and guidance made under this Act or any Supervisory Acts; to monitor compliance by Authorised persons with legislation, rules, codes and guidance relating to the prevention of financial crime; to monitor financial services business carried on in or from Gibraltar and to take such appropriate action as it is empowered to do against persons carrying on such business without the necessary authorisation, licence or registration;

8. Functions of the Commission (2) to carry out the duties and discharge the functions imposed on, or given to, it under this or any other Act; to determine subject to the approval of the Minister the terms of service of the Chief Executive; to determine the number and skill mix of employees required by the Commission to carry out its functions and to determine their terms and conditions of employment; to monitor and oversee the performance by the Chief Executive of all functions delegated to him by the Commission; to approve the annual estimates of income and expenditure to be furnished to the Minister under section 16; and in respect of those areas of financial services business where EU Community law applies, to supervise and regulate financial services business carried on in or from Gibraltar in accordance with Community obligations and in those areas to establish and implement standards and supervisory practices which match the standards and supervisory practices governing the provision of financial services within the United Kingdom.

9. Executive v Non-Executive Boards & Managing Conflicts of Interests Non Executive Board Executive Powers

10. Discussion Points Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the regulator and the stakeholders. Where board decisions may affect different stakeholder groups differently, the board should treat all stakeholders fairly. The board should apply high ethical standards. It should take into account the interests of stakeholders

11. The board should fulfil certain key functions, including: Reviewing and guiding; corporate strategy, major plans of action, risk policy, annual budgets and business plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing major capital expenditures, acquisitions and divestitures. Monitoring the effectiveness of the regulator’s governance practices and making changes as needed. Selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing succession planning. Aligning key executive and board remuneration with the longer term interests of the regulator and its stakeholders.

12. Discussion Points Ensuring a formal and transparent board nomination and election process. Monitoring and managing potential conflicts of interest of management, board members and stakeholders, including misuse of corporate assets and abuse in related party transactions. Overseeing the process of disclosure and communications. Ensuring the integrity of the corporation’s accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for; risk management, financial and operational control, and compliance with the law and relevant standards.

13. The board should be able to exercise objective independent judgement on corporate affairs. Boards should consider assigning a sufficient number of non-executive board members capable of exercising independent judgement to tasks where there is a potential for conflict of interest. Examples of such key responsibilities are ensuring the integrity of financial and non-financial reporting, the review of related party transactions, nomination of board members and key executives, and board remuneration. When committees of the board are established, their mandate, composition and working procedures should be well defined and disclosed by the board. Board members should be able to commit themselves effectively to their responsibilities.

14. Discussion Points In order to fulfil their responsibilities, board members should have access to accurate, relevant and timely information.

15. Governance, Risk Management and Compliance • Ethically correct behaviour • Improved Efficiency • Improved Effectiveness • Managed Operations Strategy Processes People Risk Appetite External Regulations Technology Governance Internal Policies Risk Management Compliance

16. Ethics Code of Conduct for Board Members • Principles • Independence • Conflicts of Interests • Secrecy • Inducements

17. General Principle-Discussion • The members of the Board shall observe the highest standard of ethical conduct. • They are expected to act honestly, independently, impartially, with discretion and without regard to self-interest and to avoid any situation liable to give rise to a personal conflict of interests. • They are expected to be mindful of the importance of their duties and responsibilities, to take into account the public character of their function and to conduct themselves in a way that maintains and promotes the public's trust in the Regulator.

18. Independence- Discussion • Members of the Board, when exercising the powers and carrying out the tasks and duties conferred upon them, shall not seek or take instructions from institutions or bodies, from government or from any other body, including any decision-making body that they belong to. • The principle of independence is incompatible with applying for, receiving or accepting from any source except from within the Regulator any benefits, rewards, remuneration of gifts in excess of a customary or negligible amount, whether financial or non-financial, which are connected in any way whatsoever with the function as a member of the Board. • Members of the Board shall ensure that non-Board activities, if any, whether remunerated or not, have no negative impact on their obligations and will not damage the image of the Board. • Relations with interest groups shall be based upon an approach that is compatible with their independence as members of the Board and the principle of integrity.

19. Conflict of interests-Discussion • The members of the Board shall avoid any situation liable to give rise to a conflict of interests. • A conflict of interests arises where the members of the Board have private or personal interests, which may influence or appear to influence the impartial and objective performance of their duties. • Private or personal interests of the members of the Board mean any potential advantage for themselves, their families, other relatives or their circle of friends and acquaintances. • In view of the impact of decisions to be taken by the Board on market developments, the members of the Board shall be in a position to act with full independence and impartiality. • The members of the Board shall not use confidential information to which they have access for the purpose of carrying out private financial transactions, whether directly or indirectly via third parties or whether conducted at their own risk and for their own account, or at the risk and for the account of a third party.

20. Professional secrecy-Discussion • Members of the Board are required not to divulge confidential information. • This shall be taken into account, in particular, in public speeches or statements and in relations with media with regard to policy decisions that have not yet been officially disclosed to the public. • The members of the Board shall take all necessary measures to ensure that the persons having access to their information also respect the professional secrecy obligations.

21. Ethics Adviser-Discussion • The Board shall appoint an Ethics Adviser to provide guidance to the members of the Board.

22. Self Assessment Complete the self assessment questionnaire

23. Financial Services Commission Act 2007 (http://www.gibraltarlaws.gov.gi/articles/2007-03o.pdf) European Central Bank : Code of Conduct for Members of the Governing Council (http://www.ecb.int/ecb/legal/pdf/en_mou_on_code_of_conduct_consolidated_f.pdf) Corporate Governance in Central Government Departments: Code of Good Practice (http://www.hm-treasury.gov.uk/d/corpgovernancecode280705.pdf) IMF Code of Good Practices on Transparency in Monetary & Financial Policies (http://www.imf.org/external/np/mae/mft/code/eng/code2e.pdf) OECD Principles of Corporate Governance (http://www.oecd.org/dataoecd/32/18/31557724.pdf) References/Sources