Internal controls required at Taiwanese insurance intermediaries

The Financial Supervisory Commission recently approved new internal control measures for insurance intermediaries under authority delegated to it by Article 165(3) of the Insurance Act (2011).

Previously the Insurance Act required insurers to establish internal controls but not brokers and agents. The Legislature closed this lacuna in June 2011 when it extensively amended the Act.

The new regulations for insurance intermediaries have 32 articles. In the absence of an official English translation, they may be provisionally entitled “Regulations Governing the Implementation of Internal Control Auditing and Business Solicitation Systems at Insurance Agencies and Brokerages.”

The Regulations are patterned on similar regulations mandating internal controls  at insurers, publicly-reporting companies and financial holding companies and banks. They also implement the International Association of Insurance Supervisors’ Insurance Core Principles 18 and 19.

The  Regulations expressly requires that the board of directors must resolve to adopt the internal controls system and periodically monitor its implementation.

Under the Regulations, a broker or agent with more than  NT$300 million in 2010 revenue has until the end of 2012 to implement internal controls. Those with at least NT$100 million in 2010 revenue have until the end of 2013.

The Regulations also mandate that insurance intermediaries retain dedicated legal compliance and audit personnel with specified qualifications.

Branches of foreign insurance intermediaries may file their parent company’s internal control system for recordation. If the parent company’s internal control system is consistent with the Regulations, the branch may use its parent’s internal controls in lieu of those mandated by the Regulations.

The Financial Supervisory Commission has the power to impose fines of NT$600,000 (c. US$20,000)  to NT$3 million (c. US$90,000) on insurance intermediaries that fail to establish or maintain internal controls.