The days of wrongdoing by employees or officials of financial institutions such as banks, credit unions and insurance companies, being swept under the carpet to protect the official or the institution’s image, will come to an end soon, when the Financial Services Commission’s (FSC’s) officially launches its updated Material Disclosure Guidelines.
While some aspects of the guidelines are already in force, the comprehensive 18-page document which was open for comment from stakeholders up two months ago, is expected to be issued soon. Insurance companies and their intermediaries, credit unions, pension plan and mutual fund operators, which are regulated by the FSC, are targets of the guidelines.
According to the FSC, financial institutions will have many planned and unplanned changes during the course of their operations which will have various degrees of material significance. However, the regulator wants to be in the know about any breaches, operational issues, fitness and propriety, governance, and financial status developments.
It, however, emphasised that there are some changes that are so significant that it is incumbent on the institution to report them to FSC within days of the occurrence. The guidelines mandate that some material changes include the termination of “key persons” no matter the cause; changes in the contact numbers and addresses of such personnel; and matters relating to reputation, honesty and integrity, competence and capability, and financial soundness.
Institutions are also expected to monitor key persons or parties associated with them “on an on-going basis, in order to ensure that persons performing activities for them or on their behalf are fit and proper as well”. Key persons include but are not limited to, shareholders, ultimate beneficial owners, directors, and other persons responsible for the control and management of the financial institution.
When it comes to insurance companies and credit unions, the FSC wants to be informed of any breaches or non-compliance with bylaws and any irregularities by insurance salesmen, among others. The FSC says it must be informed also about corporate governance, operational risk, market conduct, and business conduct, in additional to any incidents of fraud, regulatory breaches and any
The expanded guidelines insist too that: “A financial institution must disclose: investigations, regulatory action or enforcement action initiated or undertaken by other regulators in respect of itself, its overseas branches and key persons ii. criminal proceedings in respect of itself, its overseas branches, and key persons iii. civil proceedings in respect of itself.”
The document notes: “A material change is an event or decision which is likely to have or has had a significant impact on among other things: Fitness and propriety of a financial institution and individuals associated with the financial institution; A financial institution’s ownership/control, operations, governance, capital, solvency, risks, risk management, and customers; Supervision and regulation of a financial institution or a registered/licensed individual associated with the financial institution iv. the sector, by posing or heightening systemic risk.
The FSC guidelines call for financial institutions to give complete and accurate information to the Commission about a material change, and the notification must include certification by a director, or an appropriate person authorised to file the notification. (IMC1)