The Corporate Governance Code provides fundamental principles to be adopted by insurance entities to strengthen their good corporate governance – Laws and insurance products

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The Corporate Governance Code (the “Code”) which was issued by the Malta Financial Services Authority (the “MFSA”) on 5 August 2022 applies to all persons authorized by the MFSA to provide financial services to or from Malta, such as credit institutions, financial institutions, payment institutions, insurance companies and investment firms. However, the Code does not apply:

Authorized Listed Entities falling within the scope of the MFSA Capital Markets Rules; and

Authorized persons who are natural persons.

The Code has provided a set of fundamental principles which are considered essential for good corporate governance and which should be applied to the extent possible. The core principles relate to the following sections that insurance entities are expected to implement:

I. effective advice: What can be done to assess the effectiveness of the board? By the board defining its responsibilities and powers in a written document approved by the board, such as a board charter or a board mandate and ensuring that this document is known to the entity. The Code also addresses the structure and composition of the Board of Directors, emphasizing the importance of appointing at least one independent non-executive director. The process for appointing directors should also be applied by the insurance entity to ensure that the proposed director is indeed fit and able to discharge his extensive and demanding responsibilities as a director of an insurance entity. The Code further recommends that an effective succession plan be put in place to avoid key person risk. More importantly, the Code suggests that an evaluation of the performance of the board be carried out, ideally by an independent and external third party, in order to recognize the strengths and weaknesses identified by each director. This assessment will lead to recommendations and action plans that will improve the board’s effectiveness.

ii. Internal controls: the board should ensure that appropriate internal control mechanisms are in place to ensure that any exposure to any identified risk is understood and managed. Insurance entities are expected to incorporate the principles of the updated three-line model into their controls, operations and culture. The board should also put in place an effective and robust information and communication technology and security risk management process, establishing a robust internal control framework that will define clear responsibilities for staff. of the insurance entity. In addition, insurance entities should establish, implement and maintain adequate policies and procedures designed to detect any risk of non-compliance by the insurance entity with legal and regulatory obligations. The creation of an audit committee to oversee the financial reporting process and relations with external and internal auditors was also recommended in the Code to strengthen the internal control framework of an insurance entity.

iii. Stakeholder Engagement: the Code emphasizes the importance of effective dialogue with shareholders and should use the annual general meeting to communicate effectively with shareholders. In addition, the board should also encourage active cooperation between the entity and its stakeholders, including suppliers, customers, employees and public authorities, as this contributes to the growth and success of the organization. insurance entity.

Corporate culture, CSR and ESG: the importance of establishing a corporate culture aligned with the entity’s strategy while cultivating a strong culture of compliance. The board should strive to integrate environmental, social and governance (ESG) standards and corporate social responsibility (CSR) principles into the insurance entity’s strategy which focuses on the business and sustainable finance projects. The board should implement specific ESG criteria into strategies, business models and overall governance practices. It is recommended to integrate sustainable finance into the fundamental values ​​of the insurance entity. The Code further recommends that insurance entities implement an ESG strategy as part of which reports on ESG initiatives are regularly provided.

The principle of proportionality must be adopted and applied in all insurance entities, such a methodology being in line with the corporate governance policies advocated by international bodies such as the European Commission and the OECD.

In implementing these principles highlighted in the Code, these entities will strengthen their legal, institutional and regulatory framework for good corporate governance, which will complement and add strength and value to the effectiveness of good corporate governance. corporate governance within the structure of an insurance entity. The MFSA pushes for the implementation of these principles to build the trust, transparency and accountability that are necessary for long-term success in the insurance market.

Does the insurance entity in which you participate adopt and implement the fundamental principles of the Code? Has a gap analysis been carried out to ensure that this insurance entity applies the principles mentioned above?

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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