Client Update March 2007

Transcription

1 Contacts Quentin Loh Direct: (65) Facsimile: (65) quentin.loh Regina Liew Direct: (65) Facsimile: (65) regina.liew Review Of Sub-Funds Of Investment Linked Life Policies - MAS Issues Response To Feedback Received On 30 August 2006, the Monetary Authority of Singapore ('MAS') issued a consultation paper to review the regulatory requirements for sub-funds of investment-linked life insurance policies ('ILPs'). The MAS received comments on the consultation from various parties and on 5 February 2007, published its response to the comments received. The Client Update entitled 'Review Of Sub-Funds Of Investment Linked Life Polices' issued in September 2006 gives a quick overview of the proposals in the consultation paper, while the following table provides a summary of some of the comments received and MAS' response thereto. Simon Goh Direct: (65) Facsimile: (65) simon.goh Please feel free also to contact the Knowledge & Risk Management Group at eoasis 1

2 1. Removal of approval requirement The removal of the requirement for MAS to approve new ILP sub-funds prior to launch or significant changes to existing ILP sub-funds, would expose investors to higher risks. The regulatory standards that an insurer is required to meet remain the same. Greater onus is placed on the board of directors and senior management of the insurer to ensure compliance Pre-notification for ILP sub-funds feeding into MAS approved CIS Replace the 21-day pre-notification period with a post-launch notification period of up to 7 days for a new ILP sub-fund which feeds fully into authorised or recognised collective investment schemes. Information required for pre-notification Clarify the format and content to be provided to the MAS under the pre-notification requirement. Mandated statement in disclosure materials The proposed mandatory disclosure statement to policyholders that an ILP sub-fund is not required to be approved by MAS may confuse customers and cause them to think that they are riskier investments. What constitutes a 'significant change' to an existing ILP sub-fund Clarify what constitutes a 'significant change' to an existing ILP sub-fund, that requires, under the proposed rules, pre-notification. 6. Notification of MAS prior to notification of policyholders MAS will also have the power to stop the launch of any ILP sub-fund. All retail CIS are subject to a 21-day prenotification period, including those feeding into MAS-approved, authorised and / or recognised funds. Given the similarities between CIS and ILP sub-funds, it would be preferable to align the regulatory treatment for the products where possible. The format and content required are similar to those currently in Appendix G of MAS Notice 307. The Appendix will be revised to incorporate the amendments. Agree that the disclosure statement need not be mandated. Examples will be provided in MAS Notice 307. Insurers should also approach the MAS if in doubt. 2

3 The requirement to notify MAS of any significant change to an ILP sub-fund at least 21 days before notification to policyholders may be difficult to meet. The proposal will be revised so that insurers have to notify MAS of a significant change as soon as practicable, but no later than one month before the change, ie, no later than when policyholders are informed Whether MAS Notice 302 is being changed Clarify whether the proposal to extend the MAS Notice 302 requirements for board-approved controls to ensure proper development, pricing and disclosure materials for insurance products to ILP sub-funds amounts to a change to the current requirement of MAS Notice 302. Removal of audit requirement The audit requirement should be removed. Timing of supplementary audit It is inconvenient to have two separate audits conducted in the course of the year, one for the insurer's financial statements and a supplementary audit for the internal processes and controls of the ILP sub-funds. There is no change to the existing requirements under MAS Notice 302. The intention is for insurers to apply, where applicable, the existing pricing and development policies for insurance products to new ILP sub-funds. There is no justification to remove the audit requirement. The supplementary audit can be conducted at the same time as the audit of the insurer's financial statements. Where the supplementary audit option is chosen, it must be ensured that the first supplementary audit is conducted before the ILP sub-fund year-end, in time for the supplementary audit certificate to be sent together with the annual report of the ILP subfund to all policyholders. An insurer that opts for the supplementary audit option will need to adopt this option thereafter, unless approval is granted from MAS to revert. 10. Parameters of supplementary audit 3

4 The scope of work to be carried out under the supplementary audit should be clarified. MAS is working with the Institute of Certified Public Accountants of Singapore and the Life Association of Singapore on the parameters for the supplementary audit, which are expected to be finalised by Q Semi-annual and annual reports for ILP sub-funds feeding significantly into approved funds For ILP sub-funds feeding significantly into an authorised or recognised CIS, or unit trust approved in an equivalent jurisdiction, the semi-annual and annual reports for the underlying funds should be accepted instead of producing separate reports for the ILP subfunds. Audited final certification for terminated ILP sub-funds The termination audit leads to a duplication of work. Submission of final audited certificate of terminated ILP sub-funds The two-week deadline for the submission of the audited certificate for the terminated ILP sub-fund may be too short. For ILP sub-funds that feed substantially into an underlying fund, insurers can replace the semi-annual and annual report on the ILP subfunds with the corresponding reports on the underlying funds, provided: no CPF monies are invested in the ILP sub-funds; the investment-linked policy is at least US$5,000 annual premium for a regular premium policy and US$50,000 for a single premium policy; and the insurer obtains express consent from all policyholders to do so. The termination audit provides policyholders with the assurance that all the liabilities of the terminated ILP sub-fund have been settled and all the assets have been properly distributed. The submission deadline for the final audited certificate will be extended to within six months of termination of an ILP sub-fund. The audit certificate need only be submitted to MAS, there is no need for it to be sent to past policyholders. 4

5 14. Dissemination of document electronically Express consent by policyholders to receive post-sale disclosure documents electronically should not be required. The requirement will be retained. If you would like more information on the above, please contact the partners whose numbers appear on the left of page 1, or contact the Knowledge & Risk Management Group at eoasis, and we would be happy to assist you. Rajah & Tann is one of the largest law firms in Singapore, with a representative office in Shanghai. It is a full service firm and given its alliances, is able to tap into resources in a number of countries. Rajah & Tann is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealings with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems. The information contained in this Update is correct to the best of our knowledge and belief at the time of writing. The contents of the above are intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as the information above may not necessarily suit your specific business and operational requirements. It is to your advantage to seek legal advice for your specific situation. In this regard, you may call the lawyer you normally deal with in Rajah & Tann or the Knowledge & Risk Management Group at eoasis. 5