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Oran Hall : Fostering safe financial solutions

The Financial Services Commission (FSC) was brought into existence by the Financial Services Commission Act, August 2001, as the single regulatory organisation for institutions offering financial services in insurance, securities, and pensions.

Its mission is to protect the users of these financial services by fostering the integrity, stability, and health of the financial sector.

The FSC serves as the regulator and supervisor of the three industries and is thus empowered to license and register the companies and individuals serving the public and to approve the products offered to create relevant financial solutions.

The power of the FSC to impose sanctions where there are breaches helps to build and maintain confidence in the financial sector. Individuals would, therefore, be more willing to participate in the process of making meaningful personal financial decisions for the benefit of themselves and their dependants during their life time and thereafter.

Companies that offer long-term insurance, such as life, industrial life, and sickness and health coverage, and companies that offer general insurance, inclusive of coverage for property, accidents, motor vehicle and liability, must be registered by the FSC to provide those specific classes of insurance to the public.

Such companies must have a minimum paid-up capital and must be solvent, that is, the value of assets must exceed liabilities by a margin set by the FSC. They must also have adequate reinsurance and owners, directors, and officers must be ‘fit and proper’ people.

Insurers must live up to rigid risk management, administrative, accounting, and actuarial reporting requirements. For some of these, independent actuaries and auditors must ensure that they are in place and are required to report shortcomings to the FSC.

Life insurance companies that offer more than one class of business must keep the funds, receipts, and expenses relating to each class of business separate from all others. All policies and premium rates set have to be approved by the FSC prior to being offered to the public.

For good risk management, insurance companies must follow the criteria and standards set for investments and loans, and in cases in which the company is part of a group, the FSC examines closely what is happening in it, and in particular, any impact it is having on the insurer.

The intermediaries between the insurance company and the policyholder, agents, consultants, and sales representatives/insurance agents, for example, must be registered to operate and must satisfy fit-and-proper requirements.

The right of policyholders and the public to lodge complaints with the FSC and its power to initiate investigations if it deems that to be necessary and to impose penalties are reasons enough to keep insurers in line.

Companies and individuals dealing in securities, such as ordinary stock, preference shares, bonds, money market instruments, and selling unit trusts and mutual funds, must be licensed or registered by the FSC to do so. The FSC also ensures that the capital of companies is adequate and oversees the conduct of the people who operate in the industry.

Other actions the FSC is authorised to take are the following: register all securities sold by securities companies; examine the records of licensees; test the integrity, competence and judgement of all significant holders, directors and senior managers of securities firms through fit-and-proper assessments; introduce measures to reduce the threat of fraud and money laundering in licensed institutions; take action to prevent manipulation of the securities market; take action in the public’s interest to stop trading in a security; and educate the public about the securities industry.

With regard to the pension industry, trustees, who have primary responsibility for the management of the affairs of pension funds and retirement schemes, and for safeguarding the interests and assets of their members, must satisfy the fit-and-proper criteria to be registered by the FSC, as should investment managers and administrators.

A licensee’s staff and employees should be qualified, knowledgeable, and capable of carrying out effectively the administration of pension funds and retirement schemes. Investment managers are required to be solvent and have adequate professional indemnity and fidelity guarantee insurance.

Importantly, the people who sell or distribute contracts of retirement schemes as dealer’s representatives or sales representatives must be fit-and-proper individuals for the purpose of selling and distributing such contracts.

There is a strong emphasis on the fit-and-proper criteria because it is important to good governance and the protection of the public that is served by the securities, pension and insurance industries.

These criteria focus on honesty, integrity, and reputation, including consideration of employment record and compliance with the law, especially in relation to the handling of money; competence and capability, encompassing knowledge and experience; and financial soundness, which speaks to management of one’s management of one’s personal financial affairs, which is an indication of the individual’s capacity to contribute to the safety and soundness of other people’s money and financial matters.

The FSC enables the creation and maintenance of safe financial solutions because, as a regulator, it ensures that the corporate bodies and individuals providing the solutions are sound and competent to do so.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and

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