Following a number of high-profile corporate demises such as Enron and Parmalat, the world of corporate governance underwent significant changes. We saw the sprouting of legislation and codes such as the OECD Principles of Corporate Governance, the Sarbanes–Oxley Act, and various European national Corporate Governance Codes to mention but a few. These sought to put governance and boards under the microscope and highlight universal principles which are primarily aimed at avoiding the corporate failures of the past and enhancing awareness of the critical importance of good governance.
Beyond a shadow of a doubt, good governance is a key ingredient to the success of any corporate entity and a strong Board is fundamental to good governance. The Board is the heart that pumps blood across the organisation. It is the organ that is entrusted with setting the right tone at the top. It is therefore fundamental that at Board level, there is the appropriate mix of competencies, expertise, experience, gender diversity, independence and challenge. These elements form the basis of a robust Board.
Regulators across the world have put increasing emphasis on this pillar and the financial services industry is no exception. From a European perspective, the European Supervisory Authorities (ESAs) namely the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) have introduced specific governance frameworks such as the EBA Guidelines on Internal Governance, EIOPA Guidelines on Systems of Governance under Solvency II and the Joint ESMA and EBA Guidelines on the assessment of the suitability of members of the management body.
Locally, we have seen the Malta Financial Services Authority (MFSA) identifying Corporate Governance and Culture as one of its four cross-sectoral supervisory themes identified for 2022. Furthermore, one of the MFSA insurance sector-specific priorities for 2022 will be to continue focusing on how regulated entities are implementing an effective system of governance taking into consideration a number of areas, in particular the collective knowledge, skills and qualifications of the board of directors. The MFSA also plans to launch a Corporate Governance Code which was recently issued for a second public consultation. This will apply to all insurance undertakings and corporate insurance intermediaries regulated by the MFSA.
In addition to the governance issues, insurance boards are being confronted with numerous challenges in a fast-changing environment, among which the constant changes in the regulatory landscape, environmental, social, and governance (ESG) issues, the intensified risk of cyberattacks on insurers and digital advancements. All this in addition to the economic impact of the Ukraine-Russian conflict, increasing interest rates and inflation.
The above developments are accompanied by the introduction of new laws and guidelines such as the Sustainable Finance Disclosures Regulation, EBA Guidelines on ICT and Security Risk Management, EIOPA Guidelines on outsourcing to cloud service providers and the MFSA Guidance On Technology Arrangements, ICT and Security Risk Management, and Outsourcing Arrangements, amongst others.
Recent developments are also arising from the 2020 Solvency II review in particular with the proposed introduction of the EU recovery and resolution directive (IRRD) which is aimed at creating a harmonised recovery and resolution planning framework for EU (re) insurance undertakings and groups.
2022 will not be an easy year for insurance boards. If you are a director or aspirant board member of insurance undertakings or intermediaries interested in exchanging your views or learning about the legal and regulatory developments on the above topics, we invite you to join our upcoming series of webinars called "Inside the Boardroom – An Insurance Perspective" that will be held between the 6th of April and the 15th of June.
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