CIRC orders Chinese insurers to beef up compliance systems by July 1
The mainland insurance regulator said on Wednesday that insurers will face tighter rules on compliance management from July 1, as the watchdog stepped up scrutiny with at least four new measures in seven days.
Chinese insurers have come under closer scrutiny by regulators such as the China Insurance Regulatory Commission amid concerns that they have been bidding up selected stocks listed in Shanghai and Shenzhen using leverage.
From July 1, insurers will be required to make assurances that there will be no overlap of roles between the head compliance officer and senior management of other departments, according to a statement posted on the website of the insurance regulator. The new rules also specify departments that could be involved in conflicts of interests, closing loopholes for insurers to bypass the rules.
The new rules will also require compliance departments to be set up in provincial branches.
Previously, compliance departments were limited to company headquarters.
Those companies who fail to comply with the new regulations may face a downgrading of their regulatory rating. The rules cover insurance firms and insurance asset management companies.
“The regulator is sending a clear stance of more stringent supervision,” said Zhong Ming, an insurance professor at Shanghai University of Finance and Economics.
The regulator is seeking to prevent excessive risk taking that could leave the insurers exposed to mounting uncertainties amid China’s economic slowdown, she said.
The insurance regulator has already clamped down on universal life products offered by insurance units under Baoneng Group and Evergrande Group, after their aggressive takeover attempts of listed companies attracted the scrutiny of financial regulators in 2016.
Universal life products are essentially high-yield wealth management products that include a life protection component, and usually promise short-term gains. Aggressive insurers have been rapidly expanding such businesses to shore up their premiums, and investing into equity markets to meet the high returns they’ve promised to investors.