The new rules were circulated to IA-licenced brokers this week and are likely to come into effect before the updated regulations on fees and charges designed to enhance consumer protection for life industry products, contained in IA Circular No. 12 of 2017.
New ammendments
The latest IA updates to insurance brokerage regulations will make it mandatory for these types of firms to maintain 100% paid up capital levels at all times under threat of suspension.
The document states: “If the net equity is less than 100% of the paid-up capital, the insurance broker shall submit a correction plan to achieve the minimum required capital within a period of 15 days from the date of its notification by the Authority.”
It goes on to state: “The insurance broker shall not resume its business, unless it achieves (100%) of the paid-up capital required to practice the activity.”
What this means in practice, according to lawyers International Adviser spoke to, is that in addition to AED3m ($816,000, £620,000) of paid up share capital each financial advisory firm must have, it may need a further AED3m buffer of working capital.
For many in the IFA world of the UAE that is going to be a real stretch and could put further pressure on their ability to survive, the lawyers said.
Business transparency
In the same document, the IA also announced new reporting requirements for brokers, including full disclosure of commission payments from life companies.
The regulator said all future annual and interim financial statements would need to include:
“A statement with the names of the insurance companies that have been dealt with, explaining the total premiums and the total commissions…
“A statement of the total premiums and commissions distributed according to the types of insurance, insurance of the properties and liabilities, and insurance of persons and the funds accumulation.”
The document also states that brokers must notify the IA of any substantial developments that affect their financial position, financial solvency or any lawsuits instigated by the broker or against them that affect their financial position.
“In the case of severe losses, the broker shall notify the Authority immediately within one working day,” the IA said.
Survival pressure
Peter Hodgins, a partner at law firm Clyde & Co in the UAE, told The National newspaper in Dubai that the latest proposals from the regulator will adversely affect the income of some brokers.
“The result is likely to be that a number of smaller brokers exit the market. Whether that will be by way of merger or simply winding up remains to be seen,” he said.
The new IA rules are expected to be published in the next Official Gazette from which date they become law.
