SECP Asks Insurance Companies to Outsource Their Internal Audits to Professional Audit Firms

The Securities and Exchange Commission of Pakistan has further tightened regulations for the insurance companies and directed them to outsource their internal audit function to any professional services firm.

On Wednesday, the SECP has issued S.R.O. 1085 (I)/2020 to introduce the draft amendments to the Code of Corporate Governance for Insurers, 2016.

Under the revised regulations, the internal audit function, wholly or partially, may be outsourced by the insurer to a professional services firm and in lieu of outsourcing, the insurer shall appoint or designate a full-time employee other than the chief financial officer or an employee directly reporting to the chief financial officer, as head of internal audit holding equivalent qualification prescribed under this code, to act as a coordinator between firm providing internal audit services and the Board: Provided that while outsourcing the function, the insurer shall not appoint its existing external auditors or any of its associated company or associated undertaking, as internal auditors.

The details of all related party transactions shall be placed periodically before the audit committee of the company and upon recommendations of the audit committee, the same shall be placed before the Board for review and approval.

Provided where the majority of the directors are interested in such transactions, the matter shall be placed before the general meeting for approval. Provided further that in case of an insurer, where a general meeting is not required to be held, and the majority of directors are interested in related party transactions, the matter shall be placed before the administrative authority of such insurer, SECP said.

The SECP has further directed that insurers are encouraged to ensure that by December 31, 2021, at least half of the directors on their Boards; by December 31, 2022, at least 75% of the directors on their Boards and by December 31, 2023 all the directors on their Boards have acquired the prescribed certification under any director training program offered by institutions, local or foreign, that meet the criteria specified by the Commission and approved by it.

A newly appointed director on the Board may acquire, the directors training program certification within a period of one year from the date of appointment as a director on the board: Provided that the director having a minimum of 14 years of education and 15 years of experience on the Board(s) of insurer(s) shall be exempt from the directors training program.

Provided further that a director who is exempted under the requirements of Listed Companies (Code of Corporate Governance) Regulations, 2019 shall also be exempted from the requirements of the directors training program under this code.

The insurers are also encouraged to arrange training for at least one female executive every year under the directors’ training program from year December 2021 and at least one head of department every year under the directors’ training program from year December 2022, SECP added.

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