Finance and Development Planning Minister, Baledzi Gaolathe, warned insurance companies of the impending punitive penalties under the proposed bill if they failed to meet the insurance industry’s covenants.
Speaking at Hollard Insurance Botswana Breakfast on Friday, Gaolathe said the Non Banking Financial Institution Authority bill, which is currently being debated, would “employ extensive information system, coupled with significant inspection and investigative powers, supported by meaningful penalties to ensure that compliance is being maintained.”
The move comes at a time when two insurance companies, namely General Insurance Botswana (GIB) and Thebe Insurance, got their operating licenses withdrawn by the current regulator, the Ministry of Finance, for various reasons.
GIB’s license was withdrawn on allegations of lack of capital adequacy while Thebe Insurance lost its license over “missing” involving clients’ money. However, Thebe Insurance later paid the money and the license was reinstated.
However, the proposed coming law will ensure that the industry, which is worth P 9.3 billion ÔÇô made up of clients money, is kept safe by companies that have sound capital adequacy and sound risk supervision.
According to a bill published in the government Gazette, which has already passed the Second Reading in parliament, government would establish the Non Banking Financial Institution Regulatory Authority ÔÇô equivalent to the UK’s Financial Authority ÔÇô to ensure that the non banking financial sector operates in an efficient and orderly manner.
“The bill has already passed Second Reading in parliament and I have no doubt that it will pass at committee stage,” Gaolathe said. “The soundness, transparency and the level of compliance of a country’s insurance regulatory regime are important considerations by investors in deciding where to invest. To this end, Botswana is a member of the International Association of Insurance Supervisors (IAIS), through which the country is able to keep abreast of the various standards and guidelines used by supervisory and regulatory bodies worldwide,” he added.
The bill, if passed by parliament, will see insurance companies, fund management outfits, stock exchange and collective investment undertakings being put under scrutiny to avoid cases of conflict of interest and other financial crimes. It will also enhance the status of Botswana registered companiesÔÇöespecially those registered under the International Financial Service Center.
“ The Regulatory Authority’s principal objective is to regulate and supervise non banking institutions so as to foster their safety and soundness, the highest standards of business conduct, fairness, efficiency and orderliness of the non bank financial sector and the stability of the financial system,” the Government Gazette stated.
Among the key factors, the authority will have to draw prudential rules to ensure that the currently less regulated sector does not cause mayhem in the financial market that can lead to the collapse of the economy.
The prudential rules will ensure that Botswana’s registered non bank financial institutions work along the internationally accepted standards by ensuring that they are run by people with prudential skills, subscribe to good corporate governance, meet the set capital and liquidity requirements and use prescribed financial instruments and off balance sheet transactions among others.
The authority, which is expected to given a wide range of powers, would carry surprise checks on the conduct of the non-bank financial institutions and will be beefed up by a team of investigators to ensure that they are not involved in financial crimes.
It also recommended some punitive actions which can go ten times more than the damage caused by the company accused of breaching the convent rules. It also proposes automatic cancellation of the operating license and or long-term imprisonment of top officials if the company is found to be in breach.