The Securities and Exchange Commission of Pakistan (SECP) has declared that the SECP's Circular No 15 of 2010 (Related Party Assets) issued for the insurance industry has ceased to have effect after the expiry of 12 months from its issuance.
According to an SECP order issued here on Tuesday, the SECP has disposed of the proceedings initiated against an insurance company and others for making a default in complying with the requirements of Section 32(2), Section 11(1)(c) read with Section 32(7) and Section 36 of the Insurance Ordinance, 2000. Through a latest order, the SECP has clarified the legal status of the Circular No 15 of 2010 on the solvency requirements.
The company informed the SECP that the SECP under the authority of Section 32(1)(d) vide its circular no.15/2010 dated July 6, 2010 has provided certain relaxations for admissibility of related partly assets for solvency purposes. The SECP found that the company has contravened the provisions of Section 32(2)(g)read with Section 32(7) of the Ordinance.
First of all, it would be of profound importance to state that the Commission had issued Circular No 15 of 2010 in pursuance of the provisions of Section 32(1)(d) of the Insurance Ordinance, which had to be issued as per the procedure given under Section32(8)(g) of the Insurance Ordinance. Accordingly, the commission had consulted all the insurers after the review committee had made its recommendations to the commission. The recommendations of the review committee, which were in writing, along with the said consultations with all the insurers were considered and treated as applications from all the insurers. For the sake of brevity, application of the insurers was there and that too in writing, on the basis of which the said circular was issued, the SECP said.
The SECP further stated that section 32(8) (g) of the Ordinance compliments the provision of Section 32(1) (d) of the Ordinance, hence, Section 32(1)(d) of the Ordinance can never be read and interpreted in isolation. Nowhere else in the Ordinance does the Commission is empowered to determine, declare or prescribe an asset to be admissible either by rulemaking or by circular, the SECP said.
The Circular No 15 of 2010 has ceased to have effect after the expiry of 12 months from its issuance, regardless of whether there was any provision in that Circular as to its temporary effect in terms of Section 32(8)(g) of Ordinance. Hence, even if the time for the Circular's effectiveness is not provided, its applicability/effectiveness cannot go beyond the scope as provided under Section 32(8)(g) of the Ordinance.
As the Directors are supposed to be well aware of their legal obligations as required by the Ordinance under Section 32(2) of the Ordinance ie, the Directors of the Company were required to ensure compliance with the provisions of Section 32(2) of the Ordinance, therefore, it could be legitimately inferred that the default was committed, though unintentional. The provisions of the Circular No 15 of 2010 were misunderstood by the company, hence, the non-compliance.
After carefully examining the arguments and studying the facts and findings of the case as mentioned in the Order, the default of Section 32(2) of the Ordinance is established, however, proven unintentional. The penalty as provided under Section 156 of the Ordinance could have been imposed on the Company.
In exercise of the power conferred on SECP under Section 156 of the Ordinance, instead of imposing the penalty onto the company and/or its directors (including the chief executive), take a lenient view due to the default being unintentional, and thus, condone the company and its directors (including the chief executive). However, the company, its directors and the chief executive are hereby issued stern warning that in case of similar non-compliance in future a stronger action will be taken, the SECP added.