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China: CIRC Issues New Measures for Compliance Management of Insurance Companies

On 4 January 2017 the China Insurance Regulatory Commission (“CIRC“) published on its website the final version of the Measures on the Compliance Management of Insurance Companies (the “Compliance Measures“), which will become effective on 1 July 2017.

The Compliance Measures apply to insurance companies and insurance groups established in China, but also act as a reference for branches of foreign insurance companies, insurance asset management companies and other insurance organizations approved by and registered with CIRC.

Based on the notes at the beginning of the Compliance Measures, all Chinese insurance companies and insurance groups are required to establish compliance departments and functions, and make arrangements to avoid possible conflicts of interest in accordance with the requirements specified in the Compliance Measures before their official effective date.

The Compliance Measures focus on the following points:

  • An insurance entity must establish a compliance mechanism based on “three lines of defense”:
  1. each department and each branch is the first line of defense with direct and primary responsibility for compliance management within its own duties;
  2. compliance departments and compliance functions are the second line of defense, providing compliance related support and coordination for each department and branch; and
  3. internal audit departments are the third line of defense, conducting periodic independent audits with regard to compliance issues.
  • Enhanced requirements for compliance departments and staff:
  1. the compliance officer must not concurrently serve a role in other departments (such as business, finance, fund management and internal audit) which may be in conflict with the compliance function, except where the compliance officer is also the general manager of the insurance company; and
  2. the compliance officer must be approved by CIRC before being appointed and his/her ceasing to hold that office must be reported to CIRC within 10 days after such cessation.
  • Improved support for compliance management through enhanced responsibilities of compliance departments, establishment of a compliance evaluation mechanism, development of a regulatory compliance information system and enhanced independence of compliance-related work.
  • Enhanced external supervision of the compliance management of insurance entities by CIRC, including:
  1. requiring each insurance company to submit its annual compliance report for the preceding year to CIRC by 30 April each year; and
  2. supervision by CIRC through on-site inspections.

On the effective date of the Compliance Measures, CIRC’s previous Guidelines on Compliance Management of Insurance Companies (Baojianfa [2007] No. 91) issued on 7 September 2007 will cease to be effective.

Jan Buschmann, Senior Associate

jan.buschmann@hoganlovells.com

+852 2840 5019

Sherry Hu, Associate

sherry.hu@hoganlovells.com

+ 86 10 6582 9597