The Central Bank of Ireland has issued a fine of €275,000 to Arch Reinsurance Europe Underwriting dac for Corporate Governance breaches. The firm failed to comply with standards set out in the Corporate Governance Code 2010 (since replaced by the Corporate Governance Code for Credit Institutions and Insurance Undertakings 2013). The settlement was entered into on 15 March, 2016 and published earlier today.
It was held that "the Firm took an informal approach to certain corporate governance responsibilities"
Among other breaches, the following specific actions were identified:
- "Arch Re Europe did not comprehensively document relevant internal roles and responsibilities for the day to day management of risk until 2014.
- Regulatory returns Arch Re Europe submitted to the Central Bank in 2012 and 2013 contained some errors.
- The Firm’s Investment Portfolio Risk Policy was inconsistent with two specific guidelines which were approved by the Board for its Investment Manager.
- Arch Re Europe engaged retrocessionaires2F without documenting the requisite Board approval for same.
- Although approved by the Board, the Firm’s Risk Committee should have independently considered and advised the Board prior to the Firm entering into a significant reinsurance transaction.
- Arch Re Europe’s Board failed to monitor a Trust Agreement it had set up.
- The Firm’s underwriting guidelines were not updated to reflect a change in authority levels agreed by the Board."
This settlement highlights the need for financial services firms to be vigilant in relation to amendments to regulatory and compliance codes. Factors taken into account in this instance was the fact that sufficient warning had been given to the reinsurance industry of the commencement of the regulatory code and that separate Risk Appetite Statements had been issued specifically to the industry.
The fact that the firm co-operated with the Central Bank during the investigation and also agreed to settle at an early stage of the Admin Sanctions procedure was taken into account in marking the fine at €275,000.
It is not enough for a firm to demonstrate that it has systems and procedures in place to satisfy corporate governance requirements; it must be able to demonstrate actual compliance or face the full weight of the Central Bank’s Enforcement Division.
The Central Bank identified 9 prescribed contraventions of the Corporate Governance Code and these are viewed seriously by the Central Bank. In particular, the breaches relate to key parts of the Firm’s governance structure, namely, its Board, its Risk Committee, oversight of its subsidiary, and the consistency and completeness of certain of the Firm’s governance, risk and policy documentation.