Policy Paper – Investment in Inshortech Corporations and Investment Corporations in the Field of Innovative Financial Technology (Draft)

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background

As part of the Capital Market Authority’s activity to promote technological and digital innovation in the areas of activity of supervised entities, the Capital Market Authority considers it very important to develop and encourage entrepreneurship in the insurtech industry as well as to promote and develop investment channels of institutional entities in innovative financial technology. Development and encouragement of such entrepreneurship are expected to bring added value to the insurance and financial industries, increase competition in them, improve the product and customer service offering, increase the interface and feedback in the distribution chain, strengthen the quality of controls and documentation and streamline business processes and innovation. This is also apparent from section 1C (a) (4) of the Financial Services (Insurance) Supervision Law, 1981, which stipulates that the Authority’s functions include, among other things, encouraging technological and business innovation in the activities of supervised entities, taking into account its other functions.

Regulation 33 (a) of the Supervision of Financial Services (Provident Funds) Regulations (Investment Rules Applicable to Institutional Entities), 2012 (hereinafter – Investment Rules Regulations), stipulates that an insurer shall not control or hold more than 20 percent of a particular type Of means of control other than the corporations specified in the aforesaid regulation. The aforesaid regulation stipulates that such a corporation may be a corporation of a different type whose main occupation is related to the day-to-day operations of the insurer. Prior approval of the Commissioner is required.Regulation 27 (c) of the Investment Rules Regulations applies the provisions of Regulation 33 to investments of a management company, with the relevant changes specified therein.

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On May 6, 2019, the Authority published a consultation paper on the subject of “Facilitation of investments in Inshortech projects” (hereinafter – the consultation paper), the purpose of which is to encourage insurance companies to invest in initiatives in the field of Inshortech. Following the publication of the consultation paper, and inquiries received by the Authority regarding the investment of insurance companies in corporations investing in InShortech ventures, the position of the Commissioner of Capital Market, Insurance and Savings (hereinafter – the Commissioner) “Investment in InShortech” (dated January 13, 2020). Regulation 33 (b) of the Investment Rules Regulations for control or holding of means of control in such corporations at a rate exceeding 20 percent.

This policy paper aims to encourage institutional entities to examine investments in innovative financial technology companies in areas where they have increased expertise in the ability to analyze the viability of the investment, due to the proximity to their areas of activity. This paper replaces the position of the Commissioner regarding “Investment in Inshortech companies” (dated January 13, 2020), and sets out guidelines and conditions for granting approval under Regulation 33 (b) both in relation to investment in corporations investing in Inshortech ventures and in corporations with innovative financial technology ventures.

An application by an institutional body submitted in accordance with Regulation 33 (b) of the Regulations, will be examined individually in accordance with the circumstances of the case in light of guidelines for granting approval that will be detailed below.

Guidelines for granting approval under Regulation 33 (b) for holding in the InShortech Corporation

For the purpose of granting approval by the Commissioner pursuant to Regulation 33 (b) of the Investment Rules, Control or Holding Regulations of an Insurer’s controlling corporation for the purpose of developing InShortech projects, including making investments in such ventures (hereinafter – InShortech Corporation), in accordance with paragraph (6) of Regulation 33 (a) ), The application must meet at least the following conditions:

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The Insurer shall control the InShortech Corporation and shall at all times hold at the rate of at least 51% of all types of means of control in the InShortech Corporation, unless the Commissioner has approved otherwise.

The investment in Inshortech Corporation will be made from the insurer’s nostro funds only.

The total cost of the insurer’s total investment in Inshortech corporations shall not exceed the lower of the following:

NIS 1 billion;

10 percent of the insurer’s total assets less assets that stand against yield-dependent liabilities.

The main business of the Inshortech Corporation will be related to the current activities of the insurer and it will invest in technological or digital activities that are in line with the insurer’s strategy, including in the matter of:

The potential for technological improvement generated due to the use of the product or service under development;

Dealing with risks inherent in the technological infrastructure;

Process automation;

Business innovation and product development.

The approval of the Commissioner of the Insurer for the holding of means of control in the Inshortech Corporation under Regulation 33 (b) shall be granted, as a general rule, subject to compliance with the conditions specified in section 1 throughout the holding period, and subject to the following conditions:

A reduction in the holding of the institutional body to a rate of less than 51% of the means of control in the Inshortech Corporation (including a reduction in the holding to a rate of less than 20% of such control means) will be made only after obtaining prior approval from the Commissioner.

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The insurer will report to the Commissioner an annual report that will include the list of his holdings in the InShortech corporations and their rate, the nature of the activities of the investee companies and the estimated value of each of them as of December 31 of the previous year. The report will be submitted by March 31 of the year following the reporting year.

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