The Superintendence of Private Insurance (SUSEP) has published Circular No. 646/2021, which institutes the Process of Revision of Inconsistent Record (“Processo para Reparação de Apontamento” or “PRA”) as an oversight measure to be used by the regulator, with the purpose of considering and determining the remedy of negative record entries by the supervised entities, whether related to administrative infractions or not.
As per the definition provided in the Circular, an Inconsistent Record (“Apontamento”) is any fact, action or situation that, according to SUSEP’s judgment, must be regularized, ceased, changed, adjusted, corrected or compensated, including those related to administrative infractions, and those characterized as deficiencies in the Internal Controls System, in the Risk Management Structure or in corporate governance.
The Circular aims to expand the coercive instruments currently in place in order to make the oversight process more effective and to achieve the purpose of correcting and discontinuing irregular acts, which is often not achieved by merely applying an administrative penalty, whether pecuniary or not.
The PRA is instituted as an alternative or complementary oversight measure to the opening of an Administrative Sanctioning Proceeding (“PAS”), as established in CNSP Resolution No. 393/2020, which provides for administrative sanctions.
With regard to the rules and procedures applicable to the PRA, according to the provisions of Circular No. 646/2021, the following points stand out:
- The attributions indicated in the Circular will also be exercised by the responsible director in the case of an insurance company participating in the Regulatory Sandbox;
- The PRA may not be instated to remedy situations covered by a term of commitment for conduct adjustment or regularization plans provided for in prudential regulation, special supervision, supervisory guidance, intervention or liquidation;
- The opening of a PRA does not prevent the drawing up, the opening or the continuation of an Administrative Sanctioning Proceeding to investigate conduct related or not to the Inconsistent Record;
- The PRA will be opened by means of a subpoena addressed to the director responsible for relations with SUSEP, with a period for the remedy of the Inconsistent Record of 30 (thirty) calendar days as of its receipt. SUSEP must inform of the parameters that it will observe in order to consider the Inconsistent Record remedied;
- The director responsible for relations with SUSEP must, in a statement addressed to the unit that opened the PRA and within the period referred to, communicate the full remedy of the Inconsistent Record. If it is not possible to remedy the Inconsistent Record within the prescribed period, a plan of action must be presented or an objection lodged, in the event of disagreement with one or more of the items in the Inconsistent Record. If there is no response, the PRA will be closed and an Administrative Sanctioning Proceeding will be initiated;
- The action plan must contain minimum elements, such as the justification for the impossibility of remedial action on the Inconsistent Record within the deadline stipulated and the deadline for the implementation of each of the actions provided for, among other specificities determined by the proposed Circular;
- The director responsible for relations with SUSEP and possible statutory directors appointed as responsible for remedial action of the Inconsistent Record must adopt the necessary measures, under penalty of personal administrative liability, with liability of the supervised entity being maintaining, if applicable;
- The action plan may be rejected due to the absence or inadequacy of any of the minimum elements required, or due to the unreasonableness of the period requested for remedial action on the Inconsistent Record. In such cases, a second action plan may be presented, with the necessary adjustments, within 15 (fifteen) calendar days;
- If no statement has been issued within the period defined above, the unit that initiated the PRA will provide for its closure and the initiation of a PAS. Furthermore, if the second action plan is also rejected, the PRA will be forwarded to the hierarchical superior of the unit that initiated it, who will decide whether to accept the plan or to confirm the rejection, in which case a PAS will be initiated;
- An extension of the deadline for remedial action on the Inconsistent Record may be requested, as an exception, provided that the request is forwarded before the deadline and with due justifications;
- Within the period of 30 (thirty) days granted for remedial action on the Inconsistent Record, the director responsible for relations with SUSEP may present an objection, which must be accompanied by a detailed explanation that includes the reasons and documents that prove the allegations. The objection may be accepted, and, if so, the Inconsistent Record is disregarded, or dismissed, in which case a new deadline for the remedy or presentation of an action plan is granted. When the objection is understood to be merely a delaying tactic, the PRA will be terminated and the opening of an Administrative Sanctioning Proceeding will be determined;
- The internal audit unit of the supervised entity, if any, must issue a report containing the evaluation and actions taken for compliance with the deadline. If there is only partial fulfillment of the remedy, the unit must give an opinion on the reasons that contributed to this occurrence;
- SUSEP will analyze the documents forwarded and will consider whether the Inconsistent Record was remedied or not, and may carry out inspections to this end. The PRA will be terminated and, if it is understood that the remedy did not occur, an Administrative Sanctioning Proceeding will be opened;
- SUSEP must communicate to the director in charge all decisions rendered based on the provisions of this Circular. If the decision is to reject the request, the communication must clearly and objectively state the reasons for the rejection.
Circular 646/2021 came into force on December 1, 2021, repealing SUSEP Circular 340, of March 23, 2007, and can be fully accessed through this link.
Demarest’s Insurance and Reinsurance team is available to provide any additional clarifications that may be necessary.