The Superintendence of Private Insurance (SUSEP) has placed for public consultation Notice No. 29/2021, presenting the Draft Circular that institutes the Process of Revision of Inconsistent Record (“Processo para Reparação de Apontamento” or “PRA”) as a supervisory measure to be used by the regulator, with the purpose of determining and considering the remedy of negative record entries by the supervised entities, whether related to administrative infraction or not.
As per the definition provided in the draft, 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 infraction, and those characterized as deficiencies in the Internal Controls System, in the Risk Management Structure or in the corporate governance.
The Draft 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 monetary or not.
The PRA is instituted as an alternative or complementary supervisory measure to the opening of an Administrative Sanctioning Proceeding, as established in CNSP Resolution No. 393/2020, which provides for administrative sanctions.
Furthermore, the creation of the PRA replaces the current Table of Deficiencies process and provides for the repeal of SUSEP Circular No. 340/2007.
With regard to the rules and procedures applicable to the PRA, according to the provisions of the Draft Circular, the following points stand out:
- The PRA may not be instated to remedy situations covered by a term of commitment for conduct adjustment or regularization plans provided for in the prudential regulation, special supervision, fiscal direction, 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 above, prove the remedy of the Inconsistent Record, with the elements required in the caput of article 13 of the Draft Circular. If the remedy is not possible within the deadline, an action plan must be presented. If there is no response, the PRA will be terminated and an Administrative Sanctioning Proceeding will be opened;
- The action plan must contain minimum elements, such as the justification for the impossibility of the Inconsistent Record remedy 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 the Inconsistent Record remedial action shall adopt the necessary measures, under penalty of personal administrative liability, maintaining the liability of the supervised entity, 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 the Inconsistent Record On this occasion, a second action plan may be presented, with the necessary adjustments, within 15 (fifteen) calendar days;
- If the second action plan is also rejected, the PRA will be forwarded to the hierarchical superior of the unit that opened it, who will decide whether to accept the plan or to confirm the rejection, in which case an Administrative Sanctioning Proceeding will be initiated;
- An extension of the deadline for the Inconsistent Record remedy may be requested, as an exception, as long as the request is forwarded before the deadline and with the due justifications;
- Within the period of 30 (thirty) days granted for the Inconsistent Record remedy, the director responsible for relations with SUSEP may present an objection, which must be accompanied by a detailed exposition of 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 term 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.
The Draft Circular’s full text can be accessed through this link. Interested parties may send comments or suggestions to the text by electronic message addressed to firstname.lastname@example.org, until September 24, 2021, using the specific standardized form available on SUSEP’s webpage.
Demarest’s Insurance and Reinsurance team will monitor the development of this public consultation until the publication of the final text, and will be available to provide any clarifications on the subject.