Carlos Eduardo Coelho, Partner, MdME
Introduction
The new Financial System Act, Law no. 13/2023, (“FSA”) came into force on November 1, 2023. Overall, this new Act presents the following major features on the changes to the whole Macau financial system:
- Advance with the times: to cooperate with the development of financial industry, to strengthen and improve the regulatory mechanism of the financial industry, harmonization with international standards and to combat rigorously on illegal financial activities.
- Alleviating bureaucracy: optimize and streamline the administrative procedures; simplification and flexibility in licensing procedures.
One of the most relevant changes introduced is the notable inclusion of Insurance, Reinsurance and Pension Fund Management activities within the scope of its regulation.
Find out below the key aspects introduced by the FSA that shall impact the Macau Insurance Sector.
1. Scope – FSA Applicability to Insurance Companies
The definition of “Financial Institution” has been extended to include insurers, reinsurers and pension fund management companies.
As such, save for provisions that are specifically aimed at other financial institutions (such as Title II regarding credit institutions), the FSA shall be applicable to Insurance Companies in a “residual” manner. This means that FSA (namely Titles I; III and IV) shall be applicable to Insurance Companies, unless otherwise provided for in separate legislation.
Insurance Companies shall continue to be regulated by the Macau Insurance Ordinance – Decree-Law no. 27/97/M (as amended by Law no. 21/2020 and republished by the Chief Executive Dispatch no. 229/2020) (“MIO”) – for the matters specifically foreseen therein. For the matters not regulated by the MIO but regulated under FSA, FSA shall be applicable.
2. List of Definitions
Introduction of new definitions such as ‘subsidiary’ and ‘senior management’.
3. Supervisory Actions
Enhanced supervisory actions on insurers are now foreseen. Particularly, the supervised entities now extend from the Macau licensed entities to all the entities of the group to which they belong.
4. Advertisement Activities
Any entity that is not licensed to operate insurance activities is prohibited from advertising insurance products or services in Macau.
Insurers must comply with the provisions of general law in providing information and advertising to the public and must not engage in advertising or promotional activities that contain untrue, false or misleading financial information or materials. Insurers shall also not engage in activities that may impact with a standard competition environment between insurers. AMCM is granted powers to impose changes or even stop any marketing activities.
5. Competition
Insurers are prohibited from seeking to obtain a controlling position over the financial market or to restrict competition, through agreements or other means.
6. Insurtech: temporary licenses for financial technology projects on an experimental basis
Fintech is disrupting the way financial services are planned, promoted and tendered, and insurance is no exception. To cooperate with the development of Fintech and better promote and regulate financial innovation activities, the FSA introduces a legal framework for AMCM to grant temporary licenses for financial technology projects on an experimental basis. This will allow qualified entities to carry out FinTech projects without a financial license, but still within controllable risk parameters. Qualified entities refer to academic or scientific and technological research and development institutions, entities engaged in technological business, and financial institutions (including Insurance Companies) that conduct financial innovation projects outside the scope of licensed business.
Further clarification and regulation are expected to be enacted on this, particularly special regulatory rules on the application procedures and required documents related to temporary licenses, applicant qualifications, application conditions, risk management and approval standards.
FSA is dividing the innovative activities of financial institutions into two situations, “within the scope of permitted business” and “outside the scope of permitted business“. Very recently AMCM has published Circular no. 008/B/2023-DSB/AMCM on the Regulatory requirements for innovative fintech trials. This Circular is applicable to innovative activities within the scope of permitted business of financial institutions. It stipulates that it is not necessary to apply for a temporary license, but rather to present an application to the regulator and obtain its non-opposed opinion after assessing that the risk is controllable.
7. Penalties: substantial increase to the number and amounts of applicable fines
Fines applicable under the MIO for breach of its provisions shall be largely increased. The FSA foresees MIO amendments which include changes to the limits for fines applicable to licensed insurers. Fines, which as of today range from MOP 10,000 to MOP 1 million, shall be substantially increased to range from MOP 20,000 up to MOP 5 million (5 times more than current law).
FSA also foresees an extensive list of new (material) administrative infringements, some of which shall also be residually applicable to Insurance Companies (for example those on advertisement activities or anti-trust provisions in breach of FSA provisions). The fines applicable to the breach of these provisions shall range from MOP 20,000 up to MOP 5 million.
A specific fine of MOP 5 million up to MOP 10 million will be applicable to all the administrative infringements that seriously impact the financial soundness of licensed insurers and/or reinsurers, impact with the stability of the financial sector, distort the financial markets or somehow impair with AMCM global analysis on the financial or operational capability of a given supervised entity.
8. Further Amendments to the MIO
The expression “Executive Order” used in several provisions throughout the MIO shall be changed to “Chief Executive’s Dispatch”.
