Board of Directors and Board of Trustees Stakeholder

Board of Directors and Board of Trustees Stakeholder Engagement Session By: Kenneth Simataa Matomola Chief Executive Officer 01 June 2017 |

CONTENT • Introduction • Regulatory Scope • Regulatory Framework / Challenges • Regulatory Reform • Supervision and Inspection • Regulatory Reform Agenda • Conclusion |

Introduction / Establishment NAMFISA was established by an Act of parliament, NAMFISA Act 3 of 2001 with the objective to: ü exercise supervision over the business of financial institutions and financial services; ü Advise the Minister of Finance on matters related to financial institutions and services; ü Enforce Compliance with Financial Intelligence Act |

TEAM / Supervisory Heads |

Current Regulatory ambit / Regulatory Scope Long-term Insurance Micro Lenders (Usury) Short-term Insurance Participation Bonds Medical Aid Funds NAMFISA Stock Exchange Pension Funds Unit Trusts Friendly Societies |

Current Regulatory ambit / Regulatory Scope Size of the Regulated Financial Sector No. of institutions No. of intermediaries Assets N$ 494 4 572 N$ 488, 1 billion |

Current Regulatory framework / Challenges Non Bank Financial Institutions (NBFIs) sector suffers from the following major deficiencies: ü Stale Legislation q outdated and fragment legislative framework for regulation and supervision q hugely on a compliance driven approach to supervision q does not provide NAMFISA with adequate supervisory and enforcement powers q does not recognize the inter-linkages within the financial sector, locally, regionally and internationally ü An administrative board and has no regulatory functions; and ü A mandate that does not explicitly include consumer education and financial stability. |

Proposed Legislative reforms / Bills and status v Bills are aligned to international standards and practices and recommendations (IOPS, IAIS, IOSCO). v Principle-based regulation - Approvals and rules are based on principles related to risks and managing risks rather than prescriptive rules mandated by the regulator. v Proposed Bills: ü Financial Institution and Markets (FIM ) Bill – consolidated legislation § Supported by subordinate legislation i. e. Regulations and Standards ü NAMFISA Bill ü Financial Services Adjudicator (FSA) Bill ü Microlending Bill § Supported by subordinate legislation i. e. Regulations and Standards ü Consumer Credit Bill v Status: ü The Bills are in their final phase (promulgation expected in 2017/2018 Fin year) |

Proposed Legislative reforms / Benefits v An integrated approach to supervision and regulation of the NBFIs, in particular uniformity and consistency of rules and provisions, resulting in: ü Elimination of silos; and ü Elimination of conflicting provisions and regulatory arbitrage. v Minister and NAMFISA to issue Regulations and Standards respectively ü Provides for greater regulatory responsiveness, i. e. flexibility in adapting standards and regulations |

FIM Bill /Scope of regulation (General provisions) v Registration which requires a test for fit and proper of key persons v Prohibits operation of unregistered entities v Powers to impose conditions for registration v Financial institutions to maintain principal office and principal officer in country v Governance issues and board composition of NBFI’s ü powers to require compliance and adopt sound governance practices |

FIM Bill / Scope of regulation (Supervision) Main “new” supervision provisions include: v. Required filings – audits, valuations (short-term insurers required to submit actuarial reports); v. Power to direct replacement of board members; v. In-sourcing requirements; v. Power to require special reports; and v. Power to cancel registration and effect fund or insurer windup. |

FIM Bill / Scope of regulation (Governance) Main governance provisions include: v Board members to be fit and proper; v Fund Members have right to elect board members (Shareholders for insurers); v Rules of Funds to require board code of conduct; v Board to act prudently and avoid conflicts of interest; v Board mandated to perform specific functions; v NAMFISA may direct replacement of directors (Insurance) or board members (Funds); and v Board members to comply with “duty of care” provisions, requiring that they take account of interests of stakeholders, act honestly and in good faith, etc. |

FIM Bill / Scope of regulation (Governance continued) Boards of Insurers and Funds have specified duties, including: v Administration of Fund; v Follow appropriate investment policy for Insurer or Fund; v Manage risks; v Provide communication to Fund members; v Ensure required Fund contributions are made; v Ensure compliance with law; v Meet at least annually; and v Funds to prepare and file special annual report and submit to NAMFISA. |

FIM Bill / Supervision v Supervision - ensuring approved persons comply with the rules. ü NAMFISA directly supervises level A approved persons. ü Level A approved persons supervise level B approved persons, while NAMFISA retains indirect oversight. v Enforcement - taking action against non-compliers to withdraw approval, or to impose conditions or administrative penalties: by NAMFISA against level A approved persons; by level A approved persons against level B approved persons; by NAMFISA against level B approved persons where level A approved persons fail to take appropriate action or to react to a complaint, including remedial action. |

INSPECTIONS / Supervisory Ladder of Intervention Stages No. of % of total Remarks entities Stage 1 (no significant problems) 334 Stage 2 (early warning) 74 15% Stage 3 (risk to viability or solvency) 33 7% Stage 4 (future viability in 23 4% 68% 30 6% NAMFISA continues to engage the entities for the compliance non- issues supervisory intervention. Micro insolvency imminent) Total sound. through the ladder of serious doubt) Stage 5 (entity not viable or Generally NBFIs sector is 494 100% lending sector contributes significantly to stages 5 entities |

INSPECTIONS / Key Findings Supervisory interventions stages Stage 1 – no significant problems Stage 2 – early warning Stage 3 – risk to viability or solvency Stage 4 – future viability in serious doubt Stage 5 – entity not viable or insolvency imminent Pension Medical Aid Collective Funds & Investment Friendly schemes (incl. societies UIM & SPV) Microlenders Capital Markets Short- Long-term Insurance Total 70 4 50 168 20 13 9 334 17 3 0 42 6 0 6 74 4 2 0 23 1 1 2 33 1 1 0 21 0 0 0 23 1 3 0 23 2 1 0 30 |

INSPECTIONS / Key Findings - FIA Compliance v Inadequate / Absence of risk management process on money laundering/terrorism financing/proliferation of financing risks; v Inadequate customer due diligence ( CDD) information; v Non – reporting of suspicious transactions and activities; v Non – reporting of cash transactions above thresholds; v Inadequate scope for independent audit function to evaluate effectiveness of controls; and v Inadequate staff training and awareness on AML. |

INSPECTIONS / Key Findings- INSURANCE v Insurers q Board Compositions not in accordance with NAMCODE recommendations i. e. composition of independent vs. non – independent q Inadequate and incomplete disclosure in AFS q Dealing with unregistered intermediaries (brokers and agents) q Vague provisions in policy contracts v Insurance intermediaries q Lack of knowledge of the Act(s) Ø Provision of AFS as required Ø Maintaining licensing requirements |

INSPECTIONS / Key Findings - PENSION FUNDS v Non-compliance to the Pension Funds Act: q Constitution of the Board of Trustees in accordance with the rules of the Fund; q Specifying benefits and contribution information in accordance with the Act; q Late payments of pension benefits and payment contributions; q Practices which are not provided for in the rules of the Fund i. e. a new benefit or contribution rate or remuneration of fund officials; q The absence of policy documents (i. e. Board Charter, Code of Conduct, Risk Management Policy, Investment Policy, Complaints Policy, Communication Policy, Conflict of Interest Policy) or adequate Service Level Agreements with service providers |

INSPECTIONS / Key Findings UIMs, SPVs, UNIT TRUSTS & INVESTMENT MANAGERS v Changes in directorship, portfolio managers and other key persons without notifying the Registrar as requirement by law; v Non adherence to corporate governance principles; q Unsigned Board Charter q Lack of documented board minutes and resolutions q Independent directors not in the majority at some Board Meeting to review key decisions such investments as requirement by the law q Loans from/to related parties/investee companies were made which are not in compliance with the law (Regulation 29) |

INSPECTIONS / Key Findings - Microlending Industry v Non-adherence to the prudent loan disbursement guidelines of NAMFISA v Key responsible persons (KRPs) had little or no knowledge of the Financial Intelligence Act No. 13 of 2012 and the requirements thereof. v Continuous charging of the default penalty interest for periods more than the prescribed maximum 3 months. v Unsatisfactory status of submission of returns and the payment of levies. v Degree of confidentiality not satisfactory (waiting customers privy to conversation between Loan Officer and borrower being attended to). v Retention of Bank Cards and PINs and original IDs as security for loans; |

REGULATORY AND SUPERVISORY REFORM AGENDA SADC organ CISNA ü Harmonisation of laws and Licensing Requirements ü Facilitate wider access to non-bank financial products and services i. e. the micro-insurance ü Facilitate the development of well informed investors and consumers Joint Supervisory Activities ü “Conglomerates” / Groups across NAMFISA ü Conglomerates” / Groups with/within banks |

Meet the Board end Questions ? |