Non-compliance, reluctance rock NBIFs

NON-COMPLIANCE is rampant among non-banking financial institutions, raising red flags that could be catastrophic to the country’s financial system and people’s savings.

This is according to the annual report of the Namibia Financial Institutions Regulatory Authority (Namfisa), which was released on 22 September 2020.

Key findings of the report revealed liabilities exceeding assets, inaccurate financial reporting, funds kept in transactional accounts rather than investing, conflict of interest in board appointments, no respect for NamCode and low-reserve levels.

The Namfisa risk team does not only see this as catastrophic to the country’s financial stability, but also deems the non-compliance as a reputational risk for 2019/20.

In the report, Namfisa indicated that they conducted off-site and on-site inspections on all 694 non-banking financial institutions in the country, which are worth N$316,3 billion, and 8 820 financial intermediaries to determine their compliance.

However, their findings show that rules and acts were being flaunted left and right in that space under Namfisa’ watch.

Namfisa’s mandate is to regulate and supervise financial institutions effectively and to give sound advice to the Minister of Finance in accordance with the Namfisa Act.

In addition to those two core functions, Namfisa also supervises, monitors and enforces compliance with the Financial Intelligence Act in all accountable and reporting institutions it regulates and supervises.

The authority conducted 10 on-site and 170 off-site inspections on both long- and short-term insurance entities, where they found that some short- and long-term insurance entities were choosing their board members without following NamCode, which stipulates the composition of the board.

More terrifying is the finding that some of the insurance companies do not meet the minimum solvency margin, as set, which is the excess of assets over liabilities, indicating the financial strength of the insurer.

The minimum solvency margin helps to clear doubt and concerns about the insurer going through a financial crisis, which could put policyholders’ savings at risk.

The regulator also stated that some of the insurers incorrectly report their financial positions, allowing unapproved borrowing due to weak internal controls.

Moreover, the inspection highlighted lack of a risk management framework and inadequate internal controls within the insurance players.

Supervisory interventions undertaken was just one directive issued during the reporting period, which was not addressing non-compliance, but focused on updating the players on the FIM bill.

There were nine medical aid funds during the review period, before one was deregistered in the middle of the year.

Namfisa’s inspection found that some medical investment policies failed to outline investment limits per institution, which could lead to overexposure to certain risks.

The regulator also highlighted that some participants had low reserve levels to cover unexpected medical claims.

At the same time, true liabilities were not being reflected, as the Namfisa off-site inspection detected unrecorded liabilities for medical aid firms.

Moreover, the medical aid firms are not only failing to record their true liabilities, but also inaccurately indicated their quarterly returns.

Namfisa also rang a bell on small and declining membership, which is detrimental to the pool of funds and in sharing medical risk across different income levels.

As part of Namfisa’s regulatory intervention, funds with low reserve levels were directed to submit a monthly report until their reserves had increased to a sustainable level.

Namfisa directed funds that omitted certain liabilities, to amend their management accounts and record them.

Funds with limited or declining membership were requested to advise the authority on measures implemented to increase membership.

According to Namfisa, there are funds with liabilities exceeding assets, and such funds did not have enough assets to match the liabilities promised to members, meaning should there be any retrenchment or sudden retirement of a number of people, the fund might struggle to liquidate and pay them out.

Contravention of Regulation 13(3), in that domestic assets consisting of shares acquired in companies incorporated outside Namibia exceeded the limit of 10% of the market value of a fund’s total assets.

While certain funds not drawing committed capital for investment in unlisted assets, despite the outcry of access to capital, certain funds sit with capital.

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