Managing risk: NBE to establish risk based internal audit for insurers

National Bank of Ethiopia (NBE) is going to introduce risk based internal audit (RBIA) for insurers to enhance companies’ soundness. It has also issued a similar directive for banks in the current fiscal year.
According to the information that Capital obtained from NBE, the central bank has been engaged on gathering input from insurers in regard to the upcoming RBIA directive from late last year.
Belay Tulu, Insurance Supervision Directorate Director at NBE, few weeks ago told Capital that NBE has been taking a feedback from stakeholders on the draft directive. He added that further discussion shall be undertaken with sector actors before issuing the directive.
Pundits in the insurance industry told Capital that the draft directive that was sent from the regulatory body is more or less similar with that issued for banks in August last year.
The risk based internal audit directive no. SBB/76/2020 that became effective as of August 24, 2021 on its preamble stated that; it is supplemental to the risk based supervision, enhances soundness of the banking system, and improves the effectiveness of internal control system and enhances corporate governance of a bank.
It added that there is a need to have an internal audit function that not only independently ensures accuracy, reliability, timeliness and completeness of transactions as well as financial and operational information, but also compliance with accounting principles, directives, policies, procedures, relevant laws and efficiency and effectiveness of resources used.
The directive enforces banks to adopt risk based internal audit methodology “and ensure that its importance is understood throughout the bank.”
It has also impose banks to establish independent internal audit function that is directly responsible to the board on all matters related to the performance of its mandate; with sufficient authority as well as structure and staffing commensurate the size and complexity of the company.
Insurance presidents that Capital spoke to about the issue said that such a directive shall be crucial for banks since insurers are already using the scheme by themselves for the sake of existence in the business and prudent operation.
A senior insurance president who leads one of the oldest private insurance firms said that for the last over two decades the company he leads applied strong internal audit, “I hope other insurance companies have similar procedure since the business and its operation by default demands strong controlling mechanism.”
“We reviewed the draft and submitted our input, while it shall differ on terms or wording of what we are doing now,” another long established and most profitable insurance company president told Capital.
Belay told Capital that the directive will be in effect soon.