Experts opine it will streamline efficiency across the sector
National Bank of Ethiopia (NBE) issues a risk-based internal audit (RBIA) directive for insurers.
As per the views of the sector experts, the directive enacts similar fundamental issues to that issued for banks in mid-2020 with the aim to enhance soundness in the insurance sector much like that of the financial sector as it continues to modernize.
A few months back, senior leaders in the insurance sector had a bit of mixed reaction on the matter, with debates on the relevance of the directive being questioned since insurers by default were general risk-based run; while some opined that the directive was more relevant for banks as opposed to their sector.
Moreover, insurance presidents echoed to Capital that the insurance sector by default is vigilant to tackle risks since its major operation is facing risk-based businesses.
However, experts recommended that the directive might give a written guideline to mitigate possible challenges.
In the past few months, the regulatory body has been consulting with stakeholders to finalize the draft directive that is now issued as ‘risk based internal audit directive no. SIB/55/2022’.
The RBIA directive is more or less the same as the directive for banks that was issued as directive no. SBB/76/2020 which came to effect on August 24, 2020.
Its preamble stated that; it is supplemental to the risk based supervision, enhances soundness of an insurer, “RBIA improves the effectiveness of internal control system and enhances corporate governance of a company.”
The directive underlined that companies should establish an independent and competitive RBIA body that directly reports to the board.
“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 explained at its intro, and added that insurers ought to ensure that the new body has sufficient authority as well as structure and staffing to commensurate the size and complexity of the company.
In a related development, NBE has issued similar directives for companies that it regulates to introduce information technology (IT) to their operation.
The regulatory body enforced banks to automate their operation through IT as mandatory. Likewise, the directive that was also issued for insurance business operators, microfinance institutions (MFIs) and capital goods finance companies enforced companies to use IT systems for their operation.
The directive for insurance companies enforced insurers to automate core services within two years with similar transition periods for banks, while it has given three years as a transition period for MFIs and capital goods finance companies.
So far banks have supported the directive and experts have cited that it shall harmonize the current effort of financial instructions to automate their operations.
Experts explained that thus far, the banking industry was in part through its due diligence pushing for excellence to modernize its operations and business, though it was not a requirement by NBE.
Recently bank presidents told Capital that the new directive that became effective a month ago will boost the banking industry as it preps for stiff competition when it opens its doors to other international banks.
Bankers said that it is pivotal for banks to invest in IT, “banks have different investments on information technology to which the new directive will give the required framework for their investments and brings them to the standard on the sector.”
