The Companies Act 2014 (the Act) imposes an obligation on directors of certain companies meeting specified criteria to make an annual compliance statement (Directors Compliance Statement) in the Directors’ Report that forms part of the company’s statutory financial statements for the financial year in which the criteria are met. This requirement will impact on certain (re)insurers and it is recommended that boards of affected companies take immediate steps to meet their obligations. This obligation is in addition to existing compliance obligations (e.g. those created by the Central Bank of Ireland’s Corporate Governance Requirements).

What (re)insurers does it apply to?

The obligation applies to:

• All public limited companies (except certain investment companies) and Societas Europaeas;
• All other private companies and guarantee companies with a “balance sheet total” exceeding €12.5 million and an “amount of turnover” exceeding €25 million.

We have had some internal debate (most recently at our recent client Breakfast Briefing on Directors’ Compliance Statements) as to what constitutes “turnover” for (re)insurers in this context.  Is it gross premium income or must you also include investment income?  Although there are technical arguments that point to gross premium income, on balance, we feel that the better interpretation is that turnover should include both gross premium income and investment income. 

As far as a (re)insurer’s balance sheet total is concerned, it would be the aggregate amount shown as assets in their balance sheet (i.e. total assets).

What is the obligation?

In the Directors’ Compliance Statement, the directors must acknowledge that they are responsible for securing the company’s compliance with its “relevant obligations” under company law (offences listed as category 1 and 2 offences under the Act), market abuse, prospectus and transparency law (where applicable) and tax law.

In addition, the Directors Compliance Statement must confirm that the matters set out below have been undertaken or explain why these matters have not been undertaken:

• The drawing up of a compliance policy statement setting out the company’s policies in relation to compliance with its “relevant obligations”;
• The putting in place of appropriate arrangements or structures that are designed to secure material compliance with the company’s “relevant obligations”; and 
• The conducting a review during the financial year of the arrangements and structures that have been put in place.

When does it apply?

The obligation to include a Directors’ Compliance Statement in the statutory financial statements of a company applies in respect of all financial years commencing on or after 1 June 2015. (Re)Insurers with a 31 December financial year end (and in the case of private companies, which met the criteria set out above) should be aware that it is recommended that any compliance policy statement and supporting arrangements or structures should be in place from 1 January 2016 or as early as possible in the financial year.

What are the consequences of non-compliance?

Failure by (re)insurers in scope to include the statement in the Directors’ Report will constitute a criminal offence under the Act and each director in default will be guilty of a Category 3 Offence (i.e., liable on summary conviction to fine not exceeding €5,000 or imprisonment for 6 months, or both).  Undoubtedly, the potential reputational damage is likely to be a more serious consequence.

What do (re)insurers need to do?

A (re)insurer in scope will need to draft a compliance policy statement and put in place appropriate arrangements or structures that are designed to secure material compliance with the company’s relevant obligations in advance of the financial year to which the first directors’ compliance statement relates. Where this has not been done, a (re)insurer should:

• familiarise itself with their “relevant obligations” under company law, market abuse, prospectus and transparency law (where applicable) and tax law as soon as possible;
• determine how it proposes to ensure that these obligations are complied with; and
• proceed to implement the arrangements or structures intended to ensure material compliance as early as possible in the financial year.

How we can help 

William Fry has developed various tools and approaches to assist clients in meeting the requirements of the Act in respect of the Directors Compliance Statement and the various matters to be confirmed in it.  Our approach varies depending on the particular needs of the client and where they are in the process.  We can assist with everything from full scope reviews through to sharing our framework documentation which can be used by (re)insurers as a base for a compliance policy statement.

We would be delighted to assist you in finalising the relevant compliance policy statement, identifying the company’s “relevant obligations” under the Act and suggesting arrangements and structures that can be put in place to comply with the new requirements. As a full service law firm, we have the experience and expertise to advise on applicable legal, regulatory and tax matters.

For an initial discussion on how the Directors Compliance Statement may impact on your business, please feel free to contact Naoise Harnett  or John Larkin. 

Contributed by Naoise Harnett