Commercial lawyer Steven Kami says PNG’s superannuation and life insurance sectors are worried about the effect of the new prudential standards on corporate governance, and in particular the effect on eligible directors.

Gadens Lawyers’ Steven Kami

PNG’s central bank, the Bank of Papua New Guinea, has issued new prudential rules about who can and can’t be on the board of superannuation industry participants and life insurance companies amongst other things, but I want to focus on directors’ eligibility and requirement to qualify under the new rules.

The aim is admirable.

We all want the best people to run our companies, particularly our financial institutions, and in the past, we have been well served by competent businesspeople. But there is concern that the new rules under Section 48 of the Life Insurance Act 2000 and Section 43 of the Superannuation (General Provisions) Act 2000 may be counterproductive, in that they impose a higher standard required for a director in these industries at a time when there is increasing demand for more PNG nationals to take corporate responsibility and sit on boards.

Is there a ready pool of directors that qualify according to the new fitness and propriety tests?

The requirement that the majority of a board of a licensed trustee in the superannuation industry and a licensed life insurance company must be PNG residents must be applauded as it may increase the demand for more PNG national directors from the current small pool that holds directorships presently.

However, the requirement that a board must have a majority of independent directors for a licensed trustee in the superannuation industry and a licensed life insurance company is causing issues in both, but in particular in the latter where there is a view that they are being made to pay for the excesses in the superannuation industry. In a nutshell, ‘if it ain’t broke, why fix it ?’

On the other hand, the new rules can be viewed as a way to increase the pool of PNG national directors that can be appointed and this is to be applauded.

But, is there a ready pool of directors that qualify according to the new fitness and propriety tests? This is important when you consider the rules came into effect on the first of January this year and all relevant industry participants are required to be compliant no later then 1 January 2014, except for a few specific exemptions stated in the rules.

Compliance with the new rules will add additional overheads to carrying on business in the two industries and will it deliver greater governance? Only time will tell.

Steven Kami is a Senior Partner with Gadens Lawyers in Port Moresby with more than 25 years of commercial practice in Papua New Guinea