New prudential rules for the finance industry – opportunity or expensive overhead?


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 ?’

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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


  1. Michael Koisen says

    The new prudential standards in particular the terms of directors are well intentioned, but will have the effect of creating weak Boards and subsequently an over regulated and weak financial sector. Life Insurance Companies, Savings and Loan Societies and Super Funds were used as a litmus test for these standards and will now be extended to all ADI’s including finance companies and banks. The financial sector will lose corporate memory due to attrition of experienced directors and will see an exponential increase in enterprise wide risk due to the wholesale injection of inexperienced directors. The sector will respond by migrating its pool of experience to holding entities while its subsidiaries comply. Increased compliance costs is unavoidable since heavy handed regulation went viral post GFC. ADI’s with robust balance sheets may elect to lapse there licenses and fund their loan books internally.

  2. Peter Johnson says

    It’s not just the prudential standard that is cause for concern for the industries. The larger worry is that the regulator who makes and set the rules , is also judge and jury and executioner on same rules.

    Clearly there is no separation of powers.

    There should be an independent industry committee with PNG experience, that has to sign off on any Standards final draft before implementation. Most of these regulations come from off shore advisors and foreign concepts irrelevant or inadmissible to the PNG marketplace. And despite this – they are being introduced without amendment.

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