Irda tightens rules for changes in shareholding in broking firms

Even a minor change in shareholding pattern will require approval; broker to submit fit & proper undertakings for the new shareholder

The insurance regulator today said that even a minor change in shareholding pattern (wherein the paid-up equity holding of the individual/group would be less than 5 per cent), will require approval from the Authority. The broker will also have to submit fit & proper undertakings for the new shareholder.

The Insurance Brokers Regulations, 2013 by Insurance Regulatory and Development Authority (Irda) lays down the regulatory obligations to be complied with by a Broking Entity in case of any change in its shareholding pattern. The act had said that the insurance broker shall not register any transfer of shares exceeding five per cent without the prior written approval of the Authority.

With the recent change, even a transfer less than 5 per cent of the paid-up capital would require authority's nod.

"The Authority has been receiving frequent requests for changes in the shareholding pattern by the Broking Entities. Such frequent changes are not viewed in good light by the Authority as they reflect financial volatility of the Company," said Irda.

Due to the endeavor of the Authority to ensure presence of long term players in the market, Irda said that the need for certain stipulations in this regard, is considered necessary.

For changes in shareholding pattern (including arising out of induction of capital), where after the transfer, the total paid up equity holding of the concerned new entity/individual is likely to exceed 50 per cent of their paid up capital/contribution, the applicant and the proposed shareholders would be subjected to the Due-Diligence, as applicable for fresh applications for Insurance Broking Licences.

Apart from fresh applications and fit and proper undertakings, there will be a lock-in period of 3 years for any further changes in the shareholding pattern.

In case of changes in shareholding pattern, where after the transfer, the total paid up equity holding of the concerned new entity/individual is likely to exceed 5 percent but not 50 percent of their paid up capital, there will be a lock-in period of 1 year. The circular comes in to force with immediate effect.