10.1.1. Application

TRR 10 applies to every Takaful Operator that is a member of a Group.

Guidance

Group is defined in the Glossary as a group of entities which includes an entity (the ‘first entity’) and:

• (a) any parent of the first entity; and (b) any subsidiaries (direct or indirect) of the parent or parents in (a) or the first entity.

10.1.2. Purpose

TRR 10 imposes additional requirements on a Takaful Operator that is a member of a Group to ensure that:

• (a) the Takaful Operator is capitalised adequately to protect itself against the risks arising from its membership of the Group, and is otherwise protected against those risks;
• (b) it can be properly supervised by the AFSA;
• (c) it provides the AFSA with information about the structure and financial position of the Group; and
• (d) it assesses the effect of, and notifies the AFSA of, certain transactions within the Group.

10.1.3 Group structure

(1) The structure of the Takaful Operator’s Group must be transparent and must not hinder the effective supervision of the Takaful Operator.

(2) The structure and risk profile of the Group must not hinder the Takaful Operator’s stability and solvency.

(3) The overall governance, high-level controls and reporting lines within the Group must be clear so far as they affect the Takaful Operator.

(4) A Takaful Operator must not be subject to material control or influence from another Group member that is exercised through informal or undocumented channels.

(5) There must be clear and certain protocols for the performance of functions for the Takaful Operator at the Group level.

10.1.4. Direction regarding Eligible Capital

(1) A Takaful Operator must hold such additional Eligible Capital as the AFSA may direct (above the capital requirement for the Takaful Operator, as specified by these Rules) to cover risks arising because of its Group membership.

(2) If the AFSA directs a Takaful Operator to hold additional Eligible Capital, the Takaful Operator must increase its Eligible Capital by the amount directed by the AFSA within such period as the AFSA may specify.

(3) A direction under sub-rule (1) may specify that the additional Eligible Capital is to take a particular form.

10.1.5. Intra-group transactions

(1) A Takaful Operator must ensure that any material transaction with another member of its Group:

• (a) is entered into on an ‘arm’s-length’ basis; and
• (b) is on fair and reasonable terms.

(2) The Takaful Operator must ensure that its books, accounts and records clearly and accurately disclose the nature and details of the transaction, including any accounting information necessary to demonstrate that the terms were fair and reasonable.

10.1.6. Certain transactions to be inquired into by Takaful Operator’s Governing Body

(1) An AIFC-Incorporated Takaful Operator must not enter into a transaction of a kind described in sub-rule (2) unless its Governing Body is satisfied, after reasonable inquiry, that the transaction does not adversely affect the interests of policyholders.

(2) The kinds of transaction are the following:

(a) an intra-group transaction (including a sale, purchase, exchange, loan, guarantee or investment) the amount of which is 3% (or more) of the Takaful Operator’s Eligible Capital;

(b) a loan to a person not related to the Takaful Operator, if there is an agreement or understanding that the proceeds of the loan, or a substantial part of those proceeds, will be used to make loans to purchase assets of, or make investments in, another Group member, and the amount of the loan is 3% (or more) of the Takaful Operator’s Eligible Capital;

(c) an intra-group reinsurance agreement, or a modification to such an agreement, if the reinsurance premium or change in the Takaful Operator’s liabilities is 5% (or more) of the Takaful Operator’s Eligible Capital;

(d) a reinsurance agreement, or a modification to such an agreement, involving the transfer of assets from the Takaful Operator to a person not related to it, if:

1. (i) there is an agreement or understanding between the Takaful Operator and that person that any part of the assets will be transferred to one or more other persons related to the Takaful Operator; and
2. (ii) the reinsurance premium or change in the Takaful Operator’s liabilities is 5% (or more) of the Takaful Operator’s Eligible Capital;

(e) an intra-group management agreement, service contract or cost-sharing arrangement.

(3) A reference in sub-rule (2) to a Takaful Operator’s Eligible Capital is a reference to that capital as at the end of the last standard quarter before the relevant transaction.

(4) A Takaful Operator’s Governing Body may delegate its responsibility under sub-rule (1) to the Takaful Operator’s senior management if the Takaful Operator’s Risk Management Strategy and internal control framework permit the Governing Body to do so.

(5) In this rule:

(a) loan includes the extension of credit.

(b) standard quarter means each 3-month period ending on 31 March, 30 June, 30 September and 31 December.

10.1.7. Specific obligations of Group members

(1) If a Takaful Operator is a member of a Group, the Takaful Operator’s senior management should monitor any functions of the Takaful Operator, performed by any member of its Group.

(2) The Takaful Operator’s senior management should establish and maintain procedures and controls to identify and monitor the effect on the Takaful Operator of its relationship with the other members of the Group and the activities of those other members.

(3) The procedures and controls should include procedures to monitor:

1. (a) changes in relationships between Group members;
2. (b) changes in the activities of Group members;
3. (c) conflicts of interest arising within the Group;
4. (d) events in the Group, particularly those that might affect the Takaful Operator’s own regulatory compliance (for example, any failure of control or compliance in another Group member);
5. (e) the effect on it of:
6. (i) its relationship with the other members of the Group;
7. (ii) its membership in the Group; and
8. (iii) the activities of the other members of the Group; and
9. (f) the Group’s compliance with:
10. (i) the supervision requirements applicable to it, including systems for the production of relevant data; and
11. (ii) Group reporting requirements.

(4) The Takaful Operator should have procedures to insulate it, so far as practicable, from the adverse effects of other Group activities (for example, transfer pricing or fronting) or Group events that might expose the Takaful Operator to risk.

(5) The Takaful Operator’s senior management should take reasonable steps to ensure that:

1. (a) other Group members are aware of the Takaful Operator’s management and reporting obligations in relation to Group risk;
2. (b) Group capital and Group risk reporting requirements are complied with; and
3. (c) information about the Group provided to the AFSA is accurate and is provided in a timely manner.