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Regulatory Compliance: Key Changes for IFEs and IBEs in Puerto Rico

In a move to strengthen oversight and ensure compliance, the government of Puerto Rico has introduced significant amendments to regulations governing Insurance Funds and Banks (IFE) and Insurance Benefit Enterprises (IBE). These changes aim to enhance financial stability, prevent fraud, and maintain transparency.

Books and Records: Main Center of Operations

All IFEs and IBEs in Puerto Rico must now maintain their books and records at their principal offices on the island. This is a significant change from previous regulations, which allowed for flexibility in record-keeping.

Annual Reports and Document Retention

IFE and IBE entities are required to submit annual reports detailing their financial conditions and operational results within 90 days of each fiscal year’s close. Furthermore:

  • They must retain documents for a minimum of five years after the last entry or the date any obligation ceased being enforceable.
  • An annual registry of destroyed documents must also be maintained for 15 years.

Transfers of Capital or Control

IFE and IBE entities must obtain prior written authorization from the Commissioner before transferring capital shares or control. This applies to transactions that could result in a person acquiring 10% or more of any class of capital shares or participations.

For IBEs authorized to accept deposits, the Commissioner may establish legal reserve requirements, which cannot exceed 20% of total demand deposits maintained by the entity. The composition, calculation method, and details of the reserve will be determined by the Commissioner.

New Permit and License Applications

Only legal entities (not individuals) can apply for an IFE permit. A non-refundable fee of $50,000 is required, with applicants paying any excess investigation costs. Personal and business information must be submitted for all owners or controllers of the entity’s capital.

Licenses and Renewals

The annual license fee for IFEs has been set at:

  • $50,000 for the original license
  • $25,000 for each renewal
  • An additional $5,000 for each office or branch
  • Late renewals will incur penalties

Examinations and Audits

The Commissioner may conduct examinations or audits of IFE operations, requiring entities to provide:

  • Accounting books
  • Files
  • Records
  • Documents
  • Information except where protected by attorney-client privilege

These amendments come into effect 90 days after approval, on May 16, 2024. Compliance with these regulations is crucial for IFEs and IBEs in Puerto Rico, ensuring financial stability and transparency in the insurance industry.

Disclaimer

This article has been prepared for informational purposes only and does not constitute legal advice or solicitation of any prospective client. An attorney-client relationship cannot be formed by reading or responding to this article. Such a relationship may only be formed through express agreement with McConnell Valdés LLC.