FRA hands down new regulations controlling ins. against credit risks: The Financial Regulatory Authority (FRA) has issued new regulations designed to mitigate credit risk for ins. companies, it said in a statement on Monday. The amendments aim to encourage lenders to run background checks on borrowers before granting them loans and reduce ins. companies’ exposure to credit risk.

Transferring risk: Under the regulations, lenders will be required to take a 25% haircut on any debts owed by a borrower who defaults. This will reduce the insurer’s risk, leaving them responsible for paying only 75% of the unpaid debt.

Ins. companies will not be able to insure borrowers against credit risk except after the following:

• Preparing independent financial accounts for credit ins. and separating them from accident ins;
• Looking into the borrower’s credit score before insuring them;
• Distributing risk by linking up with more than one FRA-approved reins. company.

Better regulations to come: The Ins. Federation of Egypt will work to issue unified regulations for credit ins. issuers. The rules will give ins. providers the right to cancel or decline coverage in case the lender violates the policies implemented before lending, loan reviews, or credit approval, or if the lender amends its policies mid-loan with the ins. firm’s written approval.

A blacklist for defaulters: The regulations also entail establishing an online platform that includes a list of borrowers who have defaulted on their loans, which would be distributed among all ins. providers to check with before onboarding new credit ins. clients.

REMEMBER- Back in late 2019, the FRA introduced mandatory life ins. in micro- and SME finance, forcing microfinance and SME finance players to provide ins. coverage for their borrowers. The contracts pay out an amount equivalent to the loans in the event of death or severe disability of borrowers, and lenders are not allowed to mark up the cost of the coverage.