Sanctions in the KPT case
Enforcement instruments
Industry ban
In a ruling dated 6 January 2012, FINMA has concluded administrative proceedings against KPT Versicherungen AG (KPT) and three of its managers. It ruled that serious breaches of duty had taken place. These related in particular to the setting of the price for shares that were to be bought back as part of a planned merger in 2010, and to payments to directors under mandate agreements. In both cases, inadequate regard was paid to the rules on handling conflicts of interest. Based on these breaches of duty, FINMA has banned two former members of the board of directors from exercising a senior management function within the financial sector for four years and has ordered the disgorgement of their unjustified payments. FINMA has appointed Peter Eckert to take over the interim management of KPT at director level and to ensure for an orderly completion or new appointments to the board of directors. These measures do not threaten KPT's operational activities and the solvency provisions are met.
Since summer 2010, FINMA has conducted administrative proceedings to investigate whether KPT Versicherungen AG (KPT) had breached supervisory law in relation to the planned buyback of shares arising from a KPT employee share ownership plan in connection with the planned merger between KPT and the Sanitas Krankenversicherung Group.
In its ruling of 6 January 2012, FINMA concluded that KPT was in serious breach of its supervisory obligations. This judgment reflected the following in particular:
The breach of the duties of due diligence and loyalty in the setting of the price for shares that were to be bought back as part of the merger with Sanitas planned for 2010. The KPT directors were still buying KPT shares at a low price in spring 2010, even though the planned buyback of shares by KPT at a higher price was already envisaged. If the buyback had gone ahead and not been prevented by FINMA in summer 2010, the directors in question would have made considerable profits. FINMA takes the view that severe breaches of supervisory law took place in both the process of price-setting by the board of directors and in the share purchases by individual directors.
All directors except one received substantial payments under mandate agreements in addition to the agreed fixed remuneration and bonuses of the board of directors. No additional services were rendered in return for these payments that were not already covered by the fixed remuneration.
The KPT board of directors used technical provisions in part to finance the planned share buy-back. This is not permitted under supervisory law. Any technical provisions no longer required in private health insurance companies are to be used entirely for the benefit of the policy holders and not for the shareholders of an insurance company. FINMA has therefore instructed KPT to disclose how it uses technical provisions that are no longer required in the interests of policy holders.
The KPT board of directors also exercised a lack of due diligence in relation to a large loan that it granted to KPT/CPT Holding AG for the repurchase of employee shares.
In view of the breaches of duty that have been identified, FINMA is banning the former chairman of the board of directors and the former vice-chairman of KPT from exercising a senior management function within the financial sector and has ordered the disgorgement of payments they received under mandate agreements since 2009. FINMA has ordered the suspension of three further directors involved in these actions. FINMA will also file a criminal complaint for corporate fraud.
Regarding the two new KPT directors who took up their positions in December 2011, FINMA will review as swiftly as possible as part of an approval process that is already in progress whether the persons concerned fulfil the requirement for the assurance of proper business conduct. Until this review has been concluded, they may not exercise their executive powers.
Until the KPT board of directors is complete and new appointments have been made, FINMA is designating Peter Eckert as agent with executive authority. He is mandated to prepare for the appointment of the new board of directors by the competent election body, and to manage the KPT at director level.
FINMA's decision does not threaten KPT's operational activities: the entitlements of policy holders are protected, and the solvency requirements are met. FINMA has not taken any action at executive board level.
Appeals against FINMA's decision may be lodged with the Swiss Federal Administrative Court.
Tobias Lux, Media Spokesperson, tel. +41 (0)31 327 91 71, tobias.lux@finma.ch