IRCSL bars outside employment for insurance principal officers

By Nishel Fernando

The Insurance Regulatory Commission of Sri Lanka (IRCSL) has issued a fresh directive significantly tightening the employment standards for the principal officers of insurance and brokering companies, effectively barring these top executives from holding any outside employment, consultancy or professional engagements.

Issued on January 12, 2026, Direction No. 1 of 2026 replaces the previous regulations from 2023 and mandates that the principal officer must be the person holding the highest executive position in the company. 

In a move that signals a stricter approach to corporate governance and conflict of interest, the regulator has explicitly stated that these officers shall not engage in or undertake any other full-time or part-time employment, consultancy or professional engagement. This marks a shift from the repealed 2023 direction, ensuring that the industry’s key decision-makers are exclusively committed to the insurer they lead.

The regulator has also introduced a mandatory residency requirement, stipulating that the principal officer must be physically present in Sri Lanka and available to attend to official matters. This clause is expected to impact the insurers or brokers that may have previously relied on non-resident executives or regional heads to fulfil the statutory requirements of the role. 

The directive reinforces that the principal officer is responsible for the general control, direction and supervision of the business activities as per Section 94 of Regulation of Insurance Industry Act, No. 43 of 2000.

Under the new rules, the principal officers are also barred from serving as directors of any other insurer, with a singular exception allowed for the subsidiaries or associate companies of their own insurer. However, even in such cases, the appointment is strictly limited to a non-executive capacity. 

To ensure robust governance, the officer must report directly to the board of directors and is required to bring all communications from the IRCSL to the board’s attention as early as possible.

The directive further addresses leadership continuity, mandating that in the event of a principal officer’s retirement, resignation or termination, the company must appoint a suitable successor “forthwith”, to ensure continuity of responsibility. If the company encounters any delay in making a permanent appointment, an acting appointment must be made immediately, subject to the approval of the IRCSL. 

The new regulations came into effect on January 12, 2026.

The role of the principal officer is statutory and carries significant legal liability for the conduct of the insurance business. Historically, regulations have progressively tightened to ensure professional management. The explicit ban on outside employment closes the potential loopholes where the CEOs might have held external advisory roles, ensuring their fiduciary duty remains undivided during a period of economic complexity.

The “physical presence” requirement is particularly notable for multinational insurers operating in Sri Lanka. It effectively ends the practice of “remote” CEOs, requiring the entities that relied on regional executives in hubs like Singapore or Dubai to appoint resident leaders. 

Furthermore, the mandate to fill vacancies immediately places new pressure on the boards to maintain robust succession plans, preventing leadership vacuums that could hinder regulatory accountability.