New regulatory regime for insurance intermediaries in Hong Kong takes effect

The new statutory regime for the regulation of insurance intermediaries in Hong Kong takes effect today.

This represents the final stage of implementation of the reforms which established the Insurance Authority (IA) as Hong Kong’s independent insurance regulator. The IA assumed the regulatory responsibilities of the Office of the Commissioner of Insurance in June 2017 and has taken over the regulation of insurance intermediaries (agents and brokers) from  three self-regulatory organisations (SROs) from today. Requirements relating to the intermediary management function, one of the control functions of an authorised insurer, have also come into effect.

The IA will be responsible for all aspects of regulation of insurance intermediaries, including issuing rules, codes and guidelines, approving licences, monitoring compliance, conducting inspections and investigations, and imposing disciplinary sanctions where breaches have occurred.

New rules, codes and guidelines

In preparation for the launch of the new regime, the IA consulted on and finalised a set of new rules, codes and guidelines applicable to insurance intermediaries.

The amendments to the Insurance Ordinance which relate to the new regime, together with the new rules, codes and guidelines, have also come into effect, except for the requirements relating to the new minimum continuing professional development (CPD) hours under the Guideline on Continuing Professional Development for Licensed Insurance Intermediaries, which will take effect at the start of the CPD assessment period beginning on 1 August 2021.

Licensing status post 23 September 2019

All insurance intermediaries (including brokers, agents, their chief executives / responsible officers and their technical representatives) who were validly registered with the SROs immediately before today will be deemed as licensees under the new regime for a three-year transitional period.

Individuals who were validly registered as responsible officers of insurance agencies or chief executives of broker companies will also be deemed as responsible officers under the new regime over the transitional period.

The categories of licences under the new regime, as mirrored against the categories of registrations under the previous regime, are set out in an earlier bulletin.

There is no need for deemed licensees to lodge applications for formal licences under the new regime at this stage. The IA will advise the deemed licensees to make such applications during the transitional period.

All deemed licensees will be assigned a licence number for the new regime. The IA will add a search function to its website to enable deemed licensees to search for their licence numbers based on their SRO registration numbers.

Separately, the Hong Kong Monetary Authority (HKMA) has issued a circular to authorised institutions who are (or intend to apply to be) licensed insurance intermediaries to provide guidance regarding the sufficiency of authority of responsible officers.

Ongoing complaint and disciplinary cases

Complaint and disciplinary cases that are not yet resolved by the SROs will be handled by the IA but with reference to the relevant SROs’ codes and guidelines. A list of the SROs’ codes and guidelines (including current and past versions) can be found on this IA webpage.

The new regime will therefore not have any retrospective effect.

Key persons in “intermediary management” function of authorised insurers

One of the new provisions under the Insurance Ordinance is section 13AE(2)(f) relating to the “intermediary management” function of an authorised insurer.

The intermediary management function is one of the control functions of an authorised insurer designated under the Insurance Ordinance, involving establishing and maintaining internal control measures for administering licensed insurance agents in relation to the regulated activities carried on by them, and their compliance with the ordinance, codes and guidelines.

An authorised insurer must not appoint an individual as a key person for its intermediary management function unless the IA considers that the individual is a fit and proper person to be appointed, and grants approval for such appointment.

In a circular issued on 30 August 2019, the IA provided guidance on:

• who a key person in the intermediary management function is, and his/her role;
• whether every authorised insurer needs to appoint such key person;
• board oversight; and
• applications for approval to appoint such key person, together with transitional arrangements.

In order to provide authorised insurers with additional time to prepare and submit their applications for approval to appoint such key persons, the IA adopted a transitional arrangement whereby authorised insurers were required to confirm by 20 September 2019 whether they intend to appoint such key person. They will then be required to submit the full application by 20 December 2019. Further details are set out in the circular.

New memorandum of understanding between IA and HKMA on regulation and supervision of dual-regulated entities

The HKMA and the IA have recently signed a memorandum of understanding (MoU) on collaborative arrangements for the regulation and supervision of entities or financial groups in which both parties have regulatory interest, including financial groups with authorised institutions, authorised insurers and/or licensed insurance intermediaries.
The MoU also takes effect today and sets out collaborative arrangements on insurance regulated activities relating to authorised institutions, including arrangements regarding:

• licensing;
• making of rules, regulations, codes and guidelines;
• complaint handling;
• delegation of inspection and investigation powers under the Insurance Ordinance (the IA will delegate its inspection and investigation powers to the HKMA in relation to insurance regulated activities of authorised institutions, although this will not prevent the IA from concurrently performing the functions delegated);
• disciplinary actions and reviews.