In Hong Kong, insurance intermediaries are currently self-regulated by three different professional bodies. The Insurance Agents Registration Board regulates insurance agents, whereas insurance brokers are under the purview of Hong Kong Confederation of Insurance Brokers and the Professional Insurance Brokers Association.
The Insurance Companies (Amendment) Ordinance enacted in mid-2015 has established a new Independent Insurance Authority (IIA) for Hong Kong, and introduced a series of amendments to the Insurance Companies Ordinance Cap. 41 (“ICO”).
Although the new provisions of ICO are not yet in force, they provide the new IIA with considerably strong powers of regulation than the existing selfregulatory bodies. The date 26 June 2017 has been set as the time when the relevant provisions of the Amendment Ordinance become effective so as to enable the IIA to take over the work of Office of the Commissioner of Insurance.
Under the new provisions of the ICO, insurance intermediary activity is defined as “regulated activity” and includes a broad range of activities such as negotiating and arranging insurance, inviting or inducing a person to enter into a contract of insurance and giving any regulated advice.
Under the new Section VA of the ICO, the IIA will be vested with similar regulatory and investigative powers as other financial regulators in Hong Kong (such as the Securities and Futures Commission and Hong Kong Monetary Authority).
Under the new Sections 41B and 64ZZF of the ICO, the IIA may conduct inspection to ascertain whether an authorised insurer or a licensed insurance intermediary is complying with the ICO, a notice or requirement given under the ICO or a term or condition of their licence. The IIA has very broad powers of inspection and may enter a premise for inspection without a warrant.
IIA inspectors have broad powers. At any reasonable time, the inspector may:
• Enter any premises of an insurer or insurance intermediary;
• Inspect, make copies or otherwise record details of business records; and
• Make enquiries of the insurer or intermediary.
The inspector may also require any answers to be verified by statutory declaration and the interviewee is not entitled to exercise his or her right to silence (see section 41G(6) – although the evidence will not be admissible in criminal proceedings (per section 41H)).
It remains to be seen whether dawn raids will be conducted, but the industry is advised to expect such a possibility.
The IIA may conduct investigation if it has reasonable cause to believe that:
• ICO has been contravened;
• A person may have been involved in defalcation, fraud, misfeasance or other misconduct in relation to carrying on insurance business or regulated activity;
• A person is conducting insurance business or regulated activity.
The IIA investigator may require a person to produce documents, give an explanation or further particulars on documents produced, attend interview with the investigator and answer in writing any questions raised by the investigator. The investigator may require any explanation to be verified by statutory declaration.
For any bancassurance, the IIA investigator must consult with the Hong Kong Monetary Authority before investigating employees of banks.
Failure to Comply
If a person fails to comply with IIA’s requirements in any inspection or investigation, the IIA may apply to the Court of First Instance for an inquiry. If the failure was without reasonable cause and the person was knowingly involved, such person may be punished as if he or she was guilty of contempt of Court. Severe sanctions are in place for failing to comply with the IIA, including personal criminal liability for obstructing investigations or providing misleading or false information.
If a person fails to comply with a requirement specified by the IIA without reasonable cause, the person commits an offence. It is also an offence for a person to give false or misleading documents, answers or explanations.
Magistrates’ Warrant to Enter Premises
The IIA may also apply to the Magistrate for a warrant to seize records or documents if the Magistrate is satisfied that there are reasonable grounds to suspect the premises contain such documents or records that may be required to be produced for an investigation or inspection.
General Guidance When Dealing With Inspections and Investigations
While it is still early days, insurers should take into account the following if they are considering to develop internal protocols in preparation for any inspections or investigations:
1. Preparation in the event of inspections and investigations: Insurers and insurance intermediaries should prepare for any on-site inspections by IIA, and should have a clear process and train any staff (such as receptionist or customer service staff, IT staff and/or the legal team) who may need to accompany IIA inspectors/investigators.
2. When investigators/inspectors arrive on site: staff and other key personnel should be briefed in preparation of any investigations/ inspections, and should have the contact details of relevant internal (and external) lawyers.
a. Contact the compliance officer and key personnel: staff should contact the relevant Compliance Officer or in-house (or external) lawyer and the most senior manager/executive available to assist in dealing with the investigation.
b. Confirm whether the officials have appropriate identification and authorisation.
c. Note the authorised scope of investigations or inspections: insurers and insurance intermediaries should check any court warrant or notices authorising the investigations/inspections.
3. During the on-site investigation: in preparation, it is highly recommended that a pre-designated “response team” is set up to readily deal with any on-site investigation.
a. Alert staff within the premises on a needto-know basis: the “response team” should be alerted and other staff, such as IT staff, may also need to be informed in the event inspectors/investigators are authorised to seize electronic documents. Staff should be advised of the investigation and they may contact the “response team” if they have any concern.
b. Ensure the investigation officials are accompanied throughout the inspection: The “response team” should accompany the inspectors/investigators, and a staff member should focus on creating a written record.
c. Provide assistance to the investigation officials: if inspectors/investigators request to copy or remove documents, where possible, it should be checked that the document falls within the scope of the investigation. Two copies of any document should be made, for the IIA and for internal record.
4. Dealing with questions:
a. For any on the spot questions, the interviewee should be careful not to provide any false or misleading statements. If the questions are related to documents, the persons who are in custody or have knowledge of the documents should be the ones answering such questions. Any person who are questioned but do not have knowledge of the subject matter should inform the inspector/investigator accordingly and decline to answer.
b. Questioning pursuant to notice issued under the ICO: any person who receives such notice should seek legal advice without delay.
5. Reinforcing the confidentiality of information obtained by the inspectors/ investigators: in relation to any documents seized by the inspectors/investigators, the insurer/insurance intermediary should claim confidentiality and privilege (if applicable) over such documents and the documents contained therein. The legal team should be well versed on the concepts of privilege and how to use it.
6. Preservation of documents: any documents relevant to the inspection/investigation but not seized by the inspectors/investigators should be preserved.
These guidelines provide general guidance and do not substitute the need to obtain appropriate legal advice.
The new provisions of the ICO give the IIA strong powers of inspection and investigation, including entry of premises and requiring production of documents, records and answering enquiries. Failing to comply with the IIA’s requirements comes with strong implications such as offences.
In dealing with any potential inspection or investigation, whether you are an insurer or insurance intermediary, you should carefully comply with and follow the IIA’s requirements.
As a matter of best practice, insurer and insurance intermediaries should focus on developing internal protocols in the event of any inspections or investigations. As such, our suggestions outlined above should provide useful general guidance. They should also consider conducting internal audits in preparation of the commencement of the IIA in late June.
In the event of an inspection or investigation, insurers and insurance intermediaries should contact their legal advisers on dealing with the regulators and providing assistance to manage the investigations.