Hong Kong has long been celebrated as a leading international financial centre. However, the regulation of its insurance intermediaries has for a significant time lagged behind the Special Administrative Region’s reputation for modernity.

All this is likely to change with the proposed introduction of a licensing regime for insurance agents and brokers by the Insurance Companies (Amendment) Bill 2014 (the Bill). This has been described by the Government department overseeing its introduction as the “most important regulatory reform in the insurance sector in the past 30 years”.

The current regime

The insurance industry in Hong Kong is currently regulated under the Insurance Companies Ordinance (Cap.41) (the ICO) by the Office of the Commissioner of Insurance (the OCI). The ICO put in place a framework for the self-regulation of insurance intermediaries by the insurance industry.

Under the existing statutory framework, most insurance intermediaries in Hong Kong are members of one of the three bodies of insurance brokers approved under section 70 of the ICO (a Self-Regulatory Organisation or SRO1) . It is estimated that more than 80,000 insurance intermediaries in Hong Kong, including individuals and companies, are currently registered with the three SROs.

The SROs are required to ensure that their members are fit and proper persons and meet minimum requirements set out in guidance issued by the OCI in relation to:

  • qualifications and experience
  • capital and net assets
  • professional indemnity insurance
  • keeping of separate client accounts
  • keeping proper books and accounts.

Self-regulation does not necessarily make for a laissez faire approach. In December 2013, the Hong Kong Confederation of Insurance Brokers (the CIB) released a circular requiring all of its members to make declarations on matters related to their fitness and properness to conduct insurance business. The circular also required that declarations be made by the Managing Directors (or persons holding an equivalent role) of the members and their holding companies throughout the corporate chain. This came as a considerable surprise to multi-national brokers, who were suddenly required to provide declarations from the Managing Directors of their holding companies throughout the world. This was, in our view, an extremely vigorous interpretation by the CIB of the statutory requirements relating to fitness and properness and highlights the need for a consistent industry-wide approach.

The new regime

The Bill had its First Reading before Hong Kong’s legislature at the end of April 2014. This followed a lengthy consultation process.

If passed into legislation, the Bill will establish a new Independent Insurance Authority (IIA) armed with powerful tools to investigate, inspect and impose sanctions that are similar to those of the Securities and Futures Commission and other financial services regulators in Hong Kong.

The Bill will also introduce a statutory licensing regime for “regulated activities”, which include:

  • giving advice on insurance
  • sale and after-sale administration of insurance policies.

Those carrying on regulated activities in the course of their business, employment or otherwise for reward must obtain a licence issued by the IIA. Licensees will be directly accountable to the IIA as to their fitness and properness. The IIA is likely to carefully supervise the conduct of insurance intermediaries and quickly clamp down on any suggestion of misconduct.

If the Bill is enacted, we anticipate that the new regime will come into force during 2015. The Bill includes transitional arrangements, designed to ensure its smooth integration. Under these arrangements, it is likely that all insurance intermediaries that are validly registered with SROs before the commencement of the new licensing regime will be deemed to be licensees for the first three years.

The FSTB has championed the benefits of the new regime, including “enhanced regulation of insurance companies and insurance intermediaries which can provide for better protection of insurance policy holders and facilitate the stable development of the insurance industry”. The message to insurance intermediaries in the Hong Kong is clear: prepare for a regulator with teeth.