Top 10 issues to consider in a regional bancassurance deal 2016 Edition

Top 10 issues to consider in a regional bancassurance deal 2016 EDITION Table of Contents What are the issues to consider in respect of exclusivity rights in a bancassurance agreement? CHINA In practice, PRC banks are reluctant to offer exclusivity to a particular insurer. Even where the bank is the major shareholder of the insurer, the bank would still be reluctant to give exclusivity to the insurer in which it holds significant shares or equity interest. HONG KONG Banks will usually request for termination of exclusivity for certain products in certain circumstances, such as when the relevant insurance products cease to become competitive, or the insurer fails to develop the new product within a specific time frame. INDONESIA Regulation permits banks and insurance companies to enter into an exclusive bancassurance arrangement except for distribution of insurance products that are related to bank products (e.g., an insurance coverage granted over a debtor’s collateral in his or her loan arrangement with the bank). In practice though, banks often resist the use of the word “exclusive” and try to offer a “preferred” relationship instead where banks agree to use their best efforts to ensure that the insurance partner’s products are offered first to the banks’ customers, given past inquiries made by the Business Competition Supervisory Commission to various banks on their exclusive bancassurance arrangements. How flexible a bank will be depends on its comfort levels. JAPAN There is no regulatory restriction for the insurance company or the bank to provide exclusivity, although it may be prudent to undertake a competition analysis given the broad application of, and significant penalties for breach under, the Antimonopoly Act in Japan. MALAYSIA Parties typically enter into a bancassurance arrangement with a view of establishing a long-term relationship. As such, there are often restrictions in relation to the marketing, promotion, distribution or sale of the bancassurance products or even partnering up with another insurer or bank without prior written permission of the disclosing party. The scope of restrictions have to be carefully crafted and the restriction may be in the form of a geography, time or even the holding of an equity interest in a company that is competing with the bancassurance partner. Carve-out for affiliates from such restrictions, as well as change of control provisions, can also attract deep discussion. PHILIPPINES Exclusivity rights are commercial in nature and are subject to negotiation or contractual agreement between the parties. An exclusivity agreement may be upheld for as long as the agreed duration of the exclusivity is reasonably necessary to protect the interests of parties and does not unduly restrict trade or competition. From the antitrust law perspective, Philippine laws prohibit monopolies and combinations in restraint of trade. An exclusivity arrangement that does not run counter to the anti-competition laws is generally acceptable. SINGAPORE Exclusivity rights are common in bancassurance arrangements, and typically restrict the marketing, promotion, distribution or sale of bancassurance products of another insurer or even partnering up with another insurer or bank without prior written permission of the counterparty. Exclusivity, and its term or duration, is a matter of negotiation between the parties, but parties should consider if any competition concerns arise. 1 The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 2 TAIWAN In Taiwan, parties typically enter into the model agreement promulgated by the Insurance Association of Taiwan (the Template Agreement) for bancassurance arrangement. Under the Template Agreement, there are no restrictions for an insurer or a bank to enter into bancassurance arrangement with a third party. The exclusivity right is not commonly seen in Taiwan market but may be negotiated by the parties. In practice, if the insurer and the bank are affiliate companies, the bancassurance arrangement between them is usually exclusive because of the close relationship and the business plan from a group prospective. From the antitrust law perspective, in the event that the exclusivity rights will not be likely to restrain competition, such arrangement is generally fine. THAILAND Regulatory issues Although there are no specific regulations prohibiting the exclusivity in the bancassurance arrangement, there are few issues that need to be taken into account. First, since the bank is acting as an insurance broker under Thai insurance laws (bank is required to obtain insurance brokerage license from the insurance regulator), the regulator has a guideline encouraging the broker to act for the customers and not for one insurance company. This guideline could be developed into binding regulation in the future, which could prohibit the exclusivity arrangement. Further, the exclusivity is normally specially compensated (e.g., exclusivity fee) upfront. However, the insurer is prohibited from paying any form of advance payment. Thus, the parties will have to agree on the form and conditions of payment that will not be regarded as advance payment (from both legal and tax point of view), and to structure the proper clawback mechanism, normally in the form of a termination fee. Issues in contract negotiation The exclusivity normally concerns or limits in respect of the products, products development, distribution channel, and to a certain extent, certain group of customers (e.g., high net-worth individuals). The exclusivity provision (and exclusion) is normally heavily negotiated as other countries. For instance: • The definition of “products” that will fall under the exclusivity terms. Insurers would prefer a broad definition to cover as many products as possible (e.g., both life and non-life insurance products), while banks tend to limit to certain types of product that are currently sold by insurers. In some cases, the parties may agree to a list of non-restricted products as a carve-out to the exclusivity. • The exclusivity period. Typically, it lasts for the entire duration of the bancassurance agreement, which usually has a term of 10 to 15 years. • In the event the bank acquires control of an entity that has an existing arrangement or agreement with other insurers, the bank is usually required to terminate or not renew such arrangements. • Bancassurance agreements are generally not exclusive for the insurer. VIETNAM Vietnamese law treats the bank as an agent of the insurer and the bancassurance agreement as an insurance agency agreement. The legal default requirement is that a credit institution or a foreign bank branch in Vietnam may not concurrently act as an insurance agent to other insurers without a written consent of the insurer to which it is currently the agent. However, no legal restrictions are imposed on insurers from entering into bancassurance agreement with more than one bank. In practice, parties can further elaborate the scope of exclusivity such as restrictions in relation to certain products, a certain period of time or certain geography. 1 What are the issues to consider in respect of exclusivity rights in a bancassurance agreement? (cont’d) The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 3 CHINA Insurers will generally provide training support and a dedicated team to support the sales and marketing of the bancassurance products. HONG KONG Insurers will generally provide training support and a dedicated team to support the sales and marketing of the bancassurance products. Under some bancassurance arrangements, the insurer may also provide insurance personnel to assist the sale and marketing of the products in the bank’s branches. INDONESIA The insurer is generally obliged to provide the following manpower support to the bank: 1. Prepare a training curriculum for bank personnel on the insurance product specs, marketing information and sales management (including coaching, motivating, mentoring and soft sales skills), and regulatory requirements and standards practices 2. Provide consultation, advice and support to the bank regarding all training and marketing activities JAPAN Although it may not be an insurer’s typical obligation, it is possible to oblige an insurer to provide support to the bank by sending individuals to guide and train the bank’s staff or second personnel to assist with the marketing and sale of the bancassurance products. MALAYSIA An insurer is generally obliged to provide support to the bank by sending individuals (insurance personnel) to guide and train the bank’s staff or even second personnel to assist with the marketing and sale of the bancassurance products alongside the bank’s sales staff. The insurance personnel may be expected to provide support by (i) sharing product and market knowledge; (ii) providing sales training and management (including, without limitation, reporting, coaching, motivating, mentoring and soft sales skills); and (iii) operating and monitoring the relevant systems for the marketing, sale and distribution of the products. The extent and frequency of support, training, materials and manpower to be provided by the insurer are usually detailed and oftentimes, heavily negotiated as there is a need for the insurer to balance the costs (involved in recruiting and training the insurance personnel which in turn will be involved in training and managing the bank’s personnel) and benefits of providing such support to the bank. PHILIPPINES An insurer is obligated to provide primary manpower support as bank personnel are prohibited from directly engaging in insurance business in the Philippines under the General Banking Law. Only licensed insurance agents may sell, solicit and discuss details and particularities of insurance products. However, bancassurance regulations permit bank employees to make a preliminary presentation of the product features of insurance products, provided that they have been specifically trained and qualified by the insurance company. The Insurance Commission shall prescribe and approve such training programs for bank employees. As preliminary presentations are merely incidental to their duties, bank employees are not obligated to obtain an insurance agents’ license, but may be required by the Insurance Commission should such license be deemed proper. SINGAPORE There are no specific obligations on insurers other than as agreed between the parties. However, it is common for the insurer to be obligated to provide support to the bank by providing dedicated individuals, who may be seconded to the bank, particularly during the initial stages, to train the bank’s staff, assist with the marketing and sale of the bancassurance products, and provide compliance support, alongside the bank’s own staff. 2 What are generally the obligations of an insurer in terms of providing manpower support? The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 4 TAIWAN Under the Template Agreement, the insurer is obligated to dispatch personnel to the bank to provide training or support relating to the sale of the insurance products. Such support usually covers the training of (1) understanding the products; (2) sales skills; (3) insurance regulations; and (4) operation process. However, the personnel dispatched by insurer cannot directly participate in any sales activities of the bank. THAILAND Regulatory issues There are certain restrictions in respect of an insurer sending its own employees to bank premises. Insurance personnel cannot undertake any sale and/or marketing activities directly to the bank customers at the bank premises. Thus, the activities of insurance personnel will be limited to providing training to bank personnel with respect to product features, market knowledge, sales techniques, etc. Issues in contract negotiation Bancassurance agreements normally require training and manpower support from the insurer. Generally, insurers are willing to provide such support and it helps with the sale activities, and normally requires commitment from the bank to ensure that its staff attend proper training and are qualified to conduct the sale. Insurer will have to take into account the costs of such training, material and manpower. The bank must ensure that its sale staff obtain the required brokerage license. VIETNAM Vietnamese law imposes an obligation on the insurer to develop training programs and coordinate with the bank in organizing and providing training courses and take responsibility for granting insurance agent certificates to the bank’s staff members, who directly act as individual insurance agents. Any other obligations on providing manpower support is a matter of negotiation between the insurance and the bank on a case-by-case basis. 2 What are generally the obligations of an insurer in terms of providing manpower support? (cont’d) The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 5 What are the typical rights and provisions in relation to insurer’s right to access the bank’s customer database and also the obligations of an insurer that is in receipt of such information? CHINA The insurer will usually have right to access and use customer data for the purpose of policy administration. The bank will usually remain as the owner of the customer data. The insurer will be required to maintain confidentiality of the data and cannot use it for upselling and cross-selling other insurance products without the permission of the bank. HONG KONG The insurer will usually have right to access and use customer data for the purpose of policy administration. The bank will usually remain as the owner of the customer data. The insurer will be required to maintain confidentiality of the data and cannot use it for upselling and cross-selling other insurance products unless with the permission of the bank. INDONESIA A bank’s customer database is subject to banking secrecy laws. Further, the transfer of consumer database in the financial sector is also subject to regulations issued by the Otoritas Jasa Keuangan (OJK). Any transfer of consumer data is subject to consumers’ written approval. Banks have to first secure consumers’ written approval on their transfer of data before transferring to any third party, including, in this case, to insurers. Usually, this is done at the time that accounts are opened with the bank. In the context of bancassurance, banks would usually give a warranty that they have secured the relevant customers’ written approval before transferring or disclosing customer data to the insurers. In practice, such a warranty is specifically reviewed and commented (where necessary) by the OJK upon filing a copy of the bancassurance agreement for approval. It is also commonly agreed by banks and insurers that: 1. all banks’ customer data submitted to or obtained by insurers, relating from any policy issued under the bancassurance agreement will only be used in accordance with the bancassurance agreement provisions; and 2. the insurer is prohibited from using the data of any bank customer obtained in relation to the bancassurance agreement to cross-sell any other products, unless consented by the bank. JAPAN As the banks are under a strict duty to maintain confidentiality and secrecy, banks may not normally allow the insurer the right to access their customer database especially non-public financial information, unless the customer gives consent. MALAYSIA The bank’s customer database is subject to banking secrecy, data protection and privacy laws. As the banks are under a strict duty to maintain confidentiality and secrecy, banks will only allow the insurer the right to access their customer database after it has received the relevant consent from the customer or as may be permitted by the regulators. The disclosure by the bank to the insurer is also typically subject to strict confidentiality provision e.g., the insurer agreeing to use such customer data for purposes specified in the consent only, the insurer agreeing to maintain such data strictly confidential, the insurer agreeing not to disclose the information to any third party, including each of the insurer’s subsidiaries, related companies, associated companies, agents, servants or to employees of the insurers, except employees who are required to have the information in order to carry out the insurer’s obligations under the bancassurance agreement. 3 The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 6 PHILIPPINES The bank’s customer database are subject to banking secrecy laws and the Philippine Data Privacy Act. As banks are under a strict duty to maintain confidentiality and secrecy, customer information may be processed only in ways compatible with the purpose/s declared and consented to by the data subject. The insurer should confirm that proper disclosure was made by the bank to the customer that his personal information will be processed by a third party (i.e., the insurer) in the manner and extent agreed to by the customer. The insurer also ensures compliance with the Data Privacy Act by employing reasonable and appropriate organizational, physical, and technical measures to protect the security of personal information. Customers may waive the application of bank secrecy laws and the Philippine Data Privacy Act, but the waiver must typically be written and express, and cannot consist of a general waiver. The waiver must pertain to specific rights (i.e., acts consented to and/or rights waived) and/or to the type of information (i.e., sensitive information and sensitive personal information) covered by the waiver. SINGAPORE Any customer information possessed by the bank, including the bank’s customer database, is subject to banking secrecy provisions under the Banking Act, and such disclosure may only be made if one of the exemptions to banking secrecy applies or the information is processed such that it is not referable to a customer or group of customers. Further, the Personal Data Protection Act (PDPA) requires the consent or deemed consent of the individual concerned for the collection, use and disclosure of personal data, unless an exemption applies. Unless consent has been obtained or there is an applicable exemption, the insurance company will not be allowed to use customer information other than for the original purpose for which the insurance company received the information. The PDPA also establishes a Do Not Call Registry, and introduces obligations and restrictions that apply in relation to persons sending specified messages (in the form of voice calls, text or fax messages) to Singapore telephone numbers. As a result of these privacy restrictions, bancassurance arrangements typically include extensive restrictions on the insurer’s ability to use the bank’s customer database, and often include express obligations regarding the insurer’s compliance with the Banking Act and the PDPA. TAIWAN The bank’s customer database is subject to bank secrecy law, and the Personal Data Protection Law of Taiwan (PDPA). As banks are under a strict duty to maintain confidentiality and secrecy, they will only give the insurer the right to access their customer database after such insurer receives the relevant consent from the customers or as may be permitted by the regulators. The Template Agreement provides that parties shall keep all information obtained from the other party strictly confidential and shall comply with the PDPA, the Insurance Act, the Banking Act and relevant laws and regulations. In the event that the insurer and a customer enter into or are about to enter into an insurance agreement, according to the PDPA, the insurer has the legitimate reason to collect, process and use the personal data of the customers. When collecting the personal data from an individual customer, the insurer must inform such customer of the specific purpose, collection (e.g., insurance), method, area and use of such personal data. A written consent in the form prescribed by the PDPA is required if the use of a customer’s data by the insurer will go beyond the purpose of insurance. 3 What are the typical rights and provisions in relation to insurer’s right to access the bank’s customer database and also the obligations of an insurer that is in receipt of such information? (cont’d) The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 7 THAILAND Regulatory issues The bank’s customer database is subject to banking regulation in relation to data privacy. As banks are under a strict duty to maintain confidentiality and secrecy, banks will only allow the insurer the right to access their customer database after it has received the relevant consent from the customer. In addition, a bank is not allowed to recognized any revenue directly from the disclosure of customer data as it is not categorized as a banking business. As a matter of practice, despite consent from the customers, it is typical that a bank will not allow the insurer to have direct access to customer information, and will have a strict control in relation to data processing. A bank will normally control the usage of customer information and conduct the sales by itself. It should be noted also that telemarketing is not expressly allowed. Issues in contract negotiation Bancassurance agreements usually stipulate that the bank maintain the ownership of its customer data, while the insurer is granted a license to use the customer data for the purpose of the bancassurance business. However, the insurer is the owner of any customer data that is independently collected from bank customers who are policyholders. This is subject to the negotiation with banks on a case-by-case basis. VIETNAM The bank’s customer database is subject to banking secrecy, data protection and privacy regulations. As banks are under a strict duty to maintain confidentiality and secrecy, banks will only allow the insurer the right to access their customer database after it has received the relevant consent from the customer or as may be otherwise permitted by the law. The disclosure by the bank to the insurer is also typically subject to strict confidentiality provision. In practice, the insurer generally has to agree to use such customer data for purposes specified in the consent, to maintain such data strictly confidential, and not disclose the information to any third party whatsoever (including each of the insurers’ subsidiaries, related companies, associated companies, agents, servants or to employees of the insurers, except employees who are required to have the information in order to carry out the insurers’ obligations under the bancassurance agreement). 3 What are the typical rights and provisions in relation to insurer’s right to access the bank’s customer database and also the obligations of an insurer that is in receipt of such information? (cont’d) The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 8 CHINA There are guidelines on commissions and insurers are required to observe such guidelines. HONG KONG Insurer should decide whether commissions will continue after the expiry or termination of the agreement, and whether other compensation such as marketing allowance or IT allowance should be provided to the bank. Further, if an up-front payment is made to the bank, insurer may consider whether there should be any clawback in case the sales targets are missed. INDONESIA For certain general insurance products, regulation provides a maximum acquisition cost (cost incurred to obtain a business, which include commission payment). Insurance companies also often ask for a refund of commissions when there is a cancellation of policies within a certain period of time after the policies are signed by the consumer. For the refund mechanism, insurance companies often require that refunds can be done by setting off the insurance company’s payment obligation to the bank. The parties also need to agree on who will bear the withholding tax. JAPAN We are generally not aware of any issues related to compensation/cost of distribution of bancassurance products. MALAYSIA Banks typically request for the maximum amount of commission payable under law. Where there are no limits prescribed, the parties will determine the amount of commission payable for a particular product. Parties often wish to give themselves the flexibility in determining the commission structures, which reflect the parties’ view on bancassurance product competitiveness, market segmentation and any impact on bancassurance product sales volume. There is also frequent discussion of when commission can be clawed back or set off. PHILIPPINES Generally, compensation arrangements are commercial in nature and subject to contractual agreement. However, under the Amended Insurance Code, an insurer may not pay commission to any person or entity not licensed to engage in insurance business as an insurance agent or insurance broker. Thus, a bank may not be paid commission from the sale of insurance products, but may be compensated under other allowable arrangements. Further, there is no prohibition under bancassurance rules for the insurer to provide referral incentives (through the bank) to bank employees for successful referrals of bank clients to representatives of the insurer. SINGAPORE There are no specific prohibitions or limitations in Singapore in respect of compensation arrangements for bancassurance transactions, although note that the Monetary Authority of Singapore has issued a Consultation Paper on Recommendations of the Financial Advisory Industry Review dated 5 March 2013 and a Response to Feedback Received thereto on 30 September 2013. These papers propose certain changes to the regulatory regime for the financial advisory industry, with the key thrusts of, amongst other things: (i) raising the quality of financial advisory firms; (ii) lowering distribution costs; including specific recommendations in respect of distributing life policies; and (iii) promoting a culture of fair dealing. It is currently not known when these changes will come into effect. Depending on the precise changes introduced pursuant to the above consultation, there could be implications on the level of commission payable, and bancassurance arrangements more generally. Currently, however, the level of commission payable remains a matter for negotiation between the parties. 4 What are the issues to consider in respect of compensation payable by the insurer to the bank and cost of distribution of bancassurance products? The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 9 TAIWAN If a bank directly receives commission from an insurer, it will be treated as conducting insurance business. Thus, a bank that does not obtain an approval from the FSC to engage in either the insurance agency or brokerage business will have to enter into a tripartite bancassurance arrangement (among the bank, the insurer and an insurance broker/agent) under which the insurer pays commission to the insurance broker/agent and then the insurance broker/agent shares the commission with the bank. For banks who have obtained approval from the FSC to engage in either the insurance agency or brokerage business, such banks may receive the commission directly from the insurer. THAILAND The commission payable to the bank, as a licensed broker, is subject to the maximum permissible amount under the laws. Since the maximum amount under the laws may not be attractive, the parties normally will seek additional benefits from the arrangement in respect of business synergy. VIETNAM There are two separate components of compensation payable to the bank, including commissions and other expenditures. In respect of commissions, commission rate must be subject to maximum limits set out by law for each type of insurance products. Banks typically request for the maximum amount of commission payable under law. As a matter of negotiations, the parties may wish to consider giving themselves the flexibility in determining the commission structures reflecting the parties’ view on bancassurance product competitiveness, market segmentation and any impact on bancassurance product sales volume. In respect of other expenditures for banks (as insurance agents), apart from commissions, other expenses and fees to be paid to the bank should be classified as “expenses for management of insurance agents.” Accordingly, “expenses for management of insurance agents” includes expenses for initial training and examination for issuance of insurance agent certificates, expenses for improving knowledge to agents, expenses for recruiting agents, expenses for rewarding agents and expenses to support agents. For this part, applicable to non-life insurers, there is a restriction that expenditure for agent rewards and agent support must not exceed 50% of insurance commissions of insurance policies implemented in a fiscal year. 4 What are the issues to consider in respect of compensation payable by the insurer to the bank and cost of distribution of bancassurance products? (cont’d) The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 10 CHINA The insurer will lose exclusivity in respect of such bancassurance product. HONG KONG The insurer will lose exclusivity in respect of such bancassurance product. INDONESIA There is usually a first right of refusal over new products and if an insurer refuses, the bank has a right to appoint third-party insurer who is willing and able to develop the requested new product. Insurers would usually negotiate provisions that a bank cannot unilaterally decide on product development, but this is mutually determined be the bancassurance steering committee (BSC) instead. The OJK also recently issued a regulation on insurance products requiring that proposed new products be listed in the insurer’s annual business plan. JAPAN It is possible to have a provision allowing the bank to terminate the exclusive relationship if the insurer is unable to develop or refuses to develop a bancassurance product or cease to offer a bancassurance product. MALAYSIA An insurer will usually require some time to evaluate the feasibility of a new bancassurance product offering. If the insurer is unable to develop or refuses to develop a bancassurance product within an agreed time frame, the banks may regard that as a waiver of a right from the insurer. The bank will typically insist that this triggers the right to seek out another insurer to offer a similar product. As a bancassurance arrangement is a joint initiative between the banks and insurer, there are often provisions requiring for any unresolved issues relating to bancassurance product offerings to be escalated to the senior management before the bank is given the right to seek out another insurer for such products. PHILIPPINES Any issue arising from the insurer’s inability or refusal to develop a bancassurance product or the discontinuance in the offer of a bancassurance product is subject only to the contractual agreement between the insurer and the bank. From the perspective of consumer protection laws, the Insurance Commission obligates the insurer and the bank to have a consumer protection framework in a bancassurance transaction. An effective consumer protection network must include processes and procedures for handling any complaint arising from cross-selling, including after-sale claims. The insurer must present documentary proof of the existence of the consumer protection framework to the Insurance Commission. Moreover, the insurance commissioner has the power to resolve/adjudicate claims and complaints filed by customers against the insurer. SINGAPORE This is a matter for negotiation between the parties. The bancassurance arrangement typically specifies the rights of the parties in the event that the insurer is unable to develop, or ceases to offer, a bancassurance product, and may provide for the right for the bank to either source a new bancassurance product from a third party, or terminate the agreement if certain service levels, including the provision of specific bancassurance products, are not met. 5 What can parties do if the insurer is unable to develop or refuses to develop a bancassurance product or cease offering a bancassurance product? The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 11 TAIWAN Under the Template Agreement, the insurer is not obligated to develop or provide insurance product to the bank, and a bank is free to seek products from other insurers. In some cases, the parties will negotiate the minimum number of product that the issuer shall provide to the bank. If the insurer fails to perform this obligation, it may be deemed as a breach of contract or it may constitute a termination event. THAILAND In such case, the bank may engage another insurer to develop such products provided that it must commence the sales of the products within a fixed period of time and the engagement must be terminated at any time. Thereafter, if the insurer is able to develop such products, the bank will usually be required to terminate the arrangement with the other insurer with respect to the products, and proceed to offer the insurer’s products instead. It should be noted that product to be sold must be pre-approved by the regulator before being marketed, which could take some time (e.g., six months). VIETNAM This is a matter of negotiation between the insurer and the bank, noting that the development of products is subject to the approval or reporting requirements by the law. Parties normally set up a steering committee to work out business plans and supervise the implementation of the same. This committee will discuss any issue and find the solutions, or escalate to higher management to resolve before the bank can sell such product for another insurer or terminate the agreement. 5 What can parties do if the insurer is unable to develop or refuses to develop a bancassurance product or cease offering a bancassurance product? (cont’d) The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 12 What are the possible terms and issues relating to intellectual property that has been jointly developed (JDIP) pursuant to a bancassurance agreement? CHINA This is more a commercial issue. Possible terms are the party proposing the product will have the IP rights and the other party will be restricted from developing similar products for other channels. HONG KONG This is more a commercial issue. Possible terms are the party proposing the product will have the IP rights and the other party will be restricted from developing similar products for other channels. INDONESIA A bank cannot issue an insurance product, and an insurance company will be solely responsible for the insurance product. In practice, usually the parties agree that to a certain extent, each party’s trademark can be used for marketing purposes. If there is a JDIP, it is very likely that the party responsible for creating and/or developing the JDIP will be expected to provide a warranty that the JDIP does not infringe any third-party rights or laws, and also to grant a non-exclusive and non-transferable royalty-free license to use the JDIP in connection with the performance of the parties’ respective obligations for the term of the bancassurance agreement. JAPAN We are generally not aware of any issues related to JDIP. It may not be common for insurers and banks to jointly develop intellectual property. MALAYSIA A party that is responsible for creating and/or developing a JDIP will be expected to provide a warranty that the JDIP does not infringe any third-party rights or laws and also typically be required to grant a non-exclusive and non-transferable royalty-free license to use the JDIP in connection with the performance of the parties’ respective obligations for the term of the bancassurance agreement. Generally, a JDIP that is attributed solely to one party shall remain with that party. A dispute may potentially arise after the bancassurance agreement is terminated if both parties have contributed to the creation of the JDIP and it is not entirely clear which party owns the JDIP. The best practice is for the parties to establish ownership of the JDIP up-front to avoid subsequent dispute. If ownership of the JDIP is not clearly identifiable, the dispute is typically escalated to the senior management for a determination before referring the matter to the court or for arbitration (if not resolvable by senior management). PHILIPPINES An insurer and a bank cannot create a JDIP (i.e., co-branding) pursuant to a bancassurance agreement. Under the Philippine General Banking Law, a bank may not engage directly in insurance business in the Philippines. A bank must also ensure that promotional materials clearly indicate the relationship between the insurer and the bank. Such materials cannot create the impression that the insurance product is the product of the bank whose premises are being used for bancassurance. Moreover, bancassurance rules provide that there should be a clear distinction between insurance agents and bank employees inside the premises of the bank. Areas within the bank premises where bancassurance activities are conducted must also be distinct and clearly marked/delineated to differentiate them from areas where bank products are being sold. Hence, current banking and insurance laws do not seem to permit a JDIP or any form of co-branding as the intention of the law is to separate the business of the bank from the business of the insurer. 6 The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 13 SINGAPORE The bancassurance arrangement will typically provide for a non-exclusive royalty-free license to be provided by each party to the other in respect of their trademarks and any JDIP in order for the parties to perform their respective obligations under the bancassurance arrangement. A party that is responsible for creating and/or developing a JDIP will also be expected to provide a warranty that the JDIP does not infringe any third-party rights or laws. In terms of the ownership of any JDIP, this should, generally, be agreed between the parties at the outset of the arrangement to avoid any future disputes regarding ownership of any JDIP. TAIWAN Under Taiwan laws, a co-branding product jointly developed by a bank and an insurer is not permissible. A bank is also prohibited from producing any distribution/ promotion material in relation to the insurance product. Therefore, there is no JDIP under a bancassurance arrangement. The insurer usually owns the IP rights to the insurance product developed by itself. THAILAND The agreements do not stipulate the ownership of JDIP; however, it will usually stipulate that the insurer is the owner of marketing materials related to the products. With respect to the use of each of the parties’ marks, as both of the insurer’s mark and the bank’s mark could appear in the same marketing materials, in practice, the consent or licensing provision from both parties will be stipulated in the agreement. VIETNAM A bancassurance agreement may have a provision on the ownership of the JDIP as well as the use and transfer of such JDIP. Normally, such JDIP will be under joint ownership and the transfer must be approved by both parties, unless otherwise agreed by the parties. The bancassurance agreement may also have a provision on the license of the JDIP, which is created and developed by a party to the other party in connection with the performance of the licensee obligations for the term of the bancassurance agreement, and vice versa, in which the licensor shall provide a warranty that the JDIP does not infringe any third-party rights or law. The license of the JDIP, which is created and developed by a party, should be terminated upon the termination of the bancassurance agreement. The parties should also reach an agreement on how to dispose of the rights in the JDIP, which is jointly owned by the parties upon termination of the bancassurance agreement. 6 What are the possible terms and issues relating to intellectual property that has been jointly developed (JDIP) pursuant to a bancassurance agreement? (cont’d) The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 14 What happens to the facilitation fee for the promotional and marketing activities paid by the insurer to the bank in the event of an early termination? CHINA If the fee is paid up-front in a lump sum, insurer may consider clawback provisions so that part of the fees may be refunded in case of early termination or other events. If the fees are paid by installments, the insurer may not be able to claw back those installments that have been paid. However, this is subject to negotiation between the parties. HONG KONG If the fee is paid upfront in a lump sum, insurer may consider clawback provisions so that part of the fees may be refunded in case of early termination or other events. If the fees are paid by installments, the insurer may not be able to claw back those installments that have been paid. However, this is subject to negotiation between the parties. INDONESIA The position will vary depending on the reason for the early termination and which party is at fault. For example: (1) If the insurer is in default, usually there is no clawback by the insurer on the facilitation fee that has been paid to the bank, (2) if the bank is in default or if under a non-fault situation (e.g., regulatory requirements, etc.), usually there is a clawback by the insurer on the facilitation fee that has been paid to the bank. JAPAN The position will vary depending on the reason for the early termination and which party is at fault. MALAYSIA The position will vary depending on the reason for the early termination and which party is at fault. For example, if the bancassurance agreement is terminated as a result of a breach or an event of default caused by the insurer, the bank will insist that there shall not be any refund. There are also instances where if the bancassurance agreement is terminated as a result of a breach or an event of default caused by the bank, the insurer may require a pro-rata amount of the facilitation fee to be refunded for the unexpired period (while at the same time reserving its right to claim for damages, if any). There is also a possibility that the bancassurance agreement may be terminated in a no-fault situation (e.g., as a result of a change in the regulatory environment or a force majeure event). In such instance, the insurer may request that a pro-rata amount of the facilitation fee be refunded for the unexpired period. The consequences of termination will also vary vastly where there is a change of control or merger of either entity, as the commercial dynamics will be very different. PHILIPPINES The consequence/s in the event of early termination of the bancassurance agreement may vary depending on the contract terms or agreement of the parties, or in default thereof, on Philippine contract laws. Under Philippine contract law, the principle of unjust enrichment generally applies (i.e., no person may unjustly enrich himself at the expense of another). Hence, unearned facilitation fee for the promotional and marketing activities paid by the insurer to the bank will typically have to be returned to the insurer on a pro-rata basis. SINGAPORE This is generally a matter for negotiation between the parties, but may involve the refund or partial refund of the facilitation fee where the early termination is caused by the bank. Depending on the negotiation position of the parties, the termination provisions may also provide that the facilitation fee (i) is refunded pro rata (in accordance with a specific calculation/methodology) in the event of a no-fault early termination (e.g., a change in regulation), and/or (ii) is retained by the bank in the event of a default by the insurer. 7 The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 15 TAIWAN The consequence may vary depending on the causes of termination. If the agreement is terminated due to a breach by the insurer, the bank may not agree to return the fee because it’s a non-defaulting party. However, if the agreement is terminated without any breach or default by any party, the parties may agree to have the fee be returned on a pro-rata basis. THAILAND As insurer is prohibited to pay any form of advanced payment, all payment paid by the insurer to the bank will be realized as compensation for the obligations of the bank which has already been undertaken. In case of an early termination, there normally is “termination fee,” which aims to claw back the amount that is paid by the insurer to the bank. The termination fee is typically calculated either as a formula based on the total amount received by the bank from the insurer up to the termination date, or is a pre-determined fixed amount. Accordingly, the termination fee does not specifically refer to the facilitation fee for promotional and marketing activities that is received by the bank in advance. VIETNAM This is a matter of negotiation between the insurer and the bank. Facilitation fee is not commonly seen in Vietnam as a matter of practice, given the restriction on the expenses that the insurer may incur as mentioned in Question 4 above. 7 What happens to the facilitation fee for the promotional and marketing activities paid by the insurer to the bank in the event of an early termination? (cont’d) The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 16 A pro-rata refund of the facilitation fee in the event of an early termination may not be fair to the banks as the banks would typically invest and incur more costs and expenses during the initial years of a bancassurance agreement to promote and market and put in place a business structure to supports the objectives of the bancassurance agreement. How can the parties address this issue? CHINA The fees may be paid by installments agreed between the parties. HONG KONG The fees may be paid by installments agreed between the parties. INDONESIA In practice, an insurance company will usually bear the costs for the marketing materials, or the parties agree to bear the marketing costs together. Usually, the amount will be discussed in a BSC formed by the parties to supervise the bancassurance activities, or the bancassurance parties set out the agreed cost in a joint business plan attached to the bancassurance agreement. In some contracts though, to make the offer more attractive, the insurance company offers a marketing cost to be paid up-front to the bank. JAPAN The parties can have a provision requiring the insurer to pay a larger amount in the first period among some separate periods. MALAYSIA For cash flow reasons and also to mitigate risks, an insurer will generally resist paying a lump sum amount of the facilitation fee for the entire bancassurance agreement but will instead segregate payments into separate periods. So for instance, if the facilitation fee is split over two separate periods, the parties may agree that the amount for the first period should be higher (since more costs and expenses will be incurred then) than that for the second period. PHILIPPINES There are no laws and regulations covering the facilitation fee in the event of an early termination. This issue is commercial in nature and subject to the bancassurance agreement. To address this, the parties may agree on mutually acceptable commercial terms and conditions that not only support the objectives of the bancassurance agreement, but also adequately protect the business interests of the parties. The parties may carve out payment periods and payment schemes acceptable to them. The parties may also carve out default provisions or agree on penalties and fees instead of a pro-rata refund in case of pre-termination of the bancassurance agreement. SINGAPORE The facilitation fee and any refund (pro-rata or otherwise) can be structured in any way that the parties determine. Depending on the negotiation position of the parties, and the anticipated expenditure by the bank in the early stages of the relationship, the facilitation fee may be paid by the insurer to the bank in tranches. If structured in this way, the bank may argue that no refund of the facilitation fee should be paid if there has been no default by the bank. TAIWAN There are no laws and regulations stipulating the facilitation fee in the event of an early termination. To address this issue, the parties may negotiate the payment periods of facilitation fee. For example, the fee may be paid quarterly or in several installments depending on the sales plan of the year. Alternatively, the insurer may pay an additional fee at the time a new product is launched to support the bank’s marketing/promotion activities. THAILAND This will be addressed through the formula or pre-determined amount of the “termination fee.” VIETNAM This is a matter of negotiation between the insurer and the bank. Facilitation fee is not commonly seen in Vietnam as a matter of practice, given the restriction on the expenses that the insurer may incur as mentioned in Question 4 above. 8 The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 17 CHINA Yes. Indemnity provisions are common in bancassurance agreements. However, there is always a cap to such indemnity and the default party will usually not be responsible for indirect or consequential damages, as under Chinese law, indirect and consequential damages as a result of breach of contract are generally not recognized. HONG KONG Yes. Indemnity provisions are common in bancassurance agreements. However, there is always a cap to such indemnity and the default party will usually not be responsible for indirect or consequential damages. INDONESIA Yes, it is common for parties to ask for indemnity for losses, expenses and damages resulting from an act of the other party’s personnel, e.g., on providing misleading information or advice on the insurance products that are not in line with the training given. JAPAN Yes, it is possible to have such indemnity clause in the bancassurance agreement. MALAYSIA Yes, insurers often seek an indemnity for any breach by the bank staff of regulatory requirements or fraud or any activity infringing the laws directly or indirectly related to the sale of the bancassurance products or a misrepresentation of the bank’s products. The banks, however, may decide to only agree to indemnify if promotion, marketing and distribution or response was not made in accordance with the training, or any marketing and compliance or selling aids provided by the insurance personnel. In addition, banks may also want an indemnity if they are subject to any losses, expenses and damage if there is any mis-selling by the insurance personnel. PHILIPPINES Yes, this is a typical arrangement in commercial/business transactions such as a bancassurance agreement. It would be prudent for the parties to provide for specific indemnities and damages in case of breach by one party in its obligations to the other or in case of any claim by a third party due to the fault/breach of one party. Absent such agreement, Philippine civil laws shall apply as far as practicable. Bancassurance rules recognize that the insurer may solely or jointly be liable with the bank in case of claims and complaints from customers. SINGAPORE Yes, although this is a matter of negotiation between the parties and will depend on the parties’ negotiation powers. In any event, bancassurance agreements typically provide for specific undertakings from each party to comply with any regulatory requirements and applicable laws, including any anti-bribery, money laundering and corruption laws. TAIWAN Yes. Under the Template Agreement, the bank shall be jointly liable and indemnify the insurer for any breach by the bank staff or any claim or allegation by a third party with respect such breach. THAILAND In addition to the indemnification for breach of the covenants under the agreement, the insurer may be asked to indemnify the bank for losses incurred as a result of the bank acting in its capacity as broker of the insurer, provided that such losses are not caused by failure of the bank to perform its obligations under the agreement. VIETNAM As the bank is only an agent of the insurer, it is the insurer that will be liable toward the customers. However, the insurer can seek compensation from the bank for any breach by the bank staff of regulatory requirements or fraud or any activity infringing the laws directly or indirectly related to the sale of the bancassurance products. The bank may also seek damages for breach of the bancassurance contract by the insurer. 9 Can a party ask for an indemnity for any losses, expenses and damages suffered as a result of an act by a bank staff and conversely can a bank to ask for an indemnity or any losses, expenses and damages suffered which is attributed to the other party? The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 18 What are the issues to consider when forming a bancassurance steering committee? CHINA The issues include: representation from each party, quorum and frequency of meetings, the matters should be discussed in the steering committee meetings (which should be management matters such as business plan, sales targets, new products, etc.). A mechanism has to be in place for resolution of deadlock situations. Usually, the matters will be escalated to the CEOs, failing which, to arbitration. In addition, a working committee may also be established to deal with the more daily routine matters. HONG KONG The issues include: representation from each party, quorum and frequency of meetings, the matters that should be discussed in the steering committee meetings (which should be management matters such as business plan, sales targets, new products, etc.). A mechanism has to be in place for resolution of deadlock situations. Usually, the matters will be escalated to the CEOs, failing which, to arbitration. In addition, a working committee may also be established to deal with the more daily routine matters. INDONESIA The issues that the parties may need to consider, include: 1. composition of BSC, meeting frequency, meeting quorum, voting processes, etc.; and 2. matters to be agreed by BSC (e.g., approving the annual business plan, determining the bank’s marketing channels that are suitable and relevant to the insurer’s products, deciding strategic issues in respect of product development, approving a marketing plan, approving personnel incentives, acting as a mediation forum, approving formation of any working group, standard operating protocols, etc.). JAPAN Composition of bancassurance steering committee (BSC); frequency of BSC meetings; quorum for BSC meetings; matters falling within the scope of the BSC; decision-making process and proposed resolutions if there is a deadlock in the BSC are typical issues to consider when forming a BSC. MALAYSIA A bancassurance steering committee (BSC) is jointly formed by the insurer and the bank to facilitate collaboration and ensure the effective implementation of the bancassurance business and the annual business plan. The issues that the parties may wish to consider may include composition of the BSC; frequency of BSC meetings; quorum for BSC meetings; matters falling within the scope of the BSC (e.g., drawing up the annual business plans, implementation of business plans, monitoring performance of targets and business plans, determining standard operating protocols, facilitating and resolving issues); decision-making process (e.g., whether it should be by majority or unanimous vote) and proposed resolutions if there is a deadlock in the BSC (e.g., escalation to senior management). PHILIPPINES There is no requirement under Philippine banking and insurance laws regarding the formation of a bancassurance steering committee. If parties agree to the creation of a steering committee, its mandate may be to ensure the effective implementation of the bancassurance agreement. It would generally be the insurer’s obligation to manage insurance products, insurance business plans, commission schemes and other relevant issues pertaining to insurance products and services. Bancassurance arrangements are currently limited to the grant of limited rights to an insurer to share a part of the bank’s premises/physical office space. Amidst space-sharing, a bank and an insurer shall, at all times, separately maintain and operate banking and insurance businesses, respectively. 10 The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 19 SINGAPORE A bancassurance steering committee is jointly formed by the insurer and the bank to facilitate collaboration and to ensure the effective implementation of the bancassurance business and the annual business plan. The issues that the parties may wish to address include the purpose of the steering committee and the authority that the steering committee has in relation to specific matters (such as approval of business plans, monitoring of compliance with service level agreements, resolution of disputes, allocation of resources, approval of new products or amendments to existing products and identification of business development opportunities). The parties should also consider the composition of the steering committee and identity of the chairman, voting (including deadlock resolution mechanisms) and frequency of the steering committee’s meetings. TAIWAN There is no requirement under Taiwan laws or the Template Agreement requesting that an insurer and a bank shall form a bancassurance steering committee. Generally, the parties may discuss insurance products, sales plan, commission scheme and relevant issues through individual meetings, which may not be in a form of committee. THAILAND Typically, two committees will be formed: one being responsible for the day-to-day operations (working committee), and the other being responsible for determining the objectives and strategies of the bancassurance business (steering committee). VIETNAM A bancassurance steering committee is not required under Vietnamese law and there is no specific rule on it. It is, therefore, optional. However, this model is commonly seen in practice as the bancassurance steering committee (BSC) can facilitate collaboration and ensure the effective implementation of the bancassurance business and the annual business plan. The issues that the parties may wish to consider may include composition of the BSC; frequency of BSC meetings; quorum for BSC meetings; matters falling within the scope of the BSC (e.g., drawing up the annual business plans, implementation of business plans, monitoring performance of targets and business plans, determining standard operating protocols, facilitating and resolving issues); decision-making process (e.g., whether it should be by majority or unanimous vote) and proposed resolutions if there is a deadlock in the BSC (e.g., escalation to senior management). 10 What are the issues to consider when forming a bancassurance steering committee? (cont’d) The publication reflects the position as of 31 March 2016. Specific advice should be obtained in this evolving and complex area. 20 China/Hong Kong Martin Tam Partner Tel: +852 2846 1629 martin.tam @bakermckenzie.com Indonesia Mark Innis Foreign Legal Consultant Tel: +62 21 2960 8618 mark.innis @bakernet.com Japan Jiro Toyokawa Partner Tel: +81 3 6271 9457 jiro.toyokawa @bakermckenzie.com Malaysia Brian Chia Partner Tel: +60 3 2298 7999 brian.chia @wongpartners.com Philippines Felix Sy Partner Tel: +63 2 819 4963 felix.sy @quisumbingtorres.com Singapore Stephanie Magnus Partner Tel: +65 6434 2672 stephanie.magnus @bakermckenzie.com Thailand Sorachon Boonsong Partner Tel: +66 2636 2000 p 4038 sorachon.boonsong @bakermckenzie.com Taiwan Hao-Ray Hu Partner Tel: +886 2 2715 7281 hao-ray.hu @bakermckenzie.com Vietnam Chi Lieu Dang Partner Tel: +84 4 3936 9341 chilieu.dang @bakermckenzie.com Asia Pacific Contributors © 2016 Baker & McKenzie. All rights reserved. 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