The Insurance Authority of Hong Kong (IA) recently issued a set of Frequently Asked Questions (FAQ) in relation to enforcement. The IA also issued the Explanatory Note on Section 121 of the Insurance Ordinance (Cap. 41) – Non-disclosure requirement in relation to information obtained in the course of inspection, investigation or disciplinary action (Explanatory Note). The following is a useful summary and reference table of the FAQ and the Explanatory Note:

Disciplinary Process

Topic Summary Ref to FAQ
Commencing investigations

The IA has a wide range of investigative powers against insurers under Section 41D of the Insurance Ordinance Cap. 41 (IO) and against regulated persons (i.e., licensed insurance intermediaries) under Section 64ZZH. 

This includes situations where the IA has reasonable cause to believe that the IO has been contravened, or a person may have been involved in defalcation, fraud, misfeasance or misconduct, or a person is carrying on insurance business in a manner which is not in the interests of policy holders or the public interest. 

Further, the IA can also commence investigations of whether a person is guilty of misconduct or is not a fit and proper person for the purposes of considering disciplinary actions.

Q1 and 2             
Cases from Self-Regulatory Organizations (SROs) For cases transferred from SROs, the IA may conduct an investigation under the new law, dismiss the case, take disciplinary actions or impose disciplinary sanctions that could have been imposed by the SRO.  Q4             
Banking staff For any insurance-related business of authorised institutions, the Hong Kong Monetary Authority will investigate these cases under powers delegated by the IA pursuant to the Memorandum of Understanding signed in July 2019.  Q5 
Disciplinary actions against insurance intermediaries

If an insurance intermediary is guilty of misconduct or is not fit and proper, the IA may take disciplinary actions such as: 

  • Revoke or suspend the licence, 
  • Revoke or suspend the approval of the person who is the responsible officer; 
  • Prohibit a person from being licensed or being a responsible officer;
  • Publicly or privately reprimand the regulated person; and/or
  • Impose a pecuniary penalty not exceeding HK$10 million or three times the amount of profit gained or loss avoided, whichever is greater.
Q6 
Appeals A regulated person may appeal the IA's decision on the disciplinary action  Q8 

Secrecy Provisions:

Topic Summary Ref to FAQ and Explanatory Note 
Statutory obligation

The non-disclosure obligation is to prevent suspected wrongdoers from being tipped off about enforcement activities and also to prevent harm to the reputation of the person being investigated. 

Sections 121(2) and 121(3) of the IO prohibit disclosure of information obtained in the course of an inspection, investigation or disciplinary action unless a statutory exception applies, such as the disclosure is to seek advice from a counsel or solicitor or any other professional advisor. Other than these exceptions, a person will need the IA's consent before making disclosure. 

A person who contravenes section 121 commits an offence and is liable to a maximum fine at level 4 (currently HK$25,000).

Explanatory Note, paragraphs 2.1 to 2.5

Q9 of FAQ 

Assumed Consent

Unless the IA has specifically required a person to keep information completely secret, a person involved in the IA's inspection/investigation may assume that the IA consents to disclosure of the following information: 

  1. the fact that he/she or the company is bound by a non-disclosure obligation;
  2. the general nature of the matter without saying anything specific; 
  3. how he/she or it became bound by the non-disclosure obligation (e.g., the person received a statutory notice from the IA); and 
  4. date, time and place for attending an interview with the IA or to provide documents/information, but this is only to be disclosed to certain persons (see below).
Explanatory Note, paragraph 4.1 
Disclosure to employer/supervisor, company management and insurer

A person who has received a notice from the IA to attend and interview can inform his or her employer/supervisor about the interview as well as certain limited information (see above). 

Where an insurance company or insurance intermediary company receives a notice from the IA to provide information and documents, it may need to report to management and involve internal parties. Internal disclosure among officers and employees is not prohibited but should be exercised with caution and on a need-to-know basis. Information could be obtained from internal parties by stating the general nature of the matter without disclosing the investigation notice or any specific information relating to the investigation. 

A person being investigated may also disclose certain limited information to his or her indemnity insurer, including the time and date for attending any interview with the IA or to produce information, but disclosure can only be made to the claims handling staff of the indemnity insurer. 

FAQ, Q12 to Q14             
Obtaining consent for disclosure

An application will need to be made to the IA stating the full extent of information seeking to be disclosed, to whom it is proposed to be disclosed, the reasons for the proposed disclosure and any other useful information. 

The IA may impose conditions on consent. 

If in doubt, it is better to err on the side of caution by contacting the IA or making an application.

FAQ, Q16 and Q17            

Takeaways

The IA's powers of enforcement are fairly broad and similar to other regulators such as the SFC (please refer to our earlier article). The FAQ and Explanatory Note provide further clarification on how the IA will handle investigations, inspections and disciplinary actions, and the secrecy obligations that persons involved in investigations will need to comply with. This may be an indication of what's to come and we expect the IA will gradually be conducting more investigations and inspections. 

Originally published by Mayer Brown, July 2020

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