Hong Kong: The End of Self-Regulation? Proposals to Establish an Independent Insurance Authority

Last Updated: 14 July 2010
Article by Tow Lu Lim and Carrie C. Tai
Most Read Contributor in Hong Kong, October 2018

Originally published 14 July 2010

Keywords: self-regulation, independent insurance authority, Insurance Authority, IA, Office of the Commissioner of Insurance, OCI

The Financial Services and the Treasury Bureau is proposing the establishment of an independent insurance authority to strengthen regulation of the industry.

A consultation paper on the "Proposed Establishment of an Independent Insurance Authority" was released by the Government on 12 July 2010 to invite public views on a proposal to establish an Insurance Authority (IA) to oversee the entire insurance industry in replacement of the Office of the Commissioner of Insurance (OCI). The proposed IA will be responsible for regulating insurance companies as well as insurance intermediaries such as brokers and agents.

The salient points of the consultation paper are as follows:

  1. The IA shall be empowered to issue licences, conduct routine supervision and inspection, and impose disciplinary sanctions for breaches, etc with respect to insurance companies and insurance agents and brokers.
  2. In particular, the IA shall be given additional supervisory powers (not enjoyed by the OCI) modelled on the Securities and Futures Ordinance, including powers to:

    1. enter into the premises of regulated entities to conduct inspections,
    2. initiate and pursue investigations,
    3. make enquiries,
    4. gain access to records and documents,
    5. apply for court orders to compel compliance with reasonable requirements imposed by the IA during an inspection and investigation,
    6. impose sanctions such as public reprimands and fines, and
    7. prosecute offences summarily.

  3. The existing self-regulatory system for insurance intermediaries shall be replaced by the direct supervision of the IA through a licensing regime. The three self-regulatory organisations (i.e. the Insurance Agents Registration Board under the Hong Kong Federation of Insurers, the Hong Kong Confederation of Insurance Brokers and the Professional Insurance Brokers Association) shall continue to perform the functions of trade bodies such as industry promotion, providing training and setting best practices.
  4. However, the sale of insurance products by bank staff (which accounts for up to 30% of insurance products sold in Hong Kong at present) shall be regulated by the Hong Kong Monetary Authority (HKMA) based on the standards and procedures set by the IA as well as additional conduct requirements for bank employees imposed by the HKMA. Nevertheless, the relevant bank staff will be required to obtain a licence by the IA before engaging in any sales activities.
  5. The IA shall be funded by the following sources:
    1. a fixed licence fee payable by all insurers and insurance intermediaries,
    2. a variable licence fee payable by insurers based on their individual liabilities,
    3. user fees for specific services such as applications for transfer of business, change of shareholding structure or key personnel, etc., and
    4. a levy of 0.1% on premiums for all insurance policies.

To reduce the impact on the industry, there will be cost-mitigating measures adopted in the first five years of the establishment of the IA, such as waiver of licence fees for insurance intermediaries directly licensed by the IA, and a gradual increase in the levy to be imposed on premiums.

The industry and the public are invited to express their views on the proposal during the 3-month consultation period, which shall end on 11 October 2010. A bill on the establishment of the IA is planned to be introduced to the Legislative Council in 2011. It is anticipated that if the market supports the proposal, the IA may be established as early as 2012 to 2013.

Conclusion

The Government's proposal for a single watchdog for the entire industry is a major development in insurance regulation in Hong Kong. This is a welcome development as it will streamline the regulation of the insurance industry in Hong Kong and bring the regulatory regime in line with international practice for regulators to be financially and operationally independent of the Government.

At this stage, the proposal is still subject to the consultation process. We anticipate that the regulation of the sale of insurance products by bank staff will attract attention as there will effectively be a dual watchdog over bank employees.

We will be following this proposal closely so watch this space.

Learn more about our Hong Kong office, Insurance & Reinsurance and Litigation & Dispute Resolution practices.

Visit us at www.mayerbrownjsm.com

Copyright 2010. JSM, Mayer Brown International LLP and/or Mayer Brown LLP. All rights reserved. Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: JSM, a Hong Kong partnership, and its associated entities in Asia; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and Mayer Brown LLP, a limited liability partnership established in the United States. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

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