Hong Kong: Hong Kong Tightens Controls Over Sales Of ILAS Products

Last Updated: 26 July 2013
Article by Tow Lu Lim and Jenny Yu
Most Read Contributor in Hong Kong, November 2017

Keywords: Hong Kong, ILAS, commission disclosure

Hong Kong regulators have tightened regulatory controls over the sale of Investment-Linked Assurance Schemes (ILAS) by imposing further requirements including commission disclosure, Key Facts Statement and customer's declaration, as well as post-sale controls. These new requirements are aimed at enhancing customers' understanding of the risks and features of ILAS in an attempt to better protect customers.

ILAS – the Good and the Bad

ILAS products are life insurance policies with an investment component. As the policyholder, the premiums paid are used by the insurer to invest in a number of different funds. The value of the insurance policy (including Death Benefit) is linked to the performance of the underlying funds and may fluctuate depending on market conditions. The attraction of such products is that they give customers access to a wide range of funds, as well as the flexibility of switching funds without incurring charges of the fund houses. However, the policyholder has no rights or ownership over the underlying funds and his only recourse is against the insurer.

ILAS are long-term products with a long lock-in period. Charges and fees apply in the event of early termination or encashment, and such charges can be quite substantial. ILAS have been popular in Hong Kong for many years, but complaints about the product and the discrepancies in the sales process discovered by the Office of the Commissioner of Insurance's mystery shopping exercise in 2012 have caused concerns. Given the trend towards enhancing financial product regulation both in Hong Kong and globally, Hong Kong regulators have now turned their focus on ILAS.

The Regulators

Currently, there are a number of government and self-regulatory bodies which regulate ILAS. Insurers are regulated by the Insurance Authority (IA) and the Hong Kong Federation of Insurers (HKFI), a self-regulatory body. Brokers are regulated by two self-regulatory bodies, the Professional Insurance Brokers Association (PIBA) and the Hong Kong Confederation of Insurance Brokers (CIB). The new prudential insurance regulator, the Independent Insurance Authority, is expected to be established in 2015.

Banks may act as an insurance intermediary or have an insurance arm which provides ILAS. Banks are regulated by the Hong Kong Monetary Authority (HKMA). Given ILAS is an insurance product, it is not regulated by the Securities & Futures Commission (SFC) but its marketing material must be approved by SFC before it can be offered to the public.

The Sales Process

An ILAS sales process – before imposition of the new requirements – involves the following stages:

i. The customer is required to complete a Financial Needs Analysis (FNA) and a Risk Profile Questionnaire (RPQ) to assess suitability for ILAS.

ii. The customer must be provided with various marketing literature including the Key Facts Statement (KFS). The customer must also sign a declaration confirming they understand the features of the ILAS and that they agree it is suitable for their needs (Declaration).

iii. When ILAS is sold through banks, the sales process must be recorded. iv. While ILAS sold through other means do not need to be recorded, insurers must conduct

'check up' calls after sales to vulnerable customers (such as elderly customers) and risk-mismatch customers (for instance, a customer who wants to purchase ILAS even though it is not suitable for his or her financial needs). Any calls must be made within the cooling-off period, which lasts for 21 days after the policy is issued.

So What's New?

Under the new requirements, there are more controls at every stage of the sales process.


The KFS is marketing literature that customers must be provided with. The KFS must be approved by the SFC, and must now include the following new information:

  • A statement of purpose of investing in the ILAS.
  • A total fees and charges disclosure setting out, amongst other things, the total fees and charges as a percentage of the total premium(s).
  • More disclosures about long-term features such as upfront-charges, early surrender or withdrawal charges and loyalty bonuses.
  • A statement that the intermediary will be receiving remuneration out of the charges the customer pays. The customer can ask the intermediary about the extent of its remuneration.

All existing applications with SFC must comply with the new requirements. All ILAS currently approved by the SFC have until 30 September 2013 to comply with new requirements.


The Declaration to be signed by the customer must now include an Important Facts Statement (IFS). The IFS is to include a statement of purpose plus advice for the customer on the following:

  • Cooling-off period.
  • No ownership of assets and no guarantee of investment returns.
  • Long-term features and fees and charges.
  • Risk associated with early termination.
  • Statement about intermediaries' remuneration.


It is now a requirement for all insurers to conduct check-up calls to all customers. All calls must be audio-recorded. The purpose of the calls is to ensure that insurance intermediaries have explained the features of the product and that the customer understands the risks of ILAS. The check-up can be conducted at the insurer's office at the point-of-sale or by way of a call within five days after the policy is issued. The insurer must ask the following questions during the check up:

  • Did the insurance intermediary perform an FNA and RPQ?
  • Did the customer receive and understand the marketing literature explaining the key features of the ILAS and the level of charge and fees?
  • Is the customer aware that investment returns are not guaranteed and the value of investments may go down as well as up?
  • Is the customer aware that the intermediary will receive remuneration? The customer can ask the intermediary about the remuneration.
  • Is the customer's Declaration consistent with his/her understanding?
  • Is the customer aware of his/her cooling-off right?

If the customer provides negative or uncertain answers, the insurer must then undertake further investigations including following up with the relevant insurance intermediary. If necessary, the insurer should take appropriate action, such as cancelling the sale.

For ILAS sold through banks, there is no need for the insurer to conduct a check-up call because the banks are required to audio-record salient aspects of the sales process.


The KFS and IFS (included in the customer's Declaration) includes disclosure about the intermediaries' remuneration. The requirements vary slightly depending on the type of intermediary:

  • Brokers must disclose that they will be receiving remuneration but do not need to disclose the amount unless the customer asks.
  • Banks must disclose monetary and non-monetary benefits.
  • Insurance agents (other than banks) must disclose at least the basic commission rate(s) (e.g., the maximum or a range). HKFI and IA are currently discussing further requirements.

In addition, brokers are now required to disclose that they will receive remuneration for all insurance business, but do not need to disclose the amount unless asked by the customer.


There are now heightened requirements at all stages of the ILAS sales process, from disclosure of intermediaries' remuneration to post-sale controls. The enhanced requirements are directed towards improving customers' understanding of how ILAS works – its risks and its features – before they become "locked into" the product. It appears the changes are intended to impose a higher level of discipline – comparable to that which is more commonly seen in a banking environment – on the sales process of the insurance industry. It remains to be seen how the new requirements will impact on sales of ILAS products in Hong Kong and whether they will result in fewer complaints or claims. In the meantime though, insurers and insurance intermediaries are advised to carefully review and bring up to date their ILAS sales practices to ensure compliance.


HKFI 22 April 2013 Circular

HKMA 22 April 2013 Circular

SFC 3 May 2013 Circular

Originally published on 24 July 2013.

Visit us at www.mayerbrownjsm.com

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2013. The Mayer Brown Practices. All rights reserved.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions