ComplianceOne Insurance Newsletter – July 2025
The topics discussed in this monthly newsletter are as follows:
1. Practice Note: Commission Up to 70% in the first year, with the remainder paid over 5 years
2. Compulsory RO-CPD Requirement for Responsible Officers
3. Anti-Scam Consumer Protection Charter 3.0
Regulatory News
1. Practice Note: Commission Up to 70% in the first year, with the remainder paid over 5 years
On 30 July 2025, the IA released a Practice Note. It builds on Guideline GL16, which covers long-term insurance business (excluding investment-linked policies). The goal is simple: ensure insurance companies pay commissions to agents and brokers in a way that encourages fair treatment of customers.
This practice guideline shall come into effect on 1 January 2026.
Who Does This Apply To?
Insurers: All authorized insurance companies in Hong Kong that issue participating policies with regular premiums.
Intermediaries: Licensed individual agents, agencies, and broker companies who sell and service these policies.
Key Rule: How Commissions Must Be Paid
To avoid "front-loading" (paying too much too soon, which might lead to pushy sales and poor after-sales service), commissions must be spread out:
Up to 70% can be paid in the first policy year (from the start date to 12 months later).
The remaining at least 30% must be paid evenly over the next minimum 5 years (policy years 2 to 6) – or over the full premium payment term if it's shorter than 5 years.
Example - a policy where the total commission is $100 (based on premiums paid):
Policy Year | Before 1 January 2026 | After 1 January 2026 | ||
Commission paid | % of total commission | Commission paid | % of total commission | |
Year 1 | $100 | 100% | $70 | 70% |
Year 2 | $0 | Nill | $6 | 6% |
Year 3 | $0 | Nill | $6 | 6% |
Year 4 | $0 | Nill | $6 | 6% |
Year 5 | $0 | Nill | $6 | 6% |
Year 6 | $0 | Nill | $6 | 6% |
Year 7 | $0 | Nill | $0 | Nill |
Under the existing practice (“Before 1 January 2026”), with all commissions paid in the first year, intermediaries may have reduced incentive to provide ongoing service from year 2 onward, potentially leading to policies receiving less attention or being neglected.
For the new practice (“After 1 January 2026”), the spreading of commissions ensures that intermediaries remain motivated to carefully handle and service policies over subsequent years to secure the remaining payments, promoting better long-term customer care.
The new practice applies to the total commission per policy, including basic pay, overrides (to managers), and bonuses tied to sales volume (unless exempted – see below).
Exceptions (When Spreading Isn't Required)
You can skip the 70/30 split if the below scenarios apply, but still required to follow GL16's fair treatment rules:
Scenario | Remarks |
Overriding commission (Agents only) | Applies to: Commissions for producing agents (who introduce, arrange, and serve policies) and overriding commissions for agent managers (who oversee producing agents). Exception: Overriding commissions are exempt if calculated using objective non-financial performance metrics, such as policy persistency rates, product variety in portfolios, customer feedback, and agent retention rates, to ensure adherence to "treating customers fairly." |
Volume-Based bonus commission (Agents only) | Applies to: Bonuses for licensed insurance agents contingent on meeting sales volume targets (e.g., minimum premium volume), where eligibility and amount are uncertain until targets are met. Exception: Exempt if the bonus incorporates objective non-financial metrics (e.g., persistency rates, product diversity, customer feedback, agent retention) alongside volume. Note for Brokers: Volume-based commissions are outright prohibited for licensed insurance brokers per a 2006 circular from the Office of the Commissioner of Insurance. |
Fixed salaries | Exception: Fully exempt for fixed remuneration packages, which are contractually guaranteed regardless of policy arrangements, servicing, or premium volumes. |
Bank channels (bancassurance) | Exception: Allowed departure for commissions in the bancassurance channel (e.g., banks as insurance agencies under the Banking Ordinance), provided they adhere to overriding principles in GL16. The IA and Hong Kong Monetary Authority (“HKMA”) will monitor and act if needed. |
Policy Holders Who Are Professional Investors | Exception: Departure permitted for commissions on policies with policyholders qualifying as Professional Investors (per Securities and Futures Ordinance and Rules), subject to:
|
SIGNIFICANCE:
This Practice Note strengthens regulatory oversight of long-term insurance conduct, promoting sustainable practices that prioritize policyholder protection over short-term sales. By mandating commission spreading, it reduces risks of misconduct, enhances industry integrity, and supports fair treatment amid fluctuating policy benefits. Insurers are encouraged to consult the full document and FAQs for guidance; the IA may update it based on market developments. For inquiries, contact the IA at relevant channels.
2. Compulsory RO-CPD Requirement for Responsible Officers
The IA has officially rolled out the compulsory Continuing Professional Development (“CPD”) requirement for Responsible Officers (“ROs”) (here refer as “RO-CPD”) of all licensed insurance broker companies. Effective from 1 August 2025.
Key Details of the Requirement
RO must complete at least 2 RO-CPD hours focused specifically on management and control functions during each assessment period.
The RO-CPD hours fall under the "Ethics or Regulations" category and count toward the existing 15-hour annual CPD requirement for ROs.
RO-CPD Course Details, and how to attend
The IA will organize the courses, delivered through the two key broker industry bodies:
Professional Insurance Brokers Association (“PIBA”)
The Hong Kong Confederation of Insurance Brokers (“CIB”)
Further details on training sessions for the 2025/26 assessment period will be announced soon. ROs must attend at least one session per period through either body.
Consequence of Non-Compliance
Non-compliance should not be taken lightly. Failure to meet the RO-CPD without reasonable excuse may result in:
Disciplinary Action: As detailed in the IA's "Penalty Framework for Non-compliance with CPD" (from the circular dated 23 July 2021).
Impact on Fit and Proper: May question the individual's ongoing suitability to serve as an RO.
Increased Scrutiny: IA could apply heightened regulatory oversight to the associated broker company.
SIGNIFICANCE:
Given the growing complexity of these duties, the IA believes it's essential for ROs to dedicate time to enhancing their skills in management and control functions. This builds on positive feedback from a pilot scheme launched in the 2024/25 assessment period, which was well-received by the industry and successfully raised awareness about RO responsibilities.
3. Anti-Scam Consumer Protection Charter 3.0
In a united stand against rising financial frauds and scams, the Hong Kong Monetary Authority (“HKMA”), Securities and Futures Commission (“SFC”), the IA, and Mandatory Provident Fund Schemes Authority (“MPFA”) have unveiled the Anti-Scam Consumer Protection Charter 3.0. Effective from 9 July 2025.
Building upon the foundations laid by Charters 1.0 (2023) and Charter 2.0 (2024), Charter 3.0 expands the fight against scams by forging partnerships with technology and telecommunications firms. This collaborative framework aims to disrupt fraud at its core through six key principles outlined in the annex. These focus areas include:
Charter 3.0 Principles include:
1. Reporting Functions for Users | Participating Institutions will allow users to file reports related to suspected financial frauds and scams, and will endeavor to address them in a reasonable manner, once found to be in violation of the Participating Institutions’ policies. |
2. Reporting Channels for Financial Regulators | Participating Institutions will provide a direct and efficient process for the Financial Regulators to report suspected financial frauds and scams, and to follow up on such reports. |
3. Checking of Advertisers | Participating Institutions will adopt a risk-based approach to facilitate verification, applying measures that are necessary and proportionate. |
4. Internal Monitoring Processes | Participating Institutions will put in place and update from time to time internal rules, policies, processes, and tools to monitor advertisements and content that promote financial products or services on their platforms, with a view to creating a safe online environment for users. |
5. Enforcement of Terms of Service | Participating Institutions will enforce their own terms of service by detecting and removing financial scam advertisement or content that violate their platform policies. |
6. Collaboration on Public Awareness | Participating Institutions will work together with the Financial Regulators and the financial industry on raising public awareness about frauds and scams and promoting cybersecurity. This will include Participating Institutions’ collaboration with the Financial Regulators, financial institutions, or other agencies where appropriate, to launch anti-deception promotional campaigns to educate the Hong Kong public. |
The launch event featured engaging discussions among executives from regulators, tech giants, and telecom providers on emerging scam trends and joint strategies to protect the public.
SIGNIFICANCE:
Julia Leung, Chief Executive Officer, SFC: "Charter 3.0 is a meaningful step forward, bringing in major technology and telecommunications companies to join the fight against online scams. It positions Hong Kong as a leader in safeguarding the financial world’s digital future, building a safer, more responsible online landscape."
Clement Cheung, Chief Executive Officer, IA: "The Charter 3.0 represents collaborative efforts to forge a robust alliance against financial frauds. The IA will leverage this platform to strengthen public education and empower policyholders against sophisticated swindlers."
With scams evolving rapidly in the digital age, Charter 3.0 emphasizes cross-sector collaboration to preempt threats. It aligns with global calls for action and reinforces Hong Kong's role as a secure financial hub.
[End of ComplianceOne Insurance Newsletter – July 2025]
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