ComplianceOne Insurance Newsletter - Jul 2024
The topics discussed in this monthly newsletter are as follows:
I. IA Regulatory Updates
(1) Individual licensees are reminded to submit their CPD Declaration directly to the IA via the Insurance Intermediaries Connect (“IIC”) by 30th September 2024 (7 June 2024)
(2) Responsible Officers of Licensed Broker Companies are required to attend two RO specific CPD (“RO-CPD”) hours in the coming CPD Assessment Period (28 June 2024)
(3) The IA put Key Person in Control Function (“KPIC”) of Authorized Insurers – related topics into a pilot scheme for CPD training (28 June 2024)
(5) The IA issued a Practice Note to provide guidance in respect of the investment choices and premium allocations under Investment-Linked Assurance Scheme Policies (“ILAS Policies”) (5 July 2024)
(6) The IA and the HKMA carried out join inspection exercise on Premium Financing (“PF”) and provided certain findings (27 June 2024)
II. Enforcement News
I. IA Regulatory Updates
(1) Individual licensees are reminded to submit their CPD Declaration directly to the IA via the Insurance Intermediaries Connect (“IIC”) by 30th September 2024 (7 June 2024)
The IA issued a circular on 7 June 2024 that sets out the procedures for reporting CPD attainment for the Assessment Period 2023/2024 (1 August 2023 to 31 July 2024). Key deadlines are:
31 July 2024: Complete CPD hours.
30 September 2024: Submit CPD Declarations.
31 October 2024: Appointing principals report CPD compliance to the IA.
Licensees and principals can manage CPD requirements via the Insurance Intermediaries Connect (“IIC”) platform, with daily updates and final lists available on 1 August 2024.
I. CPD Declarations by Individual Licensees:
Direct Submission to IA via IIC:
Before 31 July 2024: Only if CPD hours are completed.
1 August to 30 September 2024: All licensees can submit, even if incomplete.
1 October to 15 November 2024: Update status if CPD hours were incomplete.
Notification to Appointing Principals: Licensees must inform principals of their submission.
Licensees without Appointing Principals: Report directly to the IA via IIC or email.
II. CPD Declarations to Appointing Principals:
Before 31 July 2024: Principals report compliance for licensees who fulfilled CPD requirements.
1 August to 31 October 2024: Principals report compliance for all licensees, including new ones.
CPD Penalty Framework:
Minimum 15 CPD hours, including 3 hours on “Ethics or Regulations” (3 total for restricted scope travel insurance).
SIGNIFICANCE:
According to the CPD Non-Compliance League Table (see above), CPD compliance increased from 90% to 96.1%, but the incentive target is 100%. The IA will continue to publish CPD non-compliance rankings.
(2) Responsible Officers of Licensed Broker Companies are required to attend two RO specific CPD (“RO-CPD”) hours in the coming CPD Assessment Period (28 June 2024)
The Continuing Professional Development (“CPD”) requirements set out in the Guideline on Continuing Professional Development for Licensed Insurance Intermediaries (“GL24”). The Guideline mentions ROs must complete 15 CPD hours annually, including 3 hours in “Ethics or Regulations.” This requires completion, during each annual CPD Assessment Period (which runs from 1 August to 31 July).
The pilot scheme for the 2024-2025 CPD period requires ROs to complete a 2-hour RO-specific CPD course, which counts towards the 15-hour requirement and 2 of the 3 compulsory “Ethics or Regulations” hours. This course will be delivered through Professional Insurance Brokers Association (“PIBA”) and Confederation of Insurance Brokers (“CIB”).
The IA encourages every ROs of a brokerage firm to attend an RO-CPD course offered by PIBA or CIB during the 2024/2025 CPD Assessment Period (i.e. 1 August 2024 to 31 July 2025). While attendance is not mandatory, records will be kept and absence may impact the IA’s assessment of the broker company’s conduct risk profile.
SIGNIFICANCE:
The IA emphasizes the importance of representative institutions adhering to the principle of "treating customers fairly". If the pilot project is successful, the continuing professional development requirements for representative institutions may be formally implemented in the future.
(3) The IA put Key Person in Control Function (“KPIC”) of Authorized Insurers – related topics into a pilot scheme for CPD training (28 June 2024)
While most control functions of Key Person in Control Function (“KPIC”) already existed, the Intermediary Management Control Function was newly introduced on 23 September 2019 which stated out the function of KPIC for Intermediary Management (“KPIM”).
To assist KPIMs understand their roles, the IA has issued circulars and conducted training through the Hong Kong Federation of Insurers (“HKFI”). Moreover, the IA is launching a pilot Continuing Professional Development (“CPD”) training for KPIMs during the 2024/2025 CPD Assessment Period (i.e. 1 August 2024 to 31 July 2025). This two-hour course can be attended in person or via recorded sessions.
SIGNIFICANCE:
The IA mentioned the Polit Scheme attendance is encouraged but not mandatory. However, non-attendance may affect the IA’s assessment of an insurer’s conduct risk profile.
The IA emphasizes the importance of KPIMs in upholding the “treating customers fairly” principle and maintaining confidence in the insurance market.
(4) The IA will start charging fees for processing insurance intermediary license applications and related notifications starting 23 September 2024 (31 July 2024)
The IA issued a circular announcing changes to the fees for applications and notifications, effective from 23 September 2024.
Applicants (i.e. individual licensees, insurance agencies, and broker companies) must pay relevant fees specified in Annex 1 to the IA when:
applying for a new or renewal license,
adding a line of business,
seeking approval for a responsible officer,
or for appointment and exemption applications.
Insurance Intermediaries Connect (“IIC”) gateway update:
The gateway without fees for the IA’s e-portal (i.e. Insurance Intermediaries Connect (“IIC”)) will close at 12:00 noon on Friday, 20 September 2024.
Starting from 23 September 2024, fees for applications and notifications submitted through IIC, must be paid at the time of submission.
Access to IIC will be unavailable in between dates mentioned above.
SIGNIFICANCE:
Applicants should begin preparing their first batch submissions. The updated User Guide for IIC with detailed payment instructions will soon be available on the IA’s website.
Additionally, applicants can refer to Annex 2 Q&A section for further understanding.
(5) The IA issued a Practice Note to provide guidance in respect of the investment choices and premium allocations under Investment-Linked Assurance Scheme Policies (“ILAS Policies”) (5 July 2024)
On 5 July 2024, the Insurance Authority (“IA”) issued a circular and Practice Note outlining regulations for licensed insurance brokers offering services related to investment choices and premium allocations under Investment-Linked Assurance Scheme Policies (“ILAS Policies”). Effective on 1 October 2024.
The Practice Note applies to Broker Companies, Technical Representatives (“Broker”), and Responsible Officers (“RO”), addressing execution-only services, advisory investment services, and discretionary investment management services. Annex A pertains to individuals, while Annex B covers the IA’s expectation of Broker Companies’ internal controls and procedures.
Annex A - outlines the competency requirements for personnel (i.e. Brokers and ROs) who offer advisory investment services and discretionary investment management services which apply to all ILAS Polices issued on or after 1 October 2024.
Under the grandfathered investment-linked life insurance policy, those who fail to meet the new competency requirements and wish to continue providing relevant services before 31 July 2027 is required to complete an additional 2 hours of mandatory Continuing Professional Development (“CPD”).
Annex B - outlines the IA’s expectations for corporate governance, controls, and procedures related to ILAS Policies, applicable from 1 October 2024. Broker Companies must ensure that policyholders receive and understand transparent information about terms, remuneration and service charges that are independent of the investment life policy feature.
SIGNIFICANCE:
Broker companies and ROs may consider the grandfathered arrangements as the temporary alternative solution if issues arise during the license (i.e. Type 4 and Type 9) application before 1 October 2024.
(6) The IA and the HKMA carried out join inspection exercise on Premium Financing (“PF”) and provided certain findings (27 June 2024)
The Insurance Authority (“IA”) and the Hong Kong Monetary Authority (“HKMA”) jointly completed an inspection on premium financing (“PF”) activities in late 2023 to assess compliance with the New Supervisory Standards (the “Standards”) introduced on 1 January 2023.
The inspection found that most authorized insurers and licensed intermediaries complied with the standards, often adopting stricter thresholds to prevent over-leveraging. The “Important Facts Statement – Premium Financing” (IFSPF) disclosure requirement was widely implemented.
Good Practices and Findings
The inspection revealed several good practices among insurers and intermediaries, such as:
Conservative affordability analysis,
Displaying leverage ratios in financial needs analysis (FNA) forms, and
Conducting post-sale calls due to different circumstances instead of just to vulnerable customers.
However, issues were also noted, including unawareness of PF standards,
Questionable financial reconfirmations,
Incorrect bank reference letters,
Incomplete IFS-PF forms, premature product recommendations, and
Inadequate credit assessments by banks.
SIGNIFICANCE:
Insurers and intermediaries are reminded to adhere to the Standards, especially in the current high-interest environment. Details of the observations of two regulators can be found in the Annex for further understanding.
(7) The Hong Kong Federation of Insurers launched a Reference Checking Scheme to standardize the reference check process (5 July 2024)
On 5 July 2024, the Hong Kong Federation of Insurers (“HKFI”) introduced the Reference Checking Scheme for Insurance Intermediaries with long-term businesses. The Insurance Authority (“IA”) endorsed and supported this Scheme through a Circular issued on the same date. The Scheme will come into effect on 1 September 2024 under the IA regulate requirement.
Key Aspects of the Scheme
In accordance with the Scheme’s requirement, when Long Term Insurers (the “Recruiting Insurer”) consider appointing a candidate who has previously worked for other Long Term Insurers (the “Responding Insurers”) within the past 7 years, the Recruiting Insurer must conduct reference checks with the Responding Insurers. The assessment should be reviewed by the Key Person in Control Function for Intermediary Management (“KPIM”) .
The IA expects Long Term Insurers and their KPIMs to implement the Scheme with internal controls (i.e. due diligence, vetting procedures etc.) as part of their regular onboarding procedures.
The IA’s Supervisory Approach
Any Long Term Insurer does not participate in the Scheme or fails to meet its obligations, the IA views this as a sign of internal control weaknesses.
As such, the insurance company may expect the enhance supervisory on the adequacy of recruitment and onboarding controls by the IA. This may result in the insurance company's application for any insurance license (i.e. new license and renewal) being scrutinized more closely and taking a relatively longer time.
SIGNIFICANCE:
As the circular mentions that the IA is currently evaluating the possibility of expanding the scheme to cover all types of insurance institutions, it is expected that the scheme will soon be applicable to all insurance intermediaries.
Insurance intermediaries currently exempt from participating in the Scheme should consider the Scheme as the “best practice” and implement it gradually.
II. Enforcement News
(8) Tahoe Life became the first insurer to be taken over by the regulators in Hong Kong to protect policy holders’ interests (27 July 2024)
On 26 July 2024, the Insurance Authority (“IA”) appointed to take full control of Tahoe Life Insurance Company Limited ("Tahoe Life”)’s affairs and property in Hong Kong.
By order of the Supreme Court of Bermuda dated 26 July 2024, Mr Marcin Czarnocki of Deloitte Financial Advisory Ltd., Mr Derek Lai and Mr Forrest Kam of Deloitte Touche Tohmatsu, and Mr Oliver Cheng of Deloitte Advisory (Hong Kong) Limited as the Joint Provisional Liquidators (the “JPLs”) of Tahoe Life as a coordinated regulatory action with the IA to protect policy holders’ interests.
This coordinated action aims to protect policyholders’ interests by ring-fencing Tahoe Life’s assets rather than winding up the company. Both the IA and Bermuda Monetary Authority (“BMA”) are cooperated under the International Association of Insurance Supervisors Multilateral Memorandum of Understanding (“MMoU”) to ensure effective regulatory oversight and recovery solutions for Tahoe Life.
SIGNIFICANCE:
Back in 2020, Tahoe Group experienced its first debt default. On 28 July 2023, the Shenzhen Stock Exchange terminated its listing qualifications.
Just two weeks after Tahoe Group was delisted, the IA appointed a special advisory team from PricewaterhouseCoopers (“PWC”) to provide professional advice on investment strategy and dividend policy for Tahoe Life. This move aimed to ensure the protection of policyholders’ interests.
As Tahoe Group’s issues worsened, the IA finally took action. Within a year, Tahoe Life was taken over, marking the first instance of a life insurance company being taken over in Hong Kong’s history.
(9) China Taiping’s former employees were charged by ICAC for dummy agent scam and money laundering activities (17 July 2024)
The Independent Commission Against Corruption (“ICAC”) charged five former employees of China Taiping Life Insurance (Hong Kong) Company Limited (“China Taiping”) for their involvement in a dummy agent scam and providing false information in insurance policy applications, defrauding the company of $4.25 million in commissions and other payments. Three of the dummy agents were also charged with handling over $2.3 million in crime proceeds. Court proceedings are still ongoing.
In accordance, charges of this case contain the following:
Fraud (Section 16A(1) of the Theft Ordinance) - could face imprisonment up to 14 years.
Dealing with proceeds of an indictable offence (Section 25(1) of the Organised and Serious Crimes Ordinance) - could face imprisonment up to 14 years and fine up to HKD 5 million.
Forgery (Section 71 of the Crimes Ordinance) - could face imprisonment up to 14 years.
Penalties vary based on the offence’s severity and the court’s discretion, considering prior records and other factors.
SIGNIFICANCE:
Despite China Taiping has not received any penalties and fully cooperated with the investigation, as a regulated insurance company, it is responsible to ensure the fit and proper of its appointed agents and brokers, as well as supervising and preventing such incidents.
Insurance companies should learn from this incident by conducting their own or third-party compliance reviews, strengthening internal controls, enhancing monitoring processes, and preventing similar incidents in the future.
(10) The IA bans Chan Hung Fei from the industry within 34 months due to misappropriation of premium payments (12 July 2024)
The IA has banned Chan Hung Fei (“Mr Chan”) from applying for a licence for 34 months due to misappropriating premiums from two policyholders.
Between 2019 and 2021, Mr. Chan directed HK$36,093 in premiums to his personal bank account instead of passing them to AXA, causing the policies to lapse. He also failed to inform the policyholders about the status of their policies and upcoming payments.
After complaints were filed, Mr. Chan returned the premiums, reinstated the policies, and reimbursed medical expenses for one policyholder. The IA emphasized the importance of intermediaries adhering to professional and ethical standards, regardless of personal relationships with clients. Policyholders are reminded to make premium payments through official insurer channels.
SIGNIFICANCE:
As concluded by the IA, considered Mr. Chan’s return of premiums, admission of misconduct, and cooperation in deciding the disciplinary action, aiming to achieve a strong deterrent effect.
(11) The IA imposes a pecuniary fine against a broker company and a technical representative for mishandling of insurance policy (24 June 2024)
The Insurance Authority (IA) fined a licensed insurance broker company HK$37,270 and a licensed technical representative HK$7,000 for mishandling a client’s insurance policy.
The broker company admitted its wrongdoing and compensated the client HK$62,730 for property damages. Consequently, the IA imposed a fine of HK$37,270 on the broker company and HK$7,000 on the technical representative due to the seriousness of the wrongdoing.
SIGNIFICANCE:
The IA remains vigilant and will take disciplinary actions against those who fail to properly discharge their duties. Further details can be found in the “Enforcement News” section on the IA’s website.
[End of ComplianceOne Insurance Newsletter – July 2024]
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