Hong Kong Insurance Authority issues two new Guidelines for Licensed Insurance Intermediaries
Legal Development12 September 201912 September 2019
Insurance & Reinsurance
The Insurance Authority has issued two new guidelines for licensed insurance intermediaries (the Guidelines):
the Guideline on “Fit and Proper” Criteria for Licensed Insurance Intermediaries under the Insurance Ordinance (Cap. 41) (GL23) (F&P Guideline)
the Guideline on Continuing Professional Development for Licensed Insurance Intermediaries (GL24) (CPD Guideline).
The Guidelines will come into operation on 23 September 2019, when the new statutory regulatory regime for insurance intermediaries comes into effect – other than the revised minimum continuing professional development (CPD) hours requirement in the CPD Guideline, which will come into operation on 1 August 2021. A two-month public consultation on drafts of the Guidelines was conducted in autumn 2018 and the consultation conclusions were published at the end of July 2019.
As noted in our previous updates in this series, the Insurance Authority will take over the direct regulation of insurance intermediaries from the Insurance Agents Registration Board, Professional Insurance Brokers Association and the Hong Kong Confederation of Insurance Brokers (the self-regulatory organisations (SROs)) on 23 September 2019. Intermediaries will be subject to statutory licensing and conduct requirements, supplemented by rules, codes, guidelines and circulars issued by the Insurance Authority.
Key Features of the Guidelines
The F&P Guideline is largely modelled on the existing Guideline on "Fit and Proper" Criteria under the Insurance Ordinance (Cap. 41) (GL4) which applies in respect of authorised insurers and related persons.
The F&P Guideline sets out the criteria and factors the Insurance Authority will consider in determining the fitness and probity of licensed insurance intermediaries (and for agencies and brokers, their responsible officers (ROs), controllers, directors and partners) including, broadly:
education, other qualifications or experience
ability to carry on a regulated activity competently, honestly and fairly
reputation, character, reliability and integrity
financial status or solvency
other factors, such as whether any disciplinary action has been taken against the person or the state of affairs of any other business which the person carries on or proposes to carry on.
These broad factors are rooted in section 64ZZA of the Insurance Ordinance. To provide further guidance, the F&P Guideline sets out constituent elements of each of the above factors. Compliance with statutory conduct requirements, codes of conduct and the CPD Guideline will also be considered.
Relevant persons need to satisfy the Insurance Authority that they are fit and proper to obtain a licence, to renew a licence and also on an ongoing basis for so long as they remain licensed or hold their position in relation to a licensed intermediary.
Some notable changes under the new regime include:
Criteria for individuals
The minimum education standard for individual licensees (licensed individual insurance agents and licensed technical representatives (broker and agent) is increased from completion of Form 5 to achievement of at least level 2 in five subjects (including maths and either Chinese or English) in the Hong Kong Diploma of Secondary Education Examination or equivalent, including certain Hong Kong and international insurance qualifications which will be updated from time to time. Certain former intermediaries and deemed licensees (persons registered with an SRO immediately before 23 September 2019 and regarded as having been granted an insurance intermediary licence by the Insurance Authority as of that date) are exempt from the new minimum standard.
The new minimum education standard for ROs is increased under the new regime, from completion of Form 5 to attainment of a bachelor's degree or other equivalent qualifications (a list of acceptable insurance qualifications will be updated from time to time, and other qualifications that applicant ROs have will be considered on a case-by-case basis). Under the current regime there is no additional education standard for ROs beyond the generally applicable level for insurance intermediaries. Existing and former ROs and existing and former individual insurance intermediaries with 15 years' industry experience are exempt from the new minimum education requirements for ROs.
Experience: ROs will be required to have experience commensurate with the business' nature and scale, as well as the level of his/her responsibilities to be carried out. The general expectation will be a minimum of five years' industry experience including two years' management experience. Currently only chief executives of brokers who do not have acceptable insurance qualifications are required to have this minimum level of industry and management experience. A further consideration is whether the individual will have sufficient time to dedicate to his/her duties as RO and to manage potential conflicts of interests arising from any other business interests, roles and responsibilities.
Individual licensees must be a Hong Kong permanent resident or hold an appropriate immigration visa or permit that does not restrict them from carrying on regulated activities in Hong Kong.
Criteria for business entities
Competence: Agencies and broker companies are expected to have a sufficient number of ROs – so may be expected to appoint more than one RO depending on the nature of the insurance services and products, scale of the business and number of technical representatives. Other factors the Insurance Authority will consider in assessing competence include: corporate governance, internal controls and risk management, information relating to any other business the entity carries on and information on its group companies and their directors and controllers.
Broker companies need to satisfy the Insurance Authority that they can comply with the requirements in the Insurance Ordinance and Insurance (Financial and Other Requirements for Licensed Insurance Broker Companies) Rules.
The CPD Guideline applies to individual licensees and their principals (insurance agencies, broker companies and also insurers that appoint individual insurance agents). It sets out the new CPD requirements under the new regime. To ensure continued professional competence in carrying out their regulated activities, individual licensees need to stay up-to-date on technical and regulatory knowledge and ethical standards. Failure to comply with the CPD Guideline may have an impact on fitness and probity and potentially lead to disciplinary action by the Insurance Authority.
There is no carry-over of extra CPD hours completed during an assessment period to the next.
Some of the key changes under the new regime include:
the minimum number of CPD hours per year increased from 10 to 15 including at least three CPD hours on "Ethics or Regulations" topics
e-learning / online courses meeting CPD Guideline specifications will be accepted as qualified CPD activities up to a maximum of 5 hours per year
introduction of a uniform CPD assessment period from 1 August to 31 July
individual licensees required to submit a CPD declaration form to the Insurance Authority within two months after the end of each assessment period and also to report their completed CPD to their principal by that deadline, and retain sufficient documentary evidence for at least three years after the relevant assessment period
CPD requirements are to be complied with for so long as an individual is licensed, unless the Insurance Authority exercises its discretion to waive this in special circumstances, e.g. prolonged illness. This is the case even if his/her licence is suspended (e.g. an agent is not appointed to any principal for the period permitted)
There are carve-outs for individual licencees licensed only to carry out regulated activities in restricted scope travel business. They will only be required to obtain at least three CPD hours in each assessment period and are not required to obtain three CPD hours on "Ethics or Regulations" topics.
Principals must ensure individual licensees comply with applicable CPD requirements and have adequate controls and procedures in place to monitor and ensure this compliance, for example, by verifying documentary evidence of the CPD completed by each licensee as reported in the CPD declaration form by the intermediary to the Insurance Authority.
Transitional arrangements for implementation of the CPD Guideline requirements include:
the increase in the minimum number of annual CPD hours and requirement to complete three compulsory CPD hours on “Ethics or Regulations” topics will take effect from 1 August 2021
different minimum CPD hours for individual licencees registered with an SRO immediately before 23 September 2019 depending on which SRO and when the person was registered
the new increased CPD hour requirements for individual licensees who are newly licensed within an assessment period set out in Annex 2 of the CPD Guideline will take effect from 1 August 2021.
For advice on any compliance-related issues (including fitness and probity) ahead of the new insurance intermediaries regime, please contact Joyce Chan, Gill Morrissey or your usual Clyde & Co contact.