Insurance & Reinsurance
The Hong Kong Insurance Authority has published the new Code of Conduct for Licensed Insurance Agents (Agents' Code) and Code of Conduct for Licensed Insurance Brokers (Brokers' Code) (collectively, the Codes). A two-month public consultation on the Codes was conducted in early 2019 and the Insurance Authority has issued the Codes together with the consultation conclusions.
The Codes will take effect immediately upon commencement of the new statutory regulatory regime for insurance intermediaries on 23 September 2019. To allow sufficient time for transition, the Insurance Authority has said in the consultation conclusions that it will adopt a flexible approach in considering insurance intermediaries’ compliance with the Codes in the initial few months but expects licensees to be fully compliant with the Codes from 1 January 2020.
While the Codes will not have the force of law, they set out guidance on the practices and standards which licensed insurance agents and brokers will be expected to adopt in carrying on regulated activities under the new regime.
Key Features of the Codes
The Codes each contain eight general principles that are of universal application and broadly reflect the new statutory conduct requirements for intermediaries codified in section 90 of the Insurance Ordinance:
The non-exhaustive standards and practices in the Codes provide further guidance on the application of the general principles. For example:
Respondents to the public consultations generally supported the principles-based approach of the Codes, which gives insurance intermediaries the flexibility to formulate procedures suitable to their needs, and supported codifying the objective of treating clients fairly as fundamental to the regulated activities of licensed insurance intermediaries. Treating clients fairly is already a key principle which insurers are required to follow under the Guideline on the Corporate Governance of Authorized Insurers (GL10).
Some respondents suggested that the Codes should contain all requirements licensed insurance intermediaries have to satisfy. The Insurance Authority has taken on board these comments and the final-form Codes are now more specific about matters on which they are non-exhaustive: the general principles are of universal application and exhaustive but the standards and practices remain situation-specific and not exhaustive. The Insurance Authority noted in the consultation conclusions that the Codes cannot be exhaustive as insurance intermediaries also need to abide by relevant laws and guidelines with specific requirements for particular classes of business or insurance products.
Corporate governance and controls and procedures
Respondents generally agreed that the Codes should set out requirements for the governance, controls and procedures that a licensed insurance intermediary should adopt. Suggestions were made that requirements for licensed insurance agencies / broker companies should vary according to their size and / or scope of work. The Insurance Authority emphasised in the consultation conclusions that section IX in the final-form Codes sets the baseline standards and practices for corporate governance which all licensed insurance intermediaries should meet, irrespective of the regulated activities carried on. The Brokers' Code contains an additional requirement on controls and procedures relating to due diligence on insurance products and, as applicable, insurers, where the broker intends to provide advice on these. The Insurance Authority noted that such difference between the Codes does not mean "lower" standards but merely reflects the different roles which licensed insurance agencies and broker companies perform.
As the commencement of the new regulatory regime fast approaches, insurance intermediaries and insurers should be mindful of the requirements in the Codes and ensure they have proper controls and procedures in place as soon as possible to ensure compliance by 1 January 2020 at the latest.