Regulatory powers of the IIA (con`t)

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Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
Establishment of
an Independent Insurance Authority
(“IIA”)
Key Legislative Proposals
1
Foreword
2010
Public consultation
2011
Published consultation conclusions and detailed
proposals – general public support for the
establishment of an IIA
2012
Public consultation on key legislative proposals
Target
2013
Introduction of an Insurance Companies
(Amendment) Bill into LegCo
2015
Establishment of IIA
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
2
Purpose

To meet international regulatory requirement
financial
regulators
should
be
financially
operationally independent of the government

To ensure that Hong Kong has a modern regulatory
infrastructure to facilitate the stable development of the
insurance industry

To establish a licensing regime for insurance
intermediaries to strengthen consumer protection
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
that
and
3
Key legislative proposals

Functions and governance structure of the IIA

Licensing regime for insurance intermediaries

Regulatory powers of the IIA

Regulatory arrangements for banks’ insurance
intermediary activities

Appellate mechanism and checks and balances

Levy and fees

Transitional arrangements for pre-existing insurance
intermediaries
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
4
Functions and governance structure of
the IIA
(1) Additional functions

To regulate the conduct of insurance intermediaries
through a licensing regime

To promote understanding of insurance products and the
insurance industry in HK

To formulate effective regulatory strategies and facilitate
sustainable market development of the industry

To conduct studies on matters affecting the industry

To assist the Financial Secretary in maintaining HK’s
financial stability
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
5
Functions and governance structure of
the IIA (con’t)
(2) Governance structure

The IIA will be established as a body corporate
comprising a chairman, a CEO and not fewer than six
directors (including one to two persons with knowledge
of the insurance industry)

The Government does not intend to appoint any
representative to the IIA Governing Board

Two Industry Advisory Committees, one on life insurance
and the other on non-life insurance, will be established to
advise and make recommendations to the IIA Governing
Board
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
6
Licensing regime for insurance
intermediaries
(1) Definition of “regulated activities”
A person who carries on or holds himself out to carry on insurance
intermediary activities in the course of the person’s business or employment
or for reward will require a licence
Insurance intermediary activities will be defined as “regulated activities”.
A person carries on a regulated activity if the person -
a) negotiates or arranges a contract of insurance;
b) invites or induces, or attempts to invite or induce, another person to
enter into a contract of insurance;
c) invites or induces, or attempts to invite or induce, another person to
make a material decision; or
d) gives regulated advice
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
7
Licensing regime for insurance
intermediaries (con’t)

A person makes a “material decision” or gives “regulated advice” if
the person makes a decision as to or gives an opinion in relation to
the following matters –
a) making of an insurance application or proposal;
b) issuance, continuance or renewal of a contract of insurance or any
supplementary contract attached thereto;
c) cancellation, termination, surrender or assignment of a contract of
insurance or any supplementary contract attached thereto;
d) exercise of a right under a contract of insurance or any
supplementary contract attached thereto;
e) changes of any terms and conditions of a contract of insurance or
any supplementary contract attached thereto; or
f) making or settlement of an insurance claim
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
8
Licensing regime for insurance
intermediaries (con’t)

Professionals, such as accountants, lawyers, and
actuaries, giving regulated advice wholly incidental to
their professional practice as well as trust companies
giving regulated advice wholly incidental to their
discharge of their duties will be exempted from the
licensing requirement

Loss adjusters/assessors, claims settling agents and
persons providing ancillary services such as back office
supporting staff of an authorized insurer or an insurance
intermediary will also be exempted
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
9
Licensing regime for insurance
intermediaries (con’t)
(2) Licensing framework


Five types of insurance intermediary licences –
Insurance agents
Insurance brokers
Individual insurance agents
Insurance agencies
Technical representatives
(TRs) (agent)
Insurance broker companies
Technical representatives
(TRs) (broker)
In formulating the eligibility criteria and procedures for
obtaining a licence from the IIA, we have drawn reference
from those of the three self-regulatory organizations (SROs)
* The three SROs are the Insurance Agents Registration Board (“IARB”) under the Hong Kong
Federation of Insurers, the Confederation of Insurance Brokers (“CIB”) and the Professional
Insurance Brokers Association (“PIBA”)
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
10
Licensing regime for insurance
intermediaries (con’t)
Eligibility criteria

Applicants for insurance intermediary licences will be required to
fulfill the following eligibility criteria –
a)
b)
c)
d)
e)
to be considered as “fit and proper” persons by the IIA;
for applicants who are individuals (viz. individual insurance agents, TRs
(agent) and TRs (broker)), they have passed the qualifying
examinations as specified by the IIA;
for applicants to be a licensed insurance agency or a licensed individual
insurance agent, they are appointed by at least one authorized insurer;
for applicants to be a licensed insurance broker company, they have
fulfilled the requirements in respect of capital and professional
indemnity insurance, etc.; and
for applicants to be a TR(agent) or TR(broker), they are engaged by a
licensed insurance agency or a licensed insurance broker company, as
the case may be
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
11
Licensing regime for insurance
intermediaries (con’t)
Fitness and propriety

a)
b)
c)
d)
e)
f)
g)
The IIA will have regard to the following when considering whether
an applicant for licence or a licensee is fit and proper –
education or other qualifications or experience;
ability to carry on a regulated activity competently, honestly and
fairly;
reputation, character, reliability and integrity;
record of offence or non-compliance with requirements under the
Insurance Companies Ordinance (ICO) or relevant regulations;
financial status or solvency;
relevant decisions made by other financial services regulators in
Hong Kong; and
record of misconduct in a profession, trade or industry
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
12
Licensing regime for insurance
intermediaries (con’t)
Responsible officer (RO)

Each and every licensed insurance agency and licensed
insurance broker company is required to appoint an RO to
ensure that internal control and procedures are in place
(3) Establishment of a register of licensed insurance
intermediaries for public inspection

Licensed insurance intermediaries and ROs are required to
provide the IIA with the necessary information and inform the
IIA of any changes of particulars for maintaining and updating
the register
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
13
Regulatory powers of the IIA (con’t)
(1) Regulatory powers on insurance intermediaries
The IIA will be vested with the following regulatory
powers -

a)
to initiate inspections / investigations;
b)
as a stopgap measure, to suspend a licensed
insurance intermediary or an RO from carrying on a
regulated activity; and
c)
to impose disciplinary sanctions
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
14
Regulatory powers of the IIA

To lay down in the legislation the broad principles of conduct requirements,
such as acting honestly, fairly and competently in the best interest of
existing or potential policyholders, and promulgate the details in subsidiary
legislation (subject to negative vetting by LegCo)
Misconduct

“Misconduct” will be broadly defined as –
a)
a contravention of any of the relevant statutory provisions in the ICO;
b)
a contravention of any of the terms and conditions of licence;
c)
a contravention of any other conditions imposed by the IIA under the ICO;
and
d)
any act or omission relating to the carrying on of any regulated activities
which in the IIA’s opinion, is or is likely to be prejudicial to the interest of
existing or potential policyholders or to the public interest.
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
15
Regulatory powers of the IIA (con’t)
Inspection / Investigation

a)
b)
c)
d)
e)
f)
We propose to confer on the IIA the following powers –
to initiate inspection/enter into premises of regulated entities to
conduct inspection;
to initiate investigations/enter into premises of regulated entities to
conduct investigations;
to make inquiries and have access to records and documents;
to make an application to the Court of First Instance for court orders
to compel compliance with requirements in relation to inspections or
investigations;
to apply to a Magistrate for a warrant to search for, seize or remove
records or documents on reasonable grounds; and
to prosecute offences summarily
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
16
Regulatory powers of the IIA (con’t)
Inspection / Investigation (con’t)

Similar to the powers of other financial market regulators

Non-compliance with IIA’s requirements related to inspection and
investigation, or knowingly or recklessly providing false or misleading
information in relation to inspection and investigation, will be an
offence

Only persons proven to have criminal intent (e.g. knowingly or
recklessly providing false or misleading information) will attract
criminal liabilities

We propose to delegate powers of inspection and investigation to
HKMA for the regulation of banks’ insurance intermediary activities
(see below)
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
17
Regulatory powers of the IIA (con’t)
Specified suspension power

As a stopgap damage control measure, we propose to empower
the IIA to, in the interest of the public or policyholders, suspend a
licensed insurance intermediary or an RO from carrying on a
regulated activity before it has made a final determination on the
disciplinary sanction in serious and complicated cases

In exercising this power, the IIA must follow due process and
procedures (e.g. according the licensee / RO concerned an
opportunity to be heard and the right of appeal to the Insurance
Appeals Tribunal, etc.)

We propose to delegate the specified suspension power to HKMA
for the regulation of banks’ insurance intermediary activities (see
below)
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
18
Regulatory powers of the IIA (con’t)
Disciplinary sanctions

a)
b)
c)
d)
e)
The IIA may impose any one or more of the following sanctions in
proven cases of misconduct or being not fit and proper –
private or public reprimand;
a fine not exceeding the amount which is the greater of
$10,000,000; or

three times the amount of the profit gained or loss avoided by
the licensee as a result of his misconduct, or of the other
conduct of the licensee which leads the IIA to form the opinion
that he is not fit or proper;
prohibition from applying for a licence for a specified period;
suspension of a licence for a specified period; and
revocation of a licence
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
19
Regulatory powers of the IIA (con’t)
Disciplinary sanctions (con’t)

The IIA will establish a Disciplinary Committee to assist it in determining
disciplinary sanctions

Do not involve criminal procedures

The IIA will make reference to the guidelines issued by other regulatory
authorities and existing SROs in determining the level of disciplinary
sanction and fine. In general, the IIA will consider-


Nature and seriousness of the conduct, whether the conduct was intentional, reckless
or negligent, the duration and frequency of the conduct

Whether losses have been caused to others or benefits have been obtained by the
insurance intermediary

Whether the IIA has issued any guideline in relation to the conduct in question

Whether the insurance intermediary have taken any remedial steps
A fine should not have the likely effect of putting the insurance intermediary
in financial difficulties
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
20
Regulatory powers of the IIA (con’t)
Disciplinary sanctions (con’t)

a)
b)
c)
d)
Statutory safeguards include –
fair hearing requirement;
the obligation of IIA to state the reasons for imposing disciplinary
sanctions;
the disclosure of the facts and rationale behind disciplinary decisions
to the public where appropriate;
right of appeal against IIA’s specified regulatory decisions to the
Insurance Appeals Tribunal
 All fines will be credited to the general revenue of the Government
instead of being IIA’s operational revenue
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
21
Regulatory powers of the IIA (con’t)
(2) Regulatory powers on insurance companies

Similar to the regulation of insurance intermediaries, the IIA
will be vested with regulatory powers including inspection,
investigation, imposing disciplinary sanctions, and prosecuting
offences summarily

The IIA may impose sanctions including reprimand, pecuniary
penalty, and suspension or revocation of authorization in
relation to any class of insurance business

Non-compliance with IIA’s requirements related to inspection
and investigation, or knowingly or recklessly providing false or
misleading information in relation to inspection and
investigation, will be an offence
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
22
Appellate mechanism and checks and
balances

The Insurance Appeals Tribunal (IAT) will be established
to review decisions (including disciplinary decisions)
made by the IIA (and HKMA)

The IAT may confirm, vary or set aside any decision, as
well as direct the relevant authority to make a decision
afresh
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
23
Appellate mechanism and checks and
balances (con’t)
Other checks and balances include –


The IIA will table its annual report before LegCo, and submit the
annual budget and corporate plan to the Financial Secretary for
approval

A Process Review Panel will be established to review the internal
process and procedures of the use of regulatory powers by the
relevant authorities

The IIA will be listed as a body bound by the Ombudsman Ordinance
and the Prevention of Bribery Ordinance

The Director of Audit may conduct value for money audit on the IIA

The IIA will need to comply with the Personal Data (Privacy)
Ordinance
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
24
Regulatory arrangements for banks’
insurance intermediary activities

For the effective regulation of banks’ insurance
intermediary activities, the IIA may delegate, subject to
approval by the Chief Executive in Council, to HKMA the
powers of inspection and investigation, as well as the
specified suspension power

Before exercising the specified suspension power, HKMA
must consult the IIA and follow the procedures (including
appellate procedures) to be prescribed in the ICO

To ensure consistency in regulation, the IIA must not
delegate to HKMA powers to license, formulate regulatory
standards or impose sanctions
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
25
Levy and fees

The IIA will collect a levy of 0.1% on insurance premiums
for all insurance policies

The IIA will review levy levels once its reserve has
reached a level equivalent to 24 months of its operating
expense, after deducting depreciation and all provisions

Levy and fee levels will be subject to approval by the
ExCo and LegCo

The Government will provide a lump sum of $500 million
to the IIA upon its inception
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
26
Transitional arrangements for
pre-existing insurance intermediaries

Pre-existing insurance intermediaries validly registered
with the SROs before IIA’s establishment will be deemed
as licensees for 3 years starting from the
commencement of the new licensing regime

Licence fee for insurance intermediaries will be waived
in the first 5 years after IIA’s establishment
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
27
Transitional arrangements for
pre-existing insurance intermediaries
Pre-IIA
complaint and
disciplinary
cases
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
Taken up
by IIA
(con’t)
New statutory
powers and
procedures
Old standards
and sanctions
adopted by SROs
Transitional arrangements for
pre-existing insurance intermediaries
(con’t)
New statutory
procedures
Pre-IIA appeal
cases
Taken up
by IAT
Old
standards
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
29
Transitional arrangements for
pre-existing insurance intermediaries
Pre-IIA sanctions
imposed by SROs
(con’t)
IIA’s inception
Sanctions imposed by SROs
continue to have effect
Effective period of sanctions imposed by SROs
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
30
Transitional arrangements for
pre-existing insurance intermediaries
(con’t)
IIA’s inception
Outstanding cases not yet
completed by the SROs before
IIA’s inception (i) changes of particulars and
appointments
(ii) application for registration
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
31
Submission of comments
 Please send your written comments on or before
26 January 2013 through any of the following
means 


Mail: Special Duties Division, Financial Services Branch
Financial Services and the Treasury Bureau
24/F, Central Government Offices
2 Tim Mei Avenue, Tamar
Fax: 2527 0292
Email: [email protected]
Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region
32
END
33
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