Insurance Authority s consultation on proposed guidelines for licensed insurance intermediaries The Insurance Authority ( IA ) is in the process of taking over the regulation of insurance intermediaries from the three self-regulatory organisations ( SROs ). As part of this process, it is currently formulating a new statutory regulatory and licensing regime for regulating insurance intermediaries. On 28 th September 2018, the IA released a consultation paper on two draft guidelines regarding (i) Fit and Proper Criteria for Licensed Insurance Intermediaries, and (ii) Continuing Professional Development for Licensed Insurance Intermediaries. These represent the first batch of consultation on proposed guidelines for licensed insurance intermediaries by the IA. Who s affected? Based on the draft guidelines, any person carrying on regulated activities as defined in the Insurance Companies (Amendment) Ordinance 2015, will be required to obtain a licence from the IA. There are five categories of licensees: (1) individual insurance agent, (2) insurance agency firm, (3) technical representative (agent), (4) insurance broker company and (5) technical representative (broker) (collectively refer to as ). Insurance Intermediaries Individual (1) Individual Insurance Agents Insurance Agents (2) Insurance Agency firm ( Agencies ) (3) Technical Representatives & Responsible Officers Insurance Brokers (4) Insurance Broker Companies ( Brokers ) (3) Technical Representatives & Responsible Officers The will need to satisfy the IA that they are fit and proper upon submission of licence applications and on an on-going basis. These guidelines will apply to new licensed insurance intermediaries and also existing insurance intermediaries upon their renewal applications to the IA. The valid period for the licences will be 3 years, whereas under the current regulations, Brokers are required to renewal their membership on an annual basis. In addition, Agencies and Brokers must appoint at least one responsible officer, who must also be a licensed technical representative. These responsible officers, along with controller(s), partner(s) and director(s) of those firms will also need to be assessed whether they are fit and proper. The IA will normally not allow a person to be appointed as a responsible officer of more than one Broker unless the Brokers belong to the same group of companies or have common shareholder(s). The IA will assess each application on a case by case basis. The definition of what constitutes regulated activities as defined in the Insurance Companies (Amendment) Ordinance 2015, is different from that in the existing regime. Therefore, it is important for market practitioners to re-assess whether they will be required to be a Licensee under the proposed guidelines. 1
What s new? The proposed guideline lists out the various factors which the IA will consider when determining whether or not the are fit and proper, including (i) professional competence; (ii) reputation, character, reliability and integrity; and (iii) financial status or solvency. The IA will also consider whether any disciplinary action has been taken against the and the state of affairs of any other business which the licensees carries on. Professional Competence Individual The proposed guideline have specific on education, professional qualifications and/or experience for individual licensees and responsible officers. The IA would also assess the person s ability to carry on regulated activity competently, honestly and fairly; they would consider any potential conflict of interest, mental incapability, evidence of incompetent/negligence or mismanagement and the person s compliance with the continuing professional development. Agencies and Brokers There are specific for Agencies and Brokers. When determining a firm s ability to carry on regulated activity competently, honestly and fairly, the IA will consider the following: Qualifications and experiences of the responsible officers and whether the responsible officers have sufficient authority and resources to discharge his/her responsibilities; Sufficiency in the number of responsible officer(s) and technical representatives and the line of business which they are eligible to carry on regulated activities; Properness of controls and procedures in place, including strategies for mitigating key risks identified, controls to ensure customers are treated fairly, adequacy of recruitment/ training/ supervision of staff; Information relating to other companies within the same group of companies, including their controllers and directors; and Corporate governance matters including structure, individuals and business strategy. Reputation, Character, Reliability and Integrity Regarding the assessment for individual licensees, the guideline list out 11 key factors which the IA will considered, including criminal records, disqualification as director, restriction from trading, demission from employment, investigation by other regulators, compulsory wound up or ceased of trading of the companies they were involved, etc. Similar considerations will also be applicable to Agencies and Brokers. Financial Status or Solvency The IA will consider whether the person or firm has entered into any voluntary arrangement with creditors, adjudicated bankruptcy by a court or failure to satisfy any judgement debt under an order of a court. For Agencies and Brokers, the IA will also consider whether the firm has sufficient resources at all times for compliance with the financial (e.g. capital, assets or liquidity ). Please refer to the Appendix for a more detailed comparison of the under the proposed guideline and the current regime. 2
2. Continuing Professional Development ( CPD ) for Licensed Insurance Intermediaries The proposed guideline will be applicable to as well as authorized insurers with appointed individual insurance agents. Agencies, Brokers and authorized insurers need to ensure adequate controls and procedures to monitor compliance of its appointed individuals. They should request, check and verify the documentary evidence of those individuals. The key changes under the new regime mainly relate to the uplift of CPD for certain individual licensees from 10 to 15 CPD hours and the modernization of the existing. Other changes include: Requirement on minimum CPD hours on Ethics or Regulations related activities; Broadening of the list of activities that can be qualified; and Alignment of assessment periods and reporting methods of the existing SROs. For details of the key changes regarding the CPD between the current regime and the proposed guideline, please refer to the Appendix. What are the transitional arrangements? Based on the proposed guideline, all pre-existing will be deemed as licensees for a transitional period of three years. During the transitional period, if any Agencies or Brokers submit an application for a Licence, the applicant will only need to provide basic business, financial and management information to the IA. Also, certain persons will be exempted from the proposed minimum education and they are: Licensee type Individual Responsible Officers Who Individual licensees registered with SROs during the two-year period before the commencement of the new regime Responsible officer registered with SROs before the commencement of the new regime Technical representative or individual agent registered with SROs before the commencement of the new regime Pre-conditions Not ceased to be engaged in insurancerelated work in the Hong Kong insurance industry for two consecutive years or more Submit an licence application to the IA within the transitional period Possessed a minimum of 15 years experience in insurance-related work in the Hong Kong insurance industry 2. Continuing Professional Development ( CPD ) for Licensed Insurance Intermediaries For individual licensees registered with SROs before the commencement date, their CPD hours will be calculated on a monthly pro-rata basis from the SROs last CPD cut off date to the end of the first assessment period under the new regime (i.e. July 2020) and round down. For example, the required CPD hours for The Hong Kong Confederation of Insurance Brokers registrants will be 15 hours and 10 hours for Professional Insurance Brokers Association registrants. Also these individual licensees will not be required to attend CPD activities relating to Ethics and Regulations in the first assessment period. 3
Others Professional Competence Appendix: Comparison of key between the current regime and the proposed guidelines The table below summaries the comparison of key changes between the current regime and the proposed guideline. Factors Current regime Proposed guideline Education and professional qualifications for all individual licensees Education and professional qualifications for responsible officers Experience for responsible officers Form 5 level or equivalent and pass the relevant papers of the Insurance Intermediaries Qualifying Examination unless being exempted Level 2 or above in 5 subjects in the Hong Kong Diploma of Secondary Education Examination ( HKDSE ); and of these subjects, must include one language (either Chinese or English) and Mathematics. If the person completed his/her secondary school education before the HKDSE was introduced, equivalent results will also be accepted; Other diplomas as listed in the guideline; or Insurance qualifications awarded by the professional bodies; and Pass the relevant papers of the Insurance Intermediaries Qualifying Examination unless being exempted Same as above. A bachelor or higher degree from a recognized university or tertiary education institution; A holder of insurance qualification such as Associate or Fellow of the Chartered Insurance Institute; or Other equivalent qualifications. Chief executive of Brokers: A minimum of 5 years of industry experience including 2 years of management experience OR 2 years of industry and management experience if the person holds an acceptance insurance qualification. Responsible officer of Agencies: Not requirement specified. Responsible officer of Brokers: Same as current regime Responsible officer of Agencies: Apply the same as responsible officer of Brokers Professional competence for Agencies and Brokers Application should include organisational structure and business plan. Minimum age Minimum age for IARB registrant is 18 years Minimum age for chief executive of Brokers is 21 years Additional information which the IA will consider: Person carrying on regulated activities for the firm Person acting for or on behalf of the firm Whether the firm has established effective internal control procedures and risk management systems to ensure its compliance Information about the other companies in the group and their controllers or directors No minimum age specified 4
Appendix: Comparison of key between the current regime and the proposed guidelines (continued) 2. Continuing Professional Development ( CPD ) for Licensed Insurance Intermediaries The table below outline the key changes between the current regime and the proposed guideline. Key changes CPD for Individual licensees Qualified activities Assessment period Reporting method Current regime 10 hours of qualified CPD activities per assessment period; OR 3 hours of qualified CPD activities for responsible officer and technical representatives only engaged in restricted scope travel business Only recognize structure activities e.g. activities which require face to face interactions Online/ e-learning courses are not currently recognized Different assessment periods for all SROs IARB requires Agencies to maintain declarations CIB/PIBA require registrants to submit declarations as part of the annual renewal process Proposed guideline Increase the required hours of qualified CPD activities from 10 to 15 hours Compulsory CPD activities of at least 3 hours of training relating to Ethics or Regulations Requirements remain unchanged for responsible officer and technical representatives only engaged in restricted scope travel business Can recognize up to 5 hours of online/elearning courses qualified CPD activities if there is robust controls to detect and avoid fraudulent logins or attendances Broaden CPD accredited activities Proposed assessment period is 1 August to 31 July. Submit an electronic CPD Declaration Form to the IA no later than 2 months after the end of the relevant assessment period (i.e. 30 September) Contacts Lars Nielsen PwC HK Insurance Leader T: +852 2289 2722 E: lars.c.nielsen@hk.pwc.com Peter Whalley PwC HK Insurance Partner T: +852 2289 1192 E: peter.whalley@hk.pwc.com Billy Wong PwC HK Insurance Risk and Regulatory Partner T: +852 2289 1259 E: billy.kl.wong@hk.pwc.com Joyce Tam PwC HK Insurance Risk and Regulatory Senior Manager T: +852 2289 5440 E: joyce.c.tam@hk.pwc.com This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. 2018 PricewaterhouseCoopers Limited. All rights reserved. PwC refers to the Hong Kong member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. HK-20171017-3-C1 5