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Information Center > Press Releases > Insurance Authority reprimands and fines broker companies $190,000 for failure to keep separate client accounts and maintain proper books and records

Insurance Authority reprimands and fines broker companies $190,000 for failure to keep separate client accounts and maintain proper books and records

30 March 2023


The Insurance Authority (IA) has reprimanded Convoy Financial Services Limited and Convoy Financial Solutions Limited (collectively the Companies) and has ordered each pay a fine of $95,000 (total $190,000) for failing to keep separate client accounts and maintain proper books and records.

The disciplinary actions follow an investigation by the IA which discovered that during the period from January 2018 to July 2020:

  • Convoy Financial Services Limited paid $1,870,060.40 of its client monies into the client account of Convoy Financial Solutions Limited;
  • Convoy Financial Solutions Services Limited paid $100,974.76 of its client monies into the client account of Convoy Financial Services Limited; and
  • The Companies failed to keep sufficient and proper accounting and other records to reflect that their client monies had been kept in their respective client accounts in a manner that would enable an audit to be properly carried out.

These failures resulted in the Companies contravening the prevailing regulatory requirements1 in relation to the maintenance of separate client accounts and the keeping of proper books and records applicable to insurance broker companies.

The regulatory requirements in relation to client accounts and the maintenance of proper books and records are fundamental and imperative policyholder protection measures. Insurance broker companies act as the agents of, and owe fiduciary duties to the policyholders they serve. When a broker company collects and holds monies on behalf of its clients, it holds those monies on trust. The client account requirements in the insurance regulatory framework reinforce this by requiring client monies to be kept in a separate client account2 .This serves to ring-fence client monies from the broker company’s own assets and ensures that client monies can be easily identified and reserved only for clients. The record keeping requirements complement this by seeking to ensure that a broker company’s accounting records reflect that the client monies it receives are paid into its client account (and that only client monies are held in the client account). The IA adopts a zero-tolerance policy against contraventions of these requirements and will not hesitate to take proportionate action against any contravention of the said policyholder protection requirements.

The IA acknowledges the Companies’ cooperation in accepting the disciplinary actions which has resulted in prompt resolution of this matter3 and in having remediated the issues.

Statement of Disciplinary Action

Ends

Notes:

1  The Companies contravened paragraphs 3(D) and 3(E) of the Guideline on Minimum Requirements for Insurance Brokers; Rules 6(7) and 7(1) of the Insurance (Financial and Other Requirements for Licensed Insurance Broker Companies) Rules (Cap. 41L); and section 71(1) of the IO. Additionally, Convoy Financial Solutions Limited contravened paragraphs 3.7, 5.3 and 5.4 of Hong Kong Confederation of Insurance Brokers’ Membership Regulations appliable before the IA took over the regulatory functions of insurance intermediaries from the three Self-Regulatory Organizations.

2  Pursuant to section 71(1) of the IO, a licensed broker company must hold any of the client monies separate from the company’s monies and pay them, as soon as practicable after receiving the monies, into an account maintained by the company with an authorized institution for holding the specified monies. A contravention of section 71(1) of the IO amounts to an offence which is liable to a fine of $1,000,000 and imprisonment for 5 years on conviction on indictment, or a fine at level 6 (i.e. $100,000 at present) and to imprisonment for 6 months on summary conviction.

3  Pursuant to section 84(1) of the IO, at any time when the IA is contemplating exercising a power under section 81, it may, if it considers it appropriate to do so in the interests of policy holders or potential policy holders or the public interest, by agreement with the person concerned (a) exercise a power that the IA may exercise in respect of the person under section 81; and (b) take an additional action that the IA consider appropriate in the circumstances of the case.