Oct 2020
The IA takes a multifaceted approach to its regulation of conduct. Primarily, through issuing Codes of Conduct, Guidelines, interpretation notes, explanatory notes and circulars, we work with insurers and licensed insurance intermediaries to ensure the insurance market is founded on a culture of trust and ethical business practices. Secondly, through supervisory interaction and formal inspections we monitor and assess the business practices and culture of insurers and licensed insurance intermediaries. Thirdly, where misconduct, regulatory contraventions or offences occur, the Insurance Authority is empowered to (and will) take enforcement action.
Compliance Advice Letters and Letters of Concern
In addition to its formal enforcement powers (being the prosecution of offences in the Insurance Ordinance (Cap. 41) and taking disciplinary action in the form of private or public reprimands, pecuniary penalties or suspension or revocation of licences), the IA utilizes Compliance Advice Letters and Letters of Concern as part of its supervision and enforcement approach. These are not formal disciplinary actions, but serve to highlight areas of improvement which the recipient insurer or insurance intermediary should implement, based on matters which have come to the IA’s attention through its fact-finding on complaints, its day-to-day supervision, or its inspection or investigation work.
A Compliance Advice Letter is issued where the non-compliance is considered less serious, inadvertent and/or technical in nature, and where full and immediate remedial action has been taken with there being no consequent prejudice to policyholders. Recipients of Compliance Advice Letters are required to make improvements to their compliance controls and procedures (as highlighted in the letter) so as to avoid a repeat of the occurrence highlighted.
A Letter of Concern, although not a formal disciplinary action, is more severe than a Compliance Advice Letter and is deployed where the non-compliance (although not considered sufficiently serious for formal disciplinary action) highlights an issue of concern which it is imperative for the recipient to rectify and never repeat. A Letter of Concern cautions the recipient to cease and eliminate the undesirable activities or behavior, admonishes that any repeated non-compliance will not be tolerated by the IA, and puts the recipient on notice that the failure to heed the caution will be taken into account in determining the severity of any penalty to be imposed in the future.
Compliance Advice Letters and Letters of Concern allow for a proportionate approach to contraventions and an efficient use of the IA’s enforcement resources. As well as alerting recipients to regulatory concerns, they provide an opportunity to review and improve relevant practices, policies and procedures, and as a result enhance compliance awareness and culture.
When the IA took over the direct regulation of insurance intermediaries from the three Self-Regulatory Organizations (“SROs”) on 23 September 2019 (“Commencement Day”), 280 cases under preliminary review or investigation by the SROs were transferred to the IA. During this past year, the IA has focused on these cases and as at the end of September 2020, 194 cases have been resolved. In resolving these cases, and as part of its ongoing supervision, the IA has issued 523 Compliance Advice Letters and 18 Letters of Concern covering a multitude of different types of cases. These include (in relation to insurance intermediaries) late submission of audited financial statements, failure to maintain (albeit subsequently rectified) sufficient indemnity limit under professional indemnity insurance policies, alleged misrepresentations in the selling process, late delivery of the insurance policy to the client during the cooling off period, and alleged unresponsiveness to client’s instructions/ enquiries.
The IA’s Disciplinary Panel Pool and Expert Advisor Panel
As at the end of September 2020, the IA has initiated 37 statutory investigations. The nature of these cases include allegations of the use of forged academic certificates for registration, misrepresentations during the selling process, mishandling of clients’ premiums, contraventions of requirements imposed under the Insurance Ordinance, alleged breaches of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) and other alleged misconduct.
Decisions on disciplinary action will be taken by the IA through its Disciplinary Panels, made up of personnel selected from the IA’s newly established Disciplinary Panel Pool (“DPP”). The DPP consists of the majority of executive and non-executive directors of the IA and outside experienced professionals from the legal, financial services and other sectors appointed by the IA from this purpose.
The IA has also appointed an Expert Advisor Panel (“EP”), which consist of experts on insurance practice to assist the IA in giving technical advice during investigations, providing input on the level of sanction required to deter specific types of misconduct and serving as a valuable source of market intelligence.
As we move into the second year of the new regulatory regime for licensed insurance intermediaries, now that the architecture of the IA’s disciplinary process is in place, a gradual stepping up of formal enforcement actions can be expected, so as to reinforce policyholder protection in Hong Kong.