New compliance rules issued for brokers targeting Mainland China visitors
New compliance rules issued for brokers targeting Mainland China visitors | Insurance Business Asia
Insurance News
New compliance rules issued for brokers targeting Mainland China visitors
Three principles outlined for referral models
Insurance News
By
Roxanne Libatique
The Insurance Authority of Hong Kong (IA) has issued a circular detailing compliance requirements for licensed insurance broker companies using referral business models focused on Mainland China visitors (MCVs).
The circular stressed the importance of adhering to regulations and preventing unlicensed referrers from performing regulated activities.
Key principles for referral models
Principle 1: Unlicensed referrers and regulated activities
The IA said broker companies that use unlicensed referrers must ensure these referrers do not provide regulated advice or engage in any sales activities. Referrers are only to introduce clients to the broker company without advising on specific insurance products.
Violations could lead to criminal charges under the Insurance Ordinance (IO) for both the referrer and the broker company.
Principle 2: Broker companies must handle all regulated activities
For any MCV clients referred, broker companies must directly provide all regulated advice and perform the necessary activities to arrange insurance policies. Reliance on referrers for these tasks is non-compliant and could result in enforcement actions, including license suspension or revocation.
Principle 3: Appropriate referral payments
Payments to referrers must be structured to ensure they do not perform regulated activities.
Broker companies must ensure they have sufficient resources to provide proper advice and services to clients, in line with the insurance regulatory framework.
Hong Kong insurance brokers must perform due diligence on referrers
The IA said that broker companies are required to perform thorough due diligence on referrers and implement effective controls to ensure compliance. This involves keeping detailed records, conducting regular assessments, and making sure referrers understand their limitations.
Companies should avoid arrangements that might lead referrers to engage in unlicensed selling as a primary activity.
Insurers’ role in ensuring broker compliance
Insurers must verify that broker companies comply with regulatory standards. This includes conducting due diligence, creating clear agreements, offering training, and performing periodic assessments.
Insurers should monitor for any signs of non-compliance and document their findings to demonstrate compliance during regulatory inspections.
Enhanced guidelines for MCV client referrals
Specific guidelines are provided for broker companies that source MCV clients through unlicensed referrers. These include verifying the referrer’s business model, establishing clear referral agreements, and maintaining adequate resources to manage the introduced clients properly.
Monitoring and reporting requirements for insurance brokers in Hong Kong
Broker companies must continuously monitor the activities of referrers and report any non-compliance to the IA. This includes conducting spot checks, client surveys, and providing periodic reminders to referrers about regulatory limitations.
The IA advises broker companies and insurers to adhere to these principles to avoid regulatory breaches and maintain the integrity of the insurance market.
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