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Banks have certain activities related to insurance, such as
referrals, premium financing and trust arrangements. Under the new
Section 64G of the Insurance Ordinance Cap. 41
("Ordinance"), a person cannot carry on regulated
activities without an insurance intermediary licence.
Regulated activities include negotiating or arranging a contract
of insurance, inviting or inducing a person to enter into, or make
a material decision on, a contract of insurance, and giving
regulated advice. Material decision and regulated advice refer to
activities such as making an insurance application, renewing,
canceling or assigning an insurance policy. Given the broad
definition of regulated activities, certain insurance-related
activities of the bank may be regarded as regulated activities. A
copy of the Explanatory Note can be access here.
The Insurance Authority has provided some guidance under the
Explanatory Note in relation to the licensing requirements for
banks under the new regime. However, whether an activity amounts to
a regulated activity will depend on full factual context and this
will need to be considered objectively.
The Explanatory Note clarifies that "inviting or
inducing" requires an element of encouraging, convincing or
persuading a person, and is more than just mere provision of
information. A summary of the FAQs in the Explanatory Note is set
out below.
Activity
Notlikely a regulated
activity if a bank staff ....
Likely a regulated activity if a bank staff ....
Referral
Discusses general concepts of
insurance as part of financial planning (e.g., discuss concept of
annuity) and refers clients to a licensed insurance intermediary if
clients have expressed interest
Informs clients the conditions of
lending (e.g., fire insurance is a requirement for mortgage
application) and refers clients to a licensed insurance
intermediary
Actively approaches clients to
discuss specific insurance products
Encourages clients to purchase
particular insurance products from a licensed insurance
intermediary (e.g., offers preferential premium financing rates for
specific insurance products)
Obtains a direct remuneration for
successful referrals
Premium financing
Provides clients with the terms of a
loan and the credit underwriting criteria
Encourages clients to apply for
premium financing and to assign the policy to the bank
Takes the initiative to introduce
premium financing to clients (this is regarded as encouraging or
persuading clients to apply for insurance)
Policy assignment
Informs clients that policy
assignment is a condition of lending
Goes beyond merely providing the
terms of a loan and recommends particular insurance products
Exercising rights under insurance policy
Exercises rights under the loan
(e.g., exercising rights as an assignee of an insurance
policy)
Trust arrangement
Provides information about possible
holding structure options, including trusts. Bank staff should make
it clear that they are not providing any recommendation or opinion
about using trust structure, and should recommend clients to
discuss this with a licensed insurance intermediary.
Reminds clients to check the terms of
their insurance contract and whether there are any restrictions
against trust structures
Provides recommendation to hold
insurance policy on trust
Having known about the restrictions
in the insurance contract against trust structures, encourages or
persuades clients to purchase another insurance policy with no such
restriction
Comment
The Explanatory Note provides useful guidance to the banking
sector in carrying out various insurance-related activities,
including whether such activities may constitute regulated
activities and therefore require an insurance intermediary licence.
The entire factual context will need to be considered and it should
be viewed objectively (from the client's perspective) as to
whether the activities may be seen as encouraging or persuading the
client to apply for, or make a material decision on, insurance, or
advising about insurance matters. In particular, when providing
premium financing terms or other lending terms, bank staff need to
be careful to only inform clients of the terms and conditions of
lending and not to encourage or persuade clients to apply for
certain insurance products, or to give opinions about the
suitability of particular insurance products.
Banks should also review the remuneration structure of staff who
are involved in referral activities to ensure there is no direct
incentive for any non-licensed person to carry out regulated
activities. Banks should also ensure there is proper monitoring and
supervision of staff, as well as dedicated policies and procedures,
in respect of insurance-related activities.
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This article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein. Please also read the JSM legal publications
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