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 | Not likely a regulated activity if a bank staff …. | Likely a regulated activity if a bank staff …. |
| Referral |
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| Premium financing |
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| Policy assignment |
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| Exercising rights under insurance policy |
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| Trust arrangement |
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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.