On 28 September 2020, the Insurance Authority (IA) and the Securities and Futures Commission (SFC) in Hong Kong entered into a Memorandum of Understanding (MoU) with the aim to strengthen mutual assistance and exchange of information between the two statutory bodies, especially in regulating insurance-related investment products (i.e., insurance contracts which are also financial products) or circumstances which involve both authorised insurers/licensed insurance intermediaries and finance-related groups.
The IA is responsible for supervising authorised insurers’ and licensed insurance intermediaries’ compliance with the provisions of the Insurance Ordinance (IO), and regulating the conduct of insurance intermediaries through a licensing regime. The SFC, on the other hand, is responsible for setting standards for the authorisation of collective investment schemes and publicly offered structured products, and for the licensing and supervision of persons engaged in regulated activities defined under the Securities and Futures Ordinance (SFO).
With the rise of publicly available insurance-related investment products, and recognising the different regulatory remit of each party, both parties acknowledge the importance of closer cooperation in licensing, supervision and enforcement matters of mutual concern.
The IA’s and SFC’s Responsibilities under the MoU
Under the MoU, the IA and the SFC agreed to carry out, among other things, the following collaborative responsibilities, including:
- referring cases to and handling complaints from each other in relation to insurance-related investment products that would fall in each other’s respective regulatory regime;
- providing and receiving confidential information to and from each other, particularly information on persons who are both authorised insurers/licensed insurance intermediaries and licensed by the SFC (dual licensed persons);
- informing each other of any refusal or rejection of licensing applications, disciplinary actions and material issues which may adversely impact any insurance-related investment products or dual-licensed persons; and
- providing each other with supervisory assistance in obtaining information to assess the fitness, propriety and compliance of the IO or SFO by insurance-related investment products, dual licensed persons or any persons that are of regulatory interest to the IA or SFC.
If a case falls within the functions of both parties, the IA and the SFC may also set up joint task forces to commence joint investigations and joint inspections, to ensure efficient and timely exchange of information and coordination.
The comments by the IA’s Chief Executive, Mr. Clement Cheung, that the MoU will deepen mutual cooperation and coordination, optimise deployment of limited resources and reduce the compliance burden are particularly pertinent.
Although the MoU is not legally binding it will still serve as an important step in solidifying the parties’ aims in facilitating a cooperative working relationship between them. We anticipate the MoU will enhance the IA and the SFC’s regulatory functions, by allowing the IA to take advantage of the investigative resources (and experience) of the SFC, and the SFC to heighten scrutiny and intervention in regulating insurance-related investment products. The MoU is also relevant to the regulation of insurance linked securities (ILS) as the IA prepares to launch an ILS regime in Hong Kong soon.