26 augusti 2020 Clara Hackney Financial Regulation

Hong Kong: Insurance update on new licences application procedure and insurance group-wide supervision

New Licences

The Insurance Authority (IA) has recently published several circulars which provide information on the timing and steps for insurance agencies, agents and brokers to apply for their licences under the new IA supervisory regime. Given the large number of entities which will need to apply, the applications need to be staggered throughout the new regime’s transitional period which runs until 22 September 2022, to enable all applications to be processed by that date.

As a reminder, the new regime began when the IA took over the direct supervision and regulation of insurance intermediaries on 23 September 2019. Under the new regime, all insurance agents, agencies, and brokers (along with their responsible officers (ROs) and their technical representatives (TRs)),  who were validly registered with the Self-regulatory Organisations immediately before the 23rd September 2019 were automatically granted a licence under the new regime for 3-years until 22 September 2022. During this transitional period, every entity which was automatically granted a licence will need to apply for a new licence from the IA if they wish to continue to be a licensed insurance intermediary.

Process

The application process will be carried out using both paper forms and e-portals.

Insurance agencies and brokers will receive letters with full instructions from the IA inviting them to start the application process by filling out paper forms which they will receive by mail. The paper forms will cover the licence application for insurance agencies and brokers and their ROs. For TR applications, these will need to be submitted through Insurance Intermediaries Connect, the IA’s e-portal. The IA will guide agencies and brokers in how to open a supervisor account in the e-portal for this purpose.

For insurance agents, the IA will  request the main appointing insurer to begin the application process for its appointed individual insurance agents through the e-portal. Once the insurers have confirmed the agents’ details, the agents will receive emails from the IA inviting them to activate their individual accounts in the e-portal in order to submit their licence applications.

Timing

Currently the IA is gathering feedback on the applications process and is aiming to begin with selected pilot schemes in the 3rd and 4th quarter of 2020. Following further feedback on the 2020 pilots and possible refinements to the process, the industry should be prepared for a wider roll out in 2021. 

Changes to the Insurance Supervisory Regime - Group Wide Supervision

There are also changes on the horizon as to how the IA will regulate insurance groups. As many insurance groups have subsidiaries located in different jurisdictions, the group holding companies are often responsible for major functions such as policy and risk management and have a significant governance and management body. Many jurisdictions give regulators the powers to supervise these holding companies and to co-operate with insurance regulators in other jurisdictions to agree on one of the regulators as responsible for the group-wide supervision. Currently, the IA does not have direct regulatory powers over the holding companies of the authorised insurers it regulates, therefore a new group-wide supervision regime is being proposed to bring Hong Kong into line with international standards.

The Group-Wide Supervision Framework which the IA has put forward will be based on three pillars:

  • Pillar One: capital requirements which an insurance group holding company would be expected to ensure its insurance group meets;
  • Pillar Two: risk management and governance requirements that the holding company is expected to apply across the group; and
  • Pillar Three: disclosure requirements for the holding company that cover risk and governance disclosures in relation to its insurance group, as well as some private reporting to the IA

Details of the capital requirements have been made available in draft form through he IA’s recent consultation paper on the new Insurance (Group Capital) Rules. The paper gives respondents until 30 September 2020 to comment on five questions which consider definitions and scope within the Rules, including whether the definition of “regulated entity” is sufficiently broad to cover all types of regulated entities in an insurance group.

Timing

In July 2020 some amendments were made to the Insurance Ordinance (Cap. 41) through the Insurance (Amendment) (No. 2) Ordinance 2020 (Amendment Ordinance). In addition to this, the IA has also published a consultation paper on the. Further changes to subsidiary legislation will be needed before the new group-wide supervision approach can take effect. The timing for the new group wise supervision regime has not yet been confirmed, but the IA has said that the further proposed pieces of subsidiary legislation which are required will be laid before Legislative Council in the 2020-21 session.