The new Section 90 of the Insurance Ordinance Cap. 41 ("Ordinance") introduces statutory conduct requirements for licensed insurance agents and insurance brokers. The two proposed Codes of Conduct set out practices and standards ordinarily expected of licensed intermediaries. While these Codes of Conduct do not have the force of law, the IA will take them into account in considering whether the licensed intermediary is fit and proper, or has breached any statutory conduct requirements. These new statutory provisions are not yet in force but expect to commence shortly.
As to who needs to be licensed and the meaning and scope of regulated activities, please refer to our previous legal update on licensing for employees of insurance companies, which can be accessed here.
The proposed Codes of Conduct adopt a principle-based approach and focus on "treating customers fairly". There are various disclosure requirements for both insurance agents and brokers. Part C of the proposed Codes of Conduct set out what the IA considers to be the fundamental principles of conduct which licensed intermediaries should adopt when carrying on regulated activities. We set out a summary of the General Principles below.
|General Principle||Draft Code of Conduct for Licensed Insurance Agent||Draft Code of Conduct for Licensed Insurance Broker|
|1 – Honesty and integrity||
|2 – Acting fairly and in the client's best interests||
|3 – Exercising care, skill and diligence||
|4 – Competence to advise||
|5 – Disclosure of information||
|6 – Suitability||
|7 – Conflicts of interest||
|8 – Client assets||
Controls and Procedures for Licensed Insurance Agencies and Broker Companies
Part D sets out corporate governance requirements for insurance agencies and broker companies, including proper controls, procedures and supervision, handling of complaints, reporting material incidents to the IA and keeping proper records.
Further information for referral businesses
Schedule 1 to the Codes of Conduct provides where a client is referred to an insurance agent or broker, they must inform the client:
- The agent or broker will be responsible for arranging the insurance policy and for this purpose, the client should only deal with the agent or broker.
- The referrer does not represent the agent or broker and should have no involvement in the arrangement of the insurance policy.
- The agent or broker disclaims all liability for any advice in relation to the insurance policy given by the referrer.
- Where applicable, a benefit is to be given to the referrer (whether monetary or non-monetary).
- Premium for the insurance policy should be provided directly either to the broker or to the insurer concerned. In no event should the premium be provided to the referrer.
The proposed Codes of Conduct provide some more guidance on the expected standards for licensed insurance agents and brokers to comply with the conduct requirements.
Conduct requirements include acting in the best interests of the policy holder. While this is a duty owed by an insurance broker, it is not a duty of an insurance agent in common law as the insurance agent acts on behalf of the insurer and owes fiduciary duties to its principal. Under the proposed Code of Conduct, General Principle 2 – Acting Fairly and in the Client's Best Interests, the agent is to advise on the suitable products offered by its appointing principals. However, given the agent owes fiduciary duties to its appointing insurer as principal, how does the agent meet the requirements on giving fair and impartial regulated advice?
Employees of insurers undertaking regulated activities also need to be licensed. For these "employee agents", insurers need to carefully consider how the proposed Code of Conduct for Licensed Insurance Agents applies. These employees could be general hotline staff, brokerage account managers or other staff members. How do these staff meet the requirements on giving impartial advice, suitability assessment, etc? This is particularly an issue given that as employees, they owe fiduciary duties to the insurer as their employer.
Brokers should also review the proposed Code of Conduct and if any of the proposed requirements require clarification. For instance, what is considered "adequate disclosure" in relation to remuneration under General Principle 7.
Both insurance agencies and broker companies need to be mindful of the corporate governance requirements and having proper controls and procedures to ensure compliance with the Codes of Conduct.
The draft Codes of Conduct are still at the consultation stage. Insurance intermediaries and insurers need to consider how they can meet the proposed Codes of Conduct and take the opportunity to clarify anything that is needed before the consultation period ends on 28 May 2019.
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