Hong Kong regulators have capped referral fees for insurance brokers at 50% of commissions for long-term profit-sharing life policies, as it tries to curb unlicensed selling and hidden commission rebates that have long troubled the market.

Olivia Tirona

, Hong Kong

Left to right: Richard Bates, Hong Kong managing partner astatine Kennedys Law LLP; Etelka Bogardi, a partner astatine Reed Smith LLP; Andrew Carpenter, partner astatine Reynolds Porter Chamberlain LLP.

Unlicensed third-party referrers antecedently captured up to 95% of commissions done hidden rebate structures.

Hong Kong regulators person capped referral fees for insurance brokers astatine 50% of commissions for semipermanent profit-sharing life policies, arsenic it tries to curb unlicensed trading and hidden committee rebates that person agelong troubled nan market.

The benchmark, group by nan Insurance Authority (IA), targets arrangements wherever licensed brokers salary unlicensed third-party referrers ample portions of their committee for introducing customers.

In immoderate cases, these fees person reached 90% to 95% of nan full commission, pinch portions sometimes returned to customers successful nan shape of concealed rebates, said Andrew Carpenter, partner astatine Reynolds Porter Chamberlain LLP.

“The 50% benchmark has been connected nan regulator’s radar for immoderate time,” he told Insurance Asia by telephone.

He noted that nan Insurance Authority had observed agent business models heavy reliant connected third-party referrers, raising concerns astir governance and compliance.

Under nan rules, a licensed agent should not usually salary much than half of its full committee from an authorised insurer to an unlicensed referrer for introducing a customer buying a participating, profit-sharing semipermanent policy.

Payments supra this period are not explicitly banned but will pull regulatory scrutiny and require justification.

There are 803 licensed security agent companies successful Hong Kong, IA information show, galore of which whitethorn request to set referral arrangements that utilized to let unlicensed parties to seizure nan mostly of commissions.

Analysts said nan headdress is peculiarly important for semipermanent life policies, which salary precocious commissions up beforehand connected products that past for years.

Etelka Bogardi, a partner astatine Reed Smith LLP, said that erstwhile a referrer receives astir of nan commission, it is unclear what worth they add.

“The 50% rebate appears aimed astatine preventing a agent from efficaciously outsourcing nan brokerage usability to personification who receives almost each nan financial use of nan placement without being decently supervised,” she said by telephone.

The IA is concerned that unchecked referral payments weaken governance and blur nan statement betwixt licensed and unlicensed activity.

Unlike licensed brokers, referrers are not taxable to nan aforesaid ethical aliases behaviour rules, expanding nan consequence of misconduct passim nan distribution chain.

Carpenter noted that Hong Kong’s attack is much definitive and quantitative than different markets specified arsenic nan UK, Singapore, aliases Australia, providing clarity connected which arrangements require scrutiny. 

Richard Bates, Hong Kong managing partner astatine Kennedys Law LLP, said different jurisdictions trust connected disclosure and conflict-of-interest rules aliases limits connected up-front commissions but don’t enforce a fixed percent cap.

Whilst methods differ, nan argumentation goals are similar, he said.

“[The benchmark] mostly aligns pinch world champion practices successful protecting customers and ensuring adjacent treatment, though it is much prescriptive than measures adopted successful different jurisdictions,” he said successful an emailed reply to questions.

For brokers, nan cardinal mobility is whether paying astir aliases each of a committee to a referrer is compatible pinch regulatory duties.

Bates added that utilizing referral fees to disguise forbidden kickbacks aliases unlicensed proposal is simply a criminal offence successful Hong Kong, punishable by fines aliases up to 2 years successful prison.

The IA has signalled it would show marketplace developments and mightiness see extending akin measures to different distribution channels, including bancassurance.

Carpenter said bancassurance is simply a apt campaigner for benchmarks aliases disclosure requirements, though immoderate description would request coordination pinch different regulators.

Bates noted that bank-led channels are exempted to debar overlapping supervision, but warned that tighter rules could use successful nan early to semipermanent products aliases different distribution networks.
 

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