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Clifford Chance

Clifford Chance

Regulatory Investigations and Financial Crime Insights

The Insurance Authority of Hong Kong issues guidance on enforcement and secrecy provisions

The Insurance Authority of Hong Kong (IA) has issued Frequently Asked Questions (FAQs) on enforcement and an Explanatory Note (Explanatory Note) to clarify Section 121 of the Insurance Ordinance (Cap. 41) (IO) on the secrecy provisions

Q1 - Q8 of the FAQs focus on the disciplinary process and Q9 - Q17 clarify the application of the secrecy provisions. The Explanatory Note further clarifies the non-disclosure requirement in relation to information obtained in the course of inspection, investigation or disciplinary action by the IA.

Disciplinary Process

Since 23 September 2019, the IA's regulatory powers have extended from insurers to other regulated persons i.e. licensed insurance intermediaries and certain officers (including responsible officers (RO) and persons in their management), succeeding from three self-regulatory organisations. See our briefing on the September 2019 developments.

In the FAQs, the IA reiterates the grounds on which it may commence an investigation against insurers (Section 41D of the IO) and regulated persons (Section 64ZZH of the IO), namely where the IA has reasonable cause to believe that:

  • a provision of IO may have been contravened; or
  • a person may have been involved in defalcation, fraud, misfeasance or other misconduct; or 
  • a person has carried on insurance business in a manner that is not in the interests of policy holders or the public interest.

Further, the IA may exercise its investigation powers to enquire whether a person is guilty of misconduct (as defined by sections 41P and 80 of the IO) or is not a fit and proper person (for the purposes of sections 41P(1)(c) and 81(1)(c) of the IO).

In relation to the cases transferred from the three SROs, the IA will conduct an investigation under the new law and either: dismiss the case; commence disciplinary proceedings; and/or impose disciplinary sanctions which could have been imposed by the SROs.

For insurance complaints involving bank staff, the Hong Kong Monetary Authority (HKMA) will be responsible for investigating the cases as delegated to the HKMA pursuant to a memorandum of understanding signed in July 2019.

Q6 of the FAQs sets out the disciplinary actions that the IA may take, including: revoking or suspending the license of an insurance intermediary or the approval of a person as a RO; prohibiting a person from applying for a license or from being appointed as a RO; public or private reprimand, and/or a pecuniary penalty of not exceeding the greater of HK$10 million or three times the profit gained or loss avoided. The IA's disciplinary decisions are subject to review at the Insurance Appeals Tribunal.

Secrecy Provisions

The non-disclosure obligation under sections 121(2) and 121(3) of the IO prohibits disclosure of information obtained in the course of an inspection, investigation or disciplinary action by the IA, subject to statutory exemptions. Examples of statutory exemptions include disclosure for seeking legal advice, or if the IA consents to the disclosure. The obligation under Section 121 of the IO applies equally to persons under investigation and persons assisting in the investigation.

A person who contravenes section 121 commits an offence and is liable to a maximum fine at level 4 (which is currently fixed at HK$25,000).

Unless the IA states otherwise, it may be assumed that the IA consents to the disclosure of the following information (see Part 4 of the Explanatory Note):

  • the fact that he/she/it (in the case of a corporation) is bound by a non-disclosure obligation;
  • the general nature of the matter (without revealing anything specific) giving rise to the non-disclosure obligation (e.g. the person is subject to a requirement imposed by an investigator appointed by the IA to produce information or attend an interview); 
  • the means by which he/she or it became bound by the non-disclosure obligation (e.g., the person has received a statutory notice from the IA); and 
  • date, time and place to provide information/documents to the IA or to attend an interview with the IA. This should, however, only be disclosed to limited classes of persons, including:

    • to his/her employer, spouse or partner;
    • to his/her firm’s RO, compliance officers, chief executive or key persons in control functions (for an individual who is a regulated person);
    • to a person who is in a position to direct him/her to or put him/her in contact with a counsel or solicitor to obtain legal advice or legal representation (and where the disclosure is made solely for this purpose); or
    • to an indemnity insurer providing insurance coverage to the person, in order to preserve the right to make a claim under such insurance.

The IA provides further guidance on the extent of details which may be disclosed to an employer/supervisor and indemnity insurer in the responses to Q12 and Q13 of the FAQs respectively.

Q16 and Q17 of the FAQs set out the procedures for obtaining consent from the IA.

Where the requirement under section 41D or 64ZZH is imposed on a corporation, internal disclosure amongst the officers and employees within that corporation is not prohibited by section 121. That said, the internal disclosure should still be on a need-to-know basis. On the other hand, unless the IA consents or a statutory exemption applies, the notice or information contained may not be disclosed to anyone outside the company, including the parent company.

Conclusion

Whilst the guidance from the FAQs and Explanatory Note are similar to that given by the Securities and Futures Commission in Hong Kong for investigations they conduct, the fact that the IA has issued the same shows that it is now prepared to step up their enforcement activity and conduct more investigations.