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Supervision > Regulation of Insurance Intermediaries > Supervisory Approach for Licensed Insurance Brokers

Supervisory Approach for Licensed Insurance Brokers

The Insurance Authority ("IA") employs various tools in conducting on-going supervision of licensed insurance brokers, broadly comprising off-site monitoring and on-site inspection.  The supervisory focus mainly cover both prudential (i.e. financial resources) and business conduct (i.e. insurance brokerage business conduct, mandatory provident fund (“MPF”) business conduct and conduct in relation to combat money laundering / terrorist financing risks) areas of the licensed insurance brokers as required under the relevant laws and regulatory requirements.

Off-site Monitoring

A major part of the off-site monitoring is to review and ascertain whether the licensed insurance broker company has satisfied at all times the financial and other requirements as specified in the Insurance (Financial and Other Requirements for Licensed Insurance Broker Companies) Rules (“Broker Rules”) made under the Insurance Ordinance (Cap.41) (“IO”).  The Broker Rules set out the requirements in relation to the following aspects:

  • Capital and net assets;
  • Professional indemnity insurance;
  • Keeping of separate client accounts; and
  • Keeping proper books and accounts.

For monitoring the continuing compliance with the financial and other requirements under the Broker Rules, licensed insurance broker companies are required to file their audited financial statements and auditor’s compliance reports to the IA annually. The IA will conduct annual reviews on the financial positions of the insurance broker companies by examining their above documents submitted to the IA.  Any issue noted or qualified opinion expressed by the auditor will be followed up and where applicable, further actions will be taken as the IA considers necessary.

On-site Inspections

On-site inspection is one of the supervision tools used by the IA to monitor compliance of the licensed insurance brokers with the relevant laws and regulatory requirements. The IA will conduct on-site inspections or prudential visits to licensed insurance broker companies, so as to gauge the level of their compliance and compliance of their responsible officers and technical representatives (broker) with the relevant laws and regulatory requirements in various areas such as the requirements under the  Broker Rules, requirements in relation to anti-money laundering and conduct requirements in relation to insurance brokerage business and MPF business.

As regards the conduct requirements in relation to insurance brokerage business, the IA issued the Code of Conduct for Licensed Insurance Brokers to set out the general principles, together with the standards and practices relating to each general principle, serving as the minimum standards of professionalism to be met by licensed insurance brokers when carrying on regulated activities.   Requirements in relation to anti-money laundering are set out in GL3: Guideline on Anti-Money Laundering and Counter-Terrorist Financing whereas the conduct requirements in relation to MPF business are set out in the Guidelines on Conduct Requirements for Registered Intermediaries.

The IA adopts a risk-based approach, taking into account various risk factors, such as types of business engaged including lines of insurance business, insurance brokerage income, number of licensed technical representatives (broker) and number of complaints received by the IA against them, etc in conducing on-site inspections.   The IA will communicate with insurance broker companies on control deficiencies and/or concerns relevant to compliance with the applicable laws and regulations identified during on-site inspections.  Broker companies will be required to rectify any non-compliance and enhance their internal controls and procedures accordingly. Any suspected non-compliance noted will also be subject to consideration of further investigation. 

Understanding and communicating with the industry

In order to have a broad and general understanding of the entire insurance broking industry, the IA may collect business information from licensed insurance broker companies by various ways, such as a survey. To view the key observations of the broker survey, please refer to Broker Survey and Statistics.

Where issues identified (for example during supervisory work) are considered conducive to the development of the industry, the IA may issue a circular to highlight the common identified shortfalls and remind the industry of the  regulatory requirements and/or expected standards of practice of insurance intermediaries.  With a view to raising industry standards and facilitating market development, the IA issued a circular to share some key findings observed during on-site inspection visits to insurance broker companies, suggest various good practices in carrying on insurance brokerage business and encourage broker companies to strengthen internal controls and procedures.