Insurance Authority Publishes an Explanatory Note on “Regulated Activity”

On 12 October 2021, the Insurance Authority (the “IA”) published an explanatory note (the “Explanatory Note”) on “Regulated Activity” under the Insurance Ordinance (Cap. 41) (the “IO”).

Currently the regulatory regime for insurance intermediaries under section 64G of the IO makes it a criminal offence for a person, without reasonable excuse, to carry on a “regulated activity”. Per Schedule 1A to the IO, each of the following is a regulated activity:

• negotiating or arranging a contract of insurance;
• inviting or inducing, or attempting to invite or induce, a person to enter into a contract of insurance;
• inviting or inducing, or attempting to invite or induce, a person to make a material decision; or
• giving regulated advice.

For the purposes of (c) and (d) above, a “material decision” refers to a decision made, and “regulated advice” refers to an opinion given, in relation to any of the following matters:

• the making of an application or proposal for a contract of insurance;
• the issuance, continuance or renewal of a contract of insurance;
• the cancellation, termination, surrender or assignment of a contract of insurance;
• the exercise of a right under a contract of insurance;
• the change in any term or condition of a contract of insurance; or
• the making or settlement of an insurance claim

Key observations of the Explanatory Note are summarized below:-

1. In determining whether or not a person is carrying on a regulated activity, the IA will apply an objective test, taking into account the full factual context and totality of interactions which the person has with policy holders or potential policy holders.
2. In determining whether or not a person needs to be licensed, the IA will consider the matter in the context of its functions under the IO.
3. The Explanatory Notes also clarified the IA’s view and interpretation for the following concepts:-
   1. “Negotiating or arranging a contract of insurance”;
   2. “Inviting or inducing or attempting to invite or induce a person to enter into a contract of insurance or make a material decision”;
   3. “A material decision”;
   4. “Regulated advice”;
   5. “Holding out”; and
   6. “In the course of the person’s business or employment, or for reward”.

The clarification offered by the Explanatory Note will be an important consideration for currently unregulated entities as it provides an insight into the IA’s view when assessing whether certain activities will or will not fall under the regulatory regime of the Insurance Ordinance.

Contact us to find out more the Explanatory Note or if you need assistance in any Insurance regulatory issues.