Hong Kong has recently introduced fit and proper requirements for “key persons in control functions”. As a result, an insurer must now obtain the Insurance Authority’s prior approval before appointing a key person in a control function. Individuals who were key persons in control functions before 26 June 2017 can benefit from the Insurance Authority’s transitional arrangements which allow an application for approval to be lodged up to 30 September 2017 and for the HK$18,000 application fee to be waived.
Who is caught?
A key person in a control function means a person who is responsible for the performance of a control function that is likely to enable the individual to exercise a significant influence on the business carried on by the insurer (section 13AE, Insurance Ordinance).
The initial prescribed control functions are:
- risk management;
- financial control;
- internal audit; and
- actuarial function.
Intermediary management will also become a “control function” at a later date.
What must be done?
If an insurer wishes to appoint an individual as a key person in a control function on or after 26 June 2017, it must obtain the Insurance Authority’s prior approval to the proposed appointment and pay a fee of HK$18,000 per application.
Particulars of key persons in control functions should be provided to the Insurance Authority by completing and submitting Form A1 (which is set out in Schedule 4 to the Insurance Ordinance).
Criteria against which fitness and probity tested
The Insurance Authority will consider and determine applications based on the following criteria (section 14A, Insurance Ordinance and Guideline 4 – Guideline on “Fit and Proper” criteria under the Insurance Ordinance):
- the education or other qualifications or experience of the person (specifically, a key person should have not less than 5 years’ experience in the relevant control function);
- the person’s ability to act competently, honestly and fairly;
- the reputation, character, reliability and integrity of the person;
- the person’s financial status or solvency;
- whether any disciplinary action has been taken against the person by the HKMA, the SFC, the MPFA or any other authority or regulatory organization, whether in Hong Kong or elsewhere, which, in the Insurance Authority’s opinion, performs a function similar to those of the Insurance Authority;
- the state of affairs of any other business which the person carries on or proposes to carry on; and
- any other matter that the Insurance Authority considers relevant in making the determination.
Persons who were key persons in control functions before 26 June 2017 can benefit from the Insurance Authority’s transitional arrangements which allow an application for approval to be lodged up to 30 September 2017 and for the HK$18,000 application fee to be waived.
Non-compliance with the provisions regarding key persons in control functions is an offence which carries a fine of $200,000, with a further fine of $2,000 for each day during which the offence continues.