Can you describe the regulatory environment in Hong Kong, with a particular focus on any recent changes of note?
The Hong Kong regulatory landscape is quite complex and challenging, and as a result faces a period of uncertainty ahead.
A number of different participants operate the regulatory regimes, with varying degrees of authority and influence.
For example, currently in the region there exists the Office of the Commissioner of Insurance (OCI), the government body that regulates the Insurance Industry There is the Hong Kong Confederation of Insurance Brokers (CIB), and the Professional Insurance Brokers Association (PIBA), all acting as Self-Regulatory Organisations (SROs) for the broker community.
The Securities and Futures Commission (SFC) issues licences to companies and individuals involved in regulated investment activities, while also regulating investment products offered to the public. Finally there is the Hong Kong Monetary Authority, which regulates the banking sector and its activities; it also supervises the sale of some investment products through bank channels.
Given the nature of all the different participants in that space it does make it quite complex. There isn’t that ‘go-to’ single super regulator, which controls all aspects of the markets.
What are some of the key challenges of working in such an environment?
As with many international markets, Hong Kong has an evolving landscape with unprecedented levels of change, these include changing customer demands and expectations, but a dominating factor has been regulatory reform. The overall themes in Hong Kong are similar to other jurisdictions, including the protection of customer outcomes, greater transparency and the fairness of charges. We are fully supportive of this direction of travel; however the complexities of the environment do bring challenges.
Consistency in approach to the application of these themes, whether it relates to business and product sector or different distribution channels is key. I engage with regulators directly and through industry working groups to help try and shape what’s happening within the overall market. It’s important that there is a level playing field so that customers can make clear comparisons and select advice channels and products that are most appropriate to meet their needs.
Can you give any examples where customer need has influenced changes to regulation?
One recent example refers to GN15 and GN16, two pieces of regulation that are applicable to class C and class A insurance products, respectively.
Class C are investment linked long-term insurance products whereas class A are more traditional; endowments, universal life, annuity and whole of life products, for example.
Both these changes, phased in from 2015 through to 2017 (depending on the product and policy type), follow the International Association of Insurance Supervisors’ (IAIS) Insurance Core Principle 19 – the Fair Treatment of Customers.
The GNs were introduced in a bid to regulate the advice process around insurance products following concerns over certain sales practices. Although one of the key differences between the two rule changes is that GN15 – relating to class C, introduced commission disclosure whereas GN16 – for class A, does not. This is an area we believe requires further progress.
That all sounds quite unsettling.
Overall, we absolutely welcome the changes, and are pleased to see the direction of travel Hong Kong regulators are taking. Unfortunately, despite the very significant changes under GN15, we as an insurance company, intermediaries and clients themselves, all had limited opportunity to adapt as the changes were introduced fairly quickly.
I think what we saw during 2015 was a bit of a struggle, a transition while everyone got used to the new regime, and there was a period of time where there weren’t necessarily that many products available in the market. So it raised questions as to whether customers’ needs were being satisfied.
Many insurance companies can take a long time to get those products through to the market now, and whilst some intermediaries have already developed more sustainable business models, many have had to try and evolve their remuneration models as a result of changes to regulation.
Can we expect further regulatory overhaul down the line?
One further significant change on the horizon is this year’s imminent launch of the Independent Insurance Authority, which will replace self-regulation with the direct regulation of insurance intermediaries by mid-2018. We will see more codes of conduct being put in place, the introduction of a more robust inspection and investigation regime for all industry participants and increased accountability through the introduction of responsible officer requirements within broker firms.
I believe these combined drivers will serve to improve professionalism, continue to focus on positive consumer outcomes but they will also drive up compliance costs.
How is Old Mutual International responding, in terms of the way you are supporting or working with IFAs?
We're committed to the IFA model, and committed to supporting the advisers with the challenges they face. We're in a very good position in that we have experienced this in other parts of the world, such as the UK, South Africa and so on that we can draw from.
We have the expertise, knowledge and solutions within our business to help advisers, which are key for us in in order to help move them to these more stable business models with better customer outcomes.
As a product provider, I believe firms recognise and value what we can offer in terms of support. Also as a wealth management business, we have a wide array of market-leading solutions they can use with their clients to help satisfy their financial needs. So I think actually all this evolution is making our adviser relationships stronger.
We recently started a programme called ‘Future Fit’, which started with a White Paper we have issued globally about adapting to the new world of advice. This has fed into some round table discussions with advisers in Hong Kong.
It is important for us to engage with advisers’ concerns, observations on the market and the way it’s heading - where do they see the challenges and opportunities? From these discussions, we are looking to introduce a set of support modules, such as business planning, client segmentation, technology, how they might manage their investment proposition, should they look at outsourcing part of the business – those kinds of factors.
What’s the end objective of this programme?
We believe in the independent advice model and we really want to support advisers in developing their value proposition for clients, such as how to focus on their expertise in order to become more efficient and customer-focused.
We've been doing it with a number of firms for a couple of years already, working with them on practice management – committing third party resource to work with these firms over a concentrated period of time to help them progress and evolve their business model.
As one size no longer fits all, and customers are more likely to shop around and gather their own information, the advisers need to be able to take a step back, consider their offering, and demonstrate not only their value in advice terms, but their value for the price at which it is being offered. We believe we are well placed to help them on that journey.