Hong Kong Insurance Authority Publishes Explanatory Note & FAQs On Non-disclosure Obligations In The Context Of Inspections, Investigations And Disciplinary Actions.
Legal News & Analysis - Asia Pacific - Hong Kong - Insurance & Reinsurance - Regulatory & Compliance
21 July 2020
As the regulator with primary responsibility for authorised insurers and licensed insurance intermediaries in Hong Kong, the Insurance Authority (IA) has a broad range of statutory supervisory, enforcement and disciplinary powers, including powers to conduct inspections and investigations.
The IA has published an Explanatory Note on Section 121 of the Insurance Ordinance (Cap. 41) – Non-disclosure requirement in relation to information obtained in the course of inspection, investigation or disciplinary action (Explanatory Note). The Explanatory Note also contains useful frequently asked questions (FAQs) on these secrecy obligations. Although the Explanatory Note does not have the force of law, it still offers important guidance in relation to section 121 Insurance Ordinance and its application.
Non-disclosure requirements under section 121 Insurance Ordinance
Section 121 Insurance Ordinance imposes a non-disclosure obligation in respect of information obtained in the course of an IA inspection, investigation or disciplinary action on specified persons. It applies to individuals and corporate entities:
on which a requirement has been imposed by an investigator or inspector appointed by the IA under specified sections of the Insurance Ordinance, or
who have received notice from the IA that the IA has decided to take disciplinary action in respect of an authorised insurer or licensed insurance intermediary.
The aims of the non-disclosure requirements are, according to the Explanatory Note, to prevent:
the tipping off of (suspected) wrongdoers and interference with the integrity of an inspection, investigation or disciplinary action, or
reputational damage of a person under investigation or the subject of an inspection or disciplinary action if that information was made public despite no findings against the person.
As the secrecy obligations relate to information obtained in the course of an investigation, inspection or disciplinary action, the FAQs confirm that section 121 Insurance Ordinance does not restrict a person from disclosing information already within his/her knowledge but the facts that (i) the IA has requested such information and (ii) such information has been provided to the IA, may not be disclosed.
Exceptions to the non-disclosure obligations
Where a company is the subject of a requirement or a notice regarding an IA's inspection, investigation or disciplinary action, limited internal information disclosure is permitted on a need-to-know basis (e.g. to the board of directors, and to obtain information by referring to the general nature of the matter without disclosing any specifics). However, the company cannot disclose any such information to any external parties, including, importantly, its parent company.
The disclosure prohibitions under section 121 Insurance Ordinance do not apply if an exception specified in section 121(4) Insurance Ordinance applies or if the IA consents to the disclosure.
Specified statutory exceptions
Specific exceptions where disclosure is permitted are provided in section 121(4) Insurance Ordinance:
the disclosure is:
for seeking advice from, or giving advice by, counsel or a solicitor, or any other professional advisor acting or proposing to act in a professional capacity, in connection with a matter arising under the Insurance Ordinance – according to the Explanatory Note, the IA's view in this context is that a "professional advisor" refers to a professional adviser qualified to advise on the issues relevant to the subject of the inspection, investigation or disciplinary action and acting in a professional capacity towards the person being advised. Non-exhaustive examples include an actuary, a forensic accountant or other expert witness
in connection with judicial or other proceedings to which the person is a party
in compliance with a court order, law or other requirement made under a law, or
the information has already been publicly disclosed in circumstances where disclosure is not precluded by the secrecy obligations under 53A of the Insurance Ordinance (which apply to the IA (its predecessor, the Office of the Commissioner of Insurance) and their employees, agents, advisors, or other persons appointed to or performing a function or assisting in the performance of a statutory function or provision under the Insurance Ordinance).
Written IA consent
Section 121 Insurance Ordinance expressly includes provision for IA consent to disclosure. The Explanatory Note gives guidance on what is required to obtain such consent. A person may apply in writing to the IA for consent for a disclosure which would otherwise be barred by section 121 Insurance Ordinance. The application should state the extent of the information sought to be disclosed, the persons to whom it is proposed to be disclosed and the reasons for the proposed disclosure.
Generally, the IA will only give consent to such disclosure on a need-to-know basis and where the disclosure would not risk compromising the integrity of the IA's inspection, investigation or disciplinary process.
The IA will grant any consent to disclosure in writing and may impose any conditions that it considers appropriate on the consent.
Of particular interest is the assumed consent described in the Explanatory Note. It provides that if the IA has not expressly specified that a person subject to the section 121 Insurance Ordinance disclosure prohibition must keep the information entirely secret, the person (individual or entity) can, without the need of a written application to the IA, assume that the IA consents to disclosure of the following information only, the:
fact that he/she/it is bound by a non-disclosure obligation
general nature of the matter which has given rise to the non-disclosure obligation (e.g. that the person is subject to a requirement imposed by an IA investigator)
means by which he/she/it came to be bound by the non-disclosure obligation (e.g. that the person received a notice imposing a requirement in relation to an investigation)
date, time and place at which he/she/it is required to:
provide information or documents to the IA
attend an interview by an IA investigator
to be disclosed only to persons specified in the Explanatory Note such as his/her employer, that firm's responsible officer, compliance offer, key persons in control function; his/her spouse or partner; or the handling staff of the indemnity insurer.
If there is uncertainty as to whether any intended disclosure falls within the scope of the IA's assumed consent, it is advisable to contact the IA or proceed to make a written application to the IA for consent.
Consequences for breach
Contravention of the non-disclosure restrictions under section 121 Insurance Ordinance is a criminal offence, punishable by a fine of HK$25,000.
For advice on the application and implications of section 121 Insurance Ordinance or on the Hong Kong regulatory insurance framework more generally, please contact Mun Yeow, Joyce Chan, Gill Morrissey or your usual Clyde & Co contact.
For further information, please contact:
Joyce Chan, Partner, Clyde & Co