On 27 Jun 2024, the IA and HKMA issued findings from their joint PF inspection exercise, confirming general compliance with the 2023 Standards but highlighting critical gaps including improper PF recommendations, FNA form manipulation, and unverified bank reference letters. Regulators mandated continuous adherence to existing PF Standards and emphasized heightened due diligence in the current high-interest rate environment to mitigate over-leveraging risks.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Key Observations from Joint Inspection
On 27 Jun 2024, the Insurance Authority (IA) and Hong Kong Monetary Authority (HKMA) published findings from their joint inspection exercise on premium financing (PF) activities conducted in late 2023, assessing industry compliance with the PF Standards implemented on 1 January 2023. The inspection confirmed that authorized insurers and licensed intermediaries generally complied with the Standards, adopting prudent thresholds to reject applications with over-leveraging risks and widely implementing the mandatory 'Important Facts Statement — Premium Financing' (IFS-PF). Good practices included conservative affordability analysis via loan stress testing, clear leverage ratio disclosure in Financial Needs Analysis (FNA) forms, and post-sale customer calls beyond vulnerable segments.
Regulatory Compliance Gaps and Reminders
The joint inspection identified specific compliance gaps requiring immediate attention: some entities were unaware that PF recommendations without prior loan detail assessment violate the Standards; customers with affordability mismatches were repeatedly asked to revise FNA forms to inflate financial capacity; banks' reference letters used for Know-Your-Customer purposes contained unverified incorrect information; IFS-PF omissions occurred due to operational oversight; product recommendations were made before FNA completion; and banks assessed credit solely on interest repayment capacity without evaluating over-leveraging risks. The regulators reiterated that authorized insurers and intermediaries must continuously adhere to the PF Standards and relevant requirements, with heightened vigilance required amid the current higher interest rate environment to safeguard customers from PF-related risks.
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