We are pleased to see the government finally put 16 years of talk into action by deciding to consult the market at the end of the year about setting up an independent insurance authority to protect policyholders and regulate the industry.
The issue was first raised in 1993, when the local insurance market was much smaller. Now we have 8.7 million policies in the market.
An independent insurance authority would put the industry on a par with other financial regulators such as the Hong Kong Monetary Authority, the Securities and Futures Commission and the Mandatory Provident Fund Schemes Authority.
These organisations are structured outside the government, which means they do not use taxpayers' money and are not staffed by civil servants, but instead collect fees to hire professionals with market experience.
The key question is how to set it up. Should it be an independent regulator or be merged with the SFC, the HKMA and the MPFA as part of a super-regulator?
Many banks are selling insurance products with big players such as HSBC Holdings (SEHK: 0005, announcements, news) , Hang Seng Bank (SEHK: 0011, announcements, news) and Bank of China (Hong Kong) keen to expand the business. They are regulated by the HKMA.
If the proposed insurance authority only has power to regulate insurance agents but not bank staff selling insurance products, we face the same problem the SFC has encountered in being unable to regulate bank staff selling investment products.
A division of labour between the SFC and the new insurance authority when vetting investment-linked products, which are a combination of insurance policies and funds, is also a possibility.
In fact, as an increasing number of policyholders buy insurance not just for protection but as an investment vehicle, who should be responsible for vetting such hybrid business?
Cross-selling by financial institutions has blurred the lines between the different regulatory fields. Britain and Singapore have opted for super-regulators for all types of financial institutions, while Australia has a "twin peaks" model with one regulator looking after the financial side and the other, the conduct of the salespeople.
Hong Kong, the United States and the mainland still operate a system with separate regulators, but our legislators have been calling on the government to consider adopting the super-regulator model after the Lehman Brothers minibond fiasco, which saw investors and their life savings fall between the cracks.
Keeping the status quo is not the best way forward.
Expert's views
This week's video guest is Grant Jamieson, the partner in charge of KPMG Forensic for the Asia-Pacific.
An expert in financial and regulatory investigations, Mr Jamieson has for many years helped companies with intellectual property reviews, litigation support and asset recovery throughout the region. In the interview, he offers tips on how to prevent fraud and trace the evidence of malpractices.
The article: It's high time to consider financial super-regulator
Enoch Yiu
SCMP, Hong Kong 21st July 2009