Hong Kong Insurance Authority Issues Guidance on Regulatory Expectations Regarding Referral Fees

On 1 September 2025, the Hong Kong Insurance Authority (IA) issued a circular (Circular) setting out its regulatory expectations regarding referral fees paid by licensed insurance broker companies in respect of participating policies. The Circular is intended to ensure that licensed insurance intermediaries maintain appropriate governance and control over referral arrangements involving participating policies, in accordance with the principles of integrity, transparency, and fair treatment of clients. The Circular signals the IA’s continued commitment to strengthening market conduct and safeguarding policyholder interests through clearer expectations on intermediary remuneration practices specifically relating to participating policies. This follows concerns raised in the IA’s circular dated 22 May 2024, which highlighted business models that may incentivise the unlicensed selling of long-term insurance products in relation to participating policies, and builds on the IA’s practice note concerning remuneration structures and commission spreading for participating policies as discussed in our client alert.

Scope of Application

The expectations outlined in the Circular apply exclusively to licensed insurance broker companies when dealing with participating policies, as defined under section 21B of the Insurance Ordinance (Cap. 41) (Insurance Ordinance). The IA has indicated that it will continue to monitor market developments and may consider extending similar measures to other product types or distribution channels as appropriate.

Key Regulatory Expectations

Notwithstanding that referral-based business models are not expressly prohibited, broker companies are expected to ensure full compliance with all applicable regulatory requirements. This includes adherence to the principles and spirit of the Insurance Ordinance, as well as relevant codes, guidelines, and circulars issued by the IA.

The IA has introduced a benchmark of referral fees of 50% of the total commission receivable by a licensed insurance broker company from an authorized insurer for introducing, arranging and servicing a participating policy, beyond which enhanced disclosure and further explanation should be made on specific aspects including how clients are sourced, how the level of referral fee is determined and what safeguards are available to prevent abuses (Benchmark).

Licensed insurance broker companies paying referral fees above the Benchmark will be subject to on-site inspections and off-site reviews of their corporate governance and internal controls to inform the licence renewal process. Any entities found to have engaged or connived in misconduct can expect to face proportionate regulatory and enforcement actions by the IA.

The Benchmark does not apply to referral arrangements involving entities licensed by other financial regulators in Hong Kong, such as the Hong Kong Monetary Authority, the Securities and Futures Commission, or the Mandatory Provident Fund Schemes Authority. The IA considers these entities to be subject to comparable supervisory regimes and to have a vested interest in ensuring fair treatment of clients.

Significance and Implications

The Circular reflects the IA’s broader regulatory agenda to reinforce ethical distribution practices and ensure that referral structures do not compromise the integrity or professionalism of the insurance advisory process. By introducing a quantitative benchmark and reinforcing disclosure obligations, the IA is taking a more proactive approach to managing intermediary conduct risk and promoting robust governance over referral arrangements.

All licensed insurance broker companies and authorized insurers are expected to comply with the Circular by 1 October 2025. Stakeholders should review their existing arrangements to ensure continued regulatory alignment in an evolving regulatory landscape.