The Hong Kong Monetary Authority (the “HKMA”) and the Insurance Authority (the “IA”) have jointly launched Phase 3A of the cross-industry background check arrangement on 13 May 2026. The arrangement builds on the background-check frameworks already introduced in the banking and insurance sectors. It aims to further enhance the transparency of conduct information and prevent the "rolling bad apples" phenomenon from moving between sectors in the financial services industry. This article explains the scope of Phase 3A, its operational requirements and its practical implications for an insurance brokerage company.
| banking | insurance industry | |
| Institutions within scope | An authorized institution that is also a licensed insurance agency as defined in the Insurance Ordinance and engages in long-term insurance business (referred to as the "relevant authorized institution") | The following institutions engaged in long-term insurance business: • Authorized insurance companies • Licensed insurance agencies (non-authorized institutions) • Licensed insurance brokers (collectively, "Insurance Institutions") |
| Individuals within the scope of application | Employees (i.e. business representatives) who intend to obtain a license to engage in long-term insurance business in relevant authorized institutions | Individual insurance agents, business representatives (agents) or business representatives (brokers) who intend to obtain a license to engage in long-term insurance business in an insurance institution |
| application | Applicable to relevant authorized institutions that intend to appoint an individual to engage in long-term insurance business, and the individual is currently or has been appointed by an insurance institution to engage in long-term insurance business in the past 7 years | Applicable to insurance institutions that intend to appoint an individual to engage in long-term insurance business, and the individual is currently or has been appointed by a relevant authorized institution to engage in long-term insurance business in the past 7 years. |
| The institution providing the information is an insurance institution | The organization providing the information is an accredited organization | |
| The recruitment agency is an insurance agency | Conduct background checks in accordance with the Insurance Industry Background Check Program | Recruitment agencies are required to conduct background checks in accordance with the Insurance Industry Background Check Scheme, and institutions that use the template specified by the Banking Industry Background Check Scheme to provide information are required to respond to background check requirements in accordance with the Banking Industry Background Check Scheme. |
| The recruitment agency is an accredited agency | Recruitment agencies are required to conduct background checks in accordance with the Banking Background Check Scheme, and organizations that use the template specified by the Insurance Background Check Scheme to provide information are required to respond to background check requirements in accordance with the Insurance Background Check Scheme | Conduct background checks in accordance with the Banking Industry Background Check Program |
Under Phase 3A, the practical requirements of insurance brokerage companies are basically consistent with the second phase background check plan that will take effect on January 1, 2026. The core is still to conduct background checks with former appointing institutions in accordance with established procedures and respond within the specified time limit. If YFG is a recruitment agency and the applicant has worked in the banking industry (relevant authorized institutions) or other insurance institutions, HR must initiate a mandatory background check and submit verification requirements to the relevant institutions using the standard form adopted in the second stage and issued by the Insurance Authority (IA). On the contrary, if YFG's licensed business representatives leave their jobs and transfer to other insurance or banking institutions, the other party's HR will also make verification requests to YFG, and YFG must provide a true, accurate and complete response within 15 calendar days to comply with regulatory requirements.
The main impact of Phase 3A for brokerages is that HR must have a comprehensive view of the recruitment process and ensure that verification requests are issued to all relevant previous employers each time a long-term intermediary is appointed. It is worth noting that the inspection targets have been expanded from traditional insurance companies, agents and brokerage companies to relevant authorized institutions in the banking industry for the first time. As for the Securities and Futures Commission (SFC), no similar mandatory background check arrangements have been introduced so far, and its position remains to be seen. However, for licensed business representatives, the regulatory signal has been very clear: once serious conduct issues are involved, their careers in the banking and insurance industries will face a substantial end, and it will be difficult to be re-appointed.
Under Phase 3A, regulatory authorities have significantly increased their expectations of insurance brokerage companies. Therefore, if a brokerage company fails to comply with relevant requirements - whether it is a complete failure to conduct a background check, or the appointment of a business representative with clear conduct concerns despite a check - it will not be regarded as a minor or technical oversight, but rather a reflection of major deficiencies in the company's internal controls, risk management and governance culture. Such non-compliance is likely to attract special attention from regulatory agencies and lead to subsequent regulatory actions, including requiring rectification, strengthening supervision, conducting a suitability assessment of the person in charge, and even turning into a problem for the company's management. In other words, the background check requirements in Phase 3A are no longer an administrative procedure, but directly related to the core responsibility of the company to maintain sound governance and meet regulatory expectations.
On the other hand, it can be clearly seen that the Insurance Authority (IA) is continuing to strengthen its supervision of the market. Taking mandatory background checks as an example, the second phase only officially came into effect on January 1, 2026, and the cross-industry Phase 3A was quickly launched just a few months later in May, clearly reflecting the regulatory agency’s desire to deal with market ethics issues more quickly. This is not a single example; taking the demonstration interest rate cap as an example, after the last round (6% for Hong Kong dollar policies and 6.5% for non-Hong Kong dollar policies) was implemented in July last year, the IA seemed to believe that there was room for further revisions. Therefore, there has been recent market news that the IA is re-examining the policy and may lower it by another 0.5% at the end of this year. These trends show two important signals: first, the Insurance Authority (IA) is extremely determined to regulate the market; second, supervision is not limited to large-scale institutional reforms, but can fine-tune market behavior by adjusting parameters (such as demonstration interest rate ceilings, intermediary remuneration structures, referral fee benchmark levels, etc.) to achieve higher ethical standards.
From market observation, we know that some market participants still have a lucky mentality and believe that they can ignore the requirements of the Insurance Authority (IA) and continue to conduct referral business in the old way. This idea is too naive. As the regulatory environment becomes increasingly stringent, prospective clients and referrals should choose to cooperate with compliant, capable, and trustworthy brokerage companies (of course YFG is one of them) to ensure that the purchase of insurance or cooperation arrangements will be worry-free in the next few years (especially when it involves commission sharing for 2-6 years) and will not bear subsequent risks due to non-compliance of the partner.
YFG Compliance Department
May 22, 2026
