News & Insights

SFC tightens regulation of investment-linked assurance schemes

Authored by: Scott Carnachan and Jack Hung

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On 1 November 2021, Hong Kong’s Securities and Futures Commission (SFC) published a circular to provide additional guidance to issuers of SFC-authorised investment-linked assurance schemes (ILAS) on the application of certain existing requirements under the Guidance on Internal Product Approval Process (PD Guidance) to ILAS (Additional ILAS Guidance). The SFC has also provided further guidance to ILAS issuers in section 4 of its FAQs relating to Investment-Linked Assurance Schemes to elaborate on the requirements under the Additional ILAS Guidance.

The Additional ILAS Guidance formulates further product design and disclosure enhancements, following a recent review of ILAS products on the market by the SFC.

Existing ILAS issuers have until 30 April 2023 to ensure that their SFC-authorised ILAS comply with the enhanced requirements under the Additional ILAS Guidance.

What is required under the Additional ILAS Guidance?

The Additional ILAS Guidance is built upon the existing requirements on product design, fees and accountability throughout the product life-cycle under the PD Guidance. Key points are summarised below.

Product design

When determining the product features, ILAS issuers should consider, without limitation, the following to ensure that their ILAS products are designed fairly and deliver a fair outcome to the target market:

  • the level of life insurance protection (e.g. whether and the extent to which the ILAS product provides insurance protection above the premium paid or payable similar to a term life insurance product);
  • the fee charging model and structure (e.g. whether policy charges are calculated based on account balance or on a transaction-by-transaction basis) and overall fees and costs borne by an investor;
  • the number and variety of underlying funds and fund houses for selection;
  • the premium payment structure and level (e.g. whether single or regular premium payment, the premium payment amount and period); and
  • product liquidity (e.g. whether any surrender charges may apply in the event of early policy surrender or partial withdrawal).


ILAS issuers should ensure that the fees of their ILAS are fair, proportionate and commensurate with the insurance protection offered by the ILAS (when compared with other alternative products) throughout the whole policy term. In particular:

  • Cost of insurance (COI) – ILAS issuers should ensure that in general the COI rates of an ILAS product are not higher than those charged by comparable alternative products (e.g. term life insurance products).
  • Platform fee – Platform fee should be comparable to corresponding alternative products over the lifetime of the ILAS policy, and upfront charge (if any) should not significantly reduce the amount of premium available for investment and therefore lowering the surrender value and the death benefit of the ILAS policy in early years.
  • Early surrender or withdrawal charge (SC) – ILAS issuers should seek to lower the SC and shorten the SC period depending on the level of insurance protection offered by the ILAS. In particular:
    1. An ILAS that provides low or minimal insurance protection is generally expected to charge a lower SC over a short period;

    2. An ILAS with high insurance protection (comparable to other life insurance products) may charge a higher SC or with a longer SC period; and

    3. Issuers should also assess whether investors will receive a comparable payout if they surrender after holding the product for a reasonable period of time as compared to holding comparable alternative products.

Complex product features

ILAS issuers should ensure that the product features are not unduly complex when designing their ILAS products. ILAS issuers should avoid (a) features or terms which are unnecessarily complicated, incomprehensible or provide no (or limited) additional value to investors; or (b) using multiple variables or complicated formulas unnecessarily to determine the return or which render the policy difficult for investors to understand.

Review and monitoring

ILAS issuers should conduct regular reviews of compliance with the PD Guidance and the Additional ILAS Guidance (based on the latest comparable alternative products available in the market) and submit a written confirmation of compliance to the SFC every two years for products that are on offer to Hong Kong public.

Enhanced disclosure requirements

The SFC has also revised its illustrative template for ILAS product key facts statement to enhance the disclosure requirements relating to fees, including platform fee and SC.

When does the Additional ILAS Guidance take effect?

The Additional ILAS Guidance took effect on 1 November 2021 (Effective Date), and applies to new ILAS for which applications for authorisation are submitted to the SFC on or after the Effective Date. All applicants are required to submit a written confirmation in the prescribed form to the SFC that the PD Guidance and the Additional ILAS Guidance have been and will be fully complied with.

A transition period of 18 months from the Effective Date (expiring on 30 April 2023) will be provided for existing SFC-authorised ILAS to comply with the enhanced requirements under the Additional ILAS Guidance.

Enhanced authorisation process for new ILAS applications and additions of investment choices

To facilitate the processing of applications, the SFC has also published a circular on 1 November 2021 to introduce an enhanced process for applications for authorisation of new ILAS (Enhanced Process). The Enhanced Process is similar to the process the SFC adopts for applications for authorisation of unit trusts and mutual funds.

Under the Enhanced Process, a “two-stream” approach will be adopted, whereby new ILAS applications will be classified into a “Standard Applications” stream and a “Non-standard Applications” stream. Standard Applications will be fast-tracked with an aim that SFC authorisation (if granted) will be given around two to three months from the take-up date of the applications. Non-standard Applications will be also processed under an enhanced process with more discipline in response time.

The SFC will (i) take up or refuse to take up a new ILAS application within five business days upon receipt of the application; and (ii) issue the first set of response/requisitions to the new ILAS application within 14 business days from the take-up date.

A new ILAS application will generally lapse at the expiry of six months from the take-up date.

The SFC has also provided further guidance to ILAS issuers in section 1 of its FAQs on Investment-Linked Assurance Schemes to elaborate on the requirements under the Enhanced Process. The FAQs note that the Enhanced Process will generally apply to the processing of applications for authorisation of new investment options under existing SFC-authorised ILAS and that application for authorisation of a new investment option solely linked to an SFC-authorised fund will be treated as a Standard Application.

Key Contacts

Scott Carnachan

Consultant | Financial Services

Email or call +852 2825 9265

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