The regulatory frame behind bank premium financing in Hong Kong

Bank premium financing in Hong Kong is governed not by a dedicated statute but by supervisory standards layered on existing conduct rules. The Insurance Authority (IA) regulates the insurance sale under the Insurance Ordinance (Cap. 41) and its guidelines on underwriting (GL16) and financial needs analysis (GL30); the Hong Kong Monetary Authority (HKMA) supervises the bank as a lender under the Banking Ordinance and the Code of Banking Practice and as a licensed insurance intermediary under the IA's conduct rules. Since 2022 the two regulators have issued their premium financing standards jointly. This page is the one place on this site that treats the rules in their own right; every other page refers back here.

Timeline of the standards

The IA circular of 1 April 2022

The IA circular is addressed to authorised long-term insurers and licensed insurance intermediaries and defines premium financing as an arrangement in which the customer borrows from a lender, usually a financial institution, to pay the premium and assigns all or part of the policy rights to the lender. It applies to every application for a new policy to be acquired using premium financing, not to policies paid in full and later pledged. Its main requirements are:

• Affordability (paras 1–7). The intermediary must ascertain whether financing is intended and, if so, assess whether the customer can pay the unfinanced premium at the outset, meet all scheduled repayments over the entire tenure, and repay the sum owed if demanded before maturity. Where the tenor is not fixed, assume the facility lasts the whole policy term. The FNA must ask about outstanding liabilities and existing policies pledged or assigned. No regulated advice recommending financing may be given without the facility details and a suitability assessment.
• Over-leveraging (paras 8–11). A risk of over-leveraging exists when a lender's early repayment demand could only be met from the proposed policy's surrender value. Intermediaries should not recommend such a policy without documented justification, including disclosure of the ratio of loan to the customer's own financial resources; insurers must verify asset and income proof, apply haircuts for joint ownership and encumbrances, normally refuse owner-occupied property as asset proof, and reject applications where affordability is in doubt.
• Disclosure (paras 12–14). The IFS-PF must be explained as soon as the intermediary learns of the customer's interest in financing and must be completed, signed and dated before policy issuance. It is not exhaustive; other relevant terms and risks must also be explained.
• Sales practice and training (paras 15–21). Training material must be balanced and not over-emphasise leverage; intermediaries must remind customers that benefits will be less than illustrated because of loan repayment; cooling-off notices must be updated where the right to cancel is assigned; firms must monitor for inappropriate sales, including intermediaries with unusually high rates of customers refusing to disclose facility details.
• Compliance (paras 22–24). The IA takes a principle-based approach. Non-compliance is not itself a ground for proceedings but bears on the fitness and properness of directors, controllers, key persons and intermediaries.

The HKMA circular of 1 April 2022

The HKMA circular, addressed to all authorised institutions and their subsidiaries, applies the IA standards to banks in both roles. As intermediary, a bank must ensure the policy suits the customer's needs and resources whether or not financing is used, and, because it has the facility details, may not use the IA circular's fallback of assessing the policy as self-funded. As lender, it must treat customers fairly in cooling-off cancellations, avoid conditions or costs that deter the exercise of the right, promptly refund the net amount after deducting the loan and interest, and, where a risk of over-leveraging exists, consider in its credit assessment under paragraph 24.1 of the Code of Banking Practice whether the ratio of the loan to the customer's own financial resources is reasonable, disclosing that ratio before the customer accepts the facility.

The IFS-PF

The Important Facts Statement – Premium Financing is an IA-prescribed form in English and Chinese. Its fifteen items explain that financing is a stand-alone contract to which the insurer is not a party; that policy rights are restricted by the assignment; that net benefits will fall short of the illustration; that the lender may access policy information; the risks of collateral top-up, repayment on demand, late payment and default, early termination, death of the insured, interest-rate fluctuation, non-guaranteed benefits, exchange rates, insurer credit, payment-timing mismatch and the cooling-off right. The customer declares whether the intermediary solicited or recommended financing and either provides the facility details (lender, amount, rate formula, tenor, instalment) or declines, in which case suitability is assessed as if self-funded. The intermediary signs a declaration of its own. Customers cannot opt out of the form.

Interest-rate disclosure and the 2024 findings

The HKMA's circular of 16 October 2023 responded to banks switching facilities from HIBOR or Prime to cost of funds under embedded clauses after rates rose in 2022. It requires staff to draw applicants' attention to every building block of the rate, to point out any discretion to use the bank's cost of funds, and to show the cost-of-funds, HIBOR-based and Prime-based scenarios with equal prominence in the same part of the facility letter.

The joint inspection announced on 6 December 2023 covered suitability and affordability, over-leveraging measures, disclosure, sales practice and training, and assignment and cooling-off. Its findings, published on 27 June 2024, recorded that most firms met the minimum affordability standard; that one insurer had assumed 20% of liquid assets would cover interest; that some banks counted interest for one year only; that no over-leveraged policies were issued in the first half of 2023 and most insurers apply 10% to 50% haircuts; that asset-proof verification had improved but bank reference letters and broker memos were sometimes unverified; that a few IFS-PFs were completed late and one appeared tampered with; that a bank's mobile application let customers skip the KFS; that benefit illustrations were sometimes prepared before suitability assessment; that one insurer did not verify or keep notices of assignment; and that some insurers had not updated cooling-off notices.

The IA circular of 20 August 2026 and what comes next

The IA's August 2026 circular to insurers reports a marked increase in financed business in the first half of 2026, with premium financing the major source of new business for some insurers and, for some products, more than 80% of policy count or premium. It observes that financed policies are predominantly participating whole life products designed for long-term holding, that financed policyholders tend to surrender once a targeted return is reached or the loan tenor expires, and that some insurers were relying on cuts to non-guaranteed benefits to absorb the resulting lapse mismatch, which the IA says calls into question product design, pricing and policyholders' reasonable expectations. It instructs insurers to review products under GL16 and risk management under GL21, to include lapse and economic stress for financed business in their ORSA, and to review sales and training material after finding examples claiming policy leverage of up to nine times from a 10% contribution without proper disclosure of downside. A third IA–HKMA joint inspection is scheduled for the second half of 2026. Market reporting on the same day put financed business at about 36% of new business premiums in the first half of 2026.

Complaints and where they go

The HKMA's January 2024 article disclosed premium financing complaints to the HKMA of 4 in 2021, 34 in 2022 and 48 in 2023, in three themes: customers unaware they had taken a loan, alleged misrepresentation that policy returns would always cover interest, and alleged overstatement of liquid assets in affordability assessments. Most were one person's word against the bank's. A complaint about the loan goes to the bank and then the HKMA; a complaint about the sale of the policy goes to the insurer or intermediary and then the IA or the Insurance Complaints Bureau. The regulators' repeated advice is the same: read both contracts, check the figures the bank has recorded about you, and do not sign what you do not understand.

Premium Finance Practice Editorial (2026). “The regulatory frame behind bank premium financing in Hong Kong.” premiumfinance.hk. https://premiumfinance.hk/regulation/ (accessed YYYY-MM-DD).