Controversial investment-linked assurance schemes poised to make a comeback

Two leading banks are said to be reviewing policies on sale of the insurance-linked schemes

PUBLISHED : Thursday, 05 December, 2013, 10:50am
UPDATED : Friday, 06 December, 2013, 3:21am

A controversial class of investment products may soon become widely available again after most banks in Hong Kong stopped selling them when tough restrictions on their sale were introduced this year.

Two of the city's Big Four banks are said to be reviewing their policies on the sale of investment-linked assurance schemes (ILAS), with a view to promoting them more actively in one case and resuming their sale in the other.

HSBC is reviewing its sales of ILAS, which it is now selling only to customers who have bought the products before, two people familiar with the situation said.

The bank would like to expand the target market next year to all customers who requested such products, they said.

"The ILAS products are still on HSBC's shelf, but the staff are not promoting them actively to customers," a senior executive at a rival bank said.

A senior HSBC executive said: "The bank has enhanced its disclosures to meet the new requirements, hoping to enlarge the sales target group." The executive, who declined to be named, noted that a final decision had not been made.

Standard Chartered, which stopped offering ILAS products at the end of June, was reviewing its ban and studying the possibility of resuming sales of the products next year, market watchers said.

"Though the sale of ILAS products has been declining, it is still an important stream of fee income to the banks, especially the bigger ones, which have a large customer base," said a senior executive at another bank who asked not to be named.

The Hong Kong Monetary Authority, the Securities and Futures Commission, the Insurance Authority and the Federation of Insurers introduced changes this summer to the way ILAS may be sold after the HKMA issued its first punishment for mis-selling the product in June.

Since July, before an ILAS can be sold to customers, banks must disclose to them their commission on the sale and must ask them to give their reasons for choosing to invest in the product.

Typically, an ILAS allows an investor to enrol in a long-term savings plan, pay a regular premium and choose from a range of funds to invest in. Investors became increasingly concerned about high fees, poor performance and mis-selling.

"The HKMA was quite negative on the sale of ILAS at banks after receiving so many complaints," said a banker who had held private talks with the regulator. "They asked the banks why they were promoting ILAS to their customers instead of unit trusts, which are much simpler in structure and can also provide a return [that is better than that offered by straight deposits] to the investors."

Bankers said major players in the city used to be aggressive in selling ILAS, especially HSBC, which both creates and distributes such products.

We have complied with the ... regulatory requirements on ILAS
HSBC spokesman

Asked whether the bank would extend its ILAS sales to more types of customers, an HSBC spokesman said the sales policy on ILAS had not changed.

"The bank is still providing ILAS as an option for customers. As a provider of comprehensive financial services, we strive to have a wide range of financial products to cater to our customers' various financial needs," he said. "We have complied with the new regulatory requirements on ILAS since their introduction in July to provide customers with more transparency, in addition to the existing guidelines on the sales process."

Standard Chartered is in a strategic partnership with The Prudential Assurance in the insurance and wealth management business. A person familiar with the deal said that under the partnership the bank is obliged to make Prudential's products, including ILAS, available to its customers.

A Standard Chartered spokeswoman said the bank would routinely review the business strategy and product features of different products. She said it had no plans at present to resume the sale of ILAS products.