Banks cutting back on controversial ILAS sales

From July 1, institutions must declare their commission on the sale of the instruments

PUBLISHED : Monday, 24 June, 2013, 12:00am
UPDATED : Monday, 24 June, 2013, 3:37pm

Banks are cutting back on the sale of controversial investment-linked assurance schemes (ILAS) as they await the implementation of new control measures over their sale from the Hong Kong Monetary Authority.

Citibank said it would suspend sales of the products and Bank of East Asia and Fubon Bank, which are still selling the products, said they would be reviewing their sale.

Banks may either stop selling the products completely, or may not actively promote them to their clients once the new measures are in place, some bank senior executives have suggested.

A spokeswoman for the HKMA said any decision to suspend ILAS sales would be a commercial decision by banks.

Starting from July 1, banks will have to disclose their commission on ILAS sales to clients, and must ask clients to give reasons for choosing to invest in the products before selling them.

"Front-line employees will be more reluctant to sell the products because the time involved will be longer," said a senior executive at a local bank.

The authority last week dished out its first punishment for mis-selling the product. A former front-line employee of HSBC was suspended from the banking register for three years.

The authority said it received 30 complaints about the selling of ILAS products last year, double the number from 2011.

In light of complaints about mis-selling, the HKMA, the Securities and Futures Commission, the Insurance Authority and the Federation of Insurers are rolling out changes this summer to the way ILAS products may be sold.

Another banking executive said the ILAS products were not very popular among clients and he expected the impact the new measures would have on fee income would be insignificant.

New premiums from investment-linked individual life and annuity products grew 24.2 per cent to HK$4.9 billion in the first quarter compared with the same period last year, according to the Office of the Commissioner of Insurance.

HSBC has removed product-specific sales incentives for front-line staff this year to reduce the chance of mis-selling by employees who are on bonuses related to selling products.

Many other banks, such as Bank of China, DBS Bank and Citi are distributors of ILAS products.

Weber Lo, the country officer and chief executive of Citi in Hong Kong and Macau, said the bank was reviewing all the complaints it received and was so far satisfied with its record.

"We will observe the practice of other banks before we resume their sale," said Janet Chong, an executive director of consumer banking at DBS, which suspended selling ILAS products last month.

ILAS refers to life insurance policies with benefits linked to the performance of selected investment options.

The structure and fees are relatively complicated.

HSBC, Standard Chartered and Fubon Bank said ILAS products were still available. But a number of banks have withdrawn ILAS products from their shelves.

Bank of China stopped selling ILAS products this year and the Bank of Communications did so from the fourth quarter of last year.

Hang Seng Bank, Wing Lung Bank and Shanghai Commercial Bank stopped their sale in 2008.