IIQE Paper 5 Regulatory Framework in Hong Kong question: high first-year commission on an ILAS product

IIQE Paper 5Regulatory Framework in Hong Kong

An insurer pays very high first-year commission on an ILAS product, with a short clawback period. Under GL15, the concern is that this:

A breaches the 21-day cooling-off period
B may create misaligned incentives, such as for mis-selling
C must first be approved by the SFC before the product is launched
D lowers the product's minimum death benefit below 105% of the account value

Show the answer and explanation

Answer: B. may create misaligned incentives, such as for mis-selling

Answer: may create misaligned incentives, such as for mis-selling. GL15 gives this as an example of a remuneration structure that may create misaligned incentives for mis-selling, aggressive selling or money laundering.Why not the others:• breaches the 21-day cooling-off period: The cooling-off period is a client right; it is not what this remuneration pattern breaches.• must first be approved by the SFC before the product is launched: GL15 puts the duty on the insurer to design an appropriate structure; no SFC approval is described.• lowers the product's minimum death benefit below 105% of the account value: Commission levels do not change the 105% minimum death benefit requirement.Watch out: Looking for a technical breach instead of the incentive problem GL15 targets.Rule: GL15: insurers must ensure intermediary remuneration does not create misaligned incentives; high initial commission with a short clawback is the example.Source: IA Investment-linked Long Term Insurance Examination Study Notes, 2024 Edition (7th ed., Nov 2024; for exams from 17 Feb 2025), 5.2.6, p. 5/9