Hong Kong’s financial services sector has been witnessing increasing regulatory oversight in recent years, with particular attention paid to practices surrounding commissions and referral fees.
On 1 September 2025, the Hong Kong Insurance Authority (IA) issued a circular, setting out its regulatory expectations regarding referral fees paid by licensed insurance broker companies for participating policies.
Notably, the IA’s decision to impose a 50% cap on referral fees paid to licensed insurance broker companies is a step-up on minimum regulatory expectations on authorised insurers.
Understanding referral fees
Referral fees are payments made by licensed insurance broker companies to individuals or organisations (“Referrers”) in exchange for referring potential clients.
These fees have long been a common practice for generating leads and expanding customer bases, playing a crucial role in the distribution of insurance products.
However, this practice has also raised concerns about conflicts of interest, transparency and the potential for mis-selling – as the promise of lucrative referral fees might incentivise Referrers to prioritise their own financial gain over the needs of clients.
Against the backdrop of these concerns, regulators have sought to strike a balance between permitting legitimate business development activities and protecting the interests of consumers.
The 50% cap
The IA’s cap restricts referral fees to a maximum of 50% of the total commission or remuneration received by a licensed insurance broker company from an authorised insurer for introducing, arranging and servicing a participating policy.
In other words, no Referrer may receive more than half of the commission that would otherwise be received from a broker company from a single transaction.
This regulatory measure took effect from 1 October 2025 and applies across various types of insurance products that are “participating business”, as defined in section 21B of the Insurance Ordinance (Cap. 41).
It is designed to ensure that most of the commission remains with the professional intermediary responsible for advising the client and fulfilling regulatory obligations.
However, the 50% cap does not apply where the broker companies partner with entities licensed by other Hong Kong financial regulators – such as the Hong Kong Monetary Authority, Securities and Futures Commission or Mandatory Provident Fund Schemes Authority – as these entities are subject to comparable supervisory regimes.
Broker companies paying referral fees above the 50% cap will be subject to on-site inspections and off-site reviews of their corporate governance and internal controls.
On the other hand, authorised insurers are expected to strengthen their intermediary management oversight to ensure the 50% cap is duly observed.
Conclusion
The IA’s decision to cap referral fees at 50% of commissions represents a significant regulatory development with wide-ranging implications for the insurance industry.
While the measure is intended to protect consumers and promote market integrity, it also presents challenges for intermediaries and Referrers who must adapt to the new landscape.
It is important for all players in the insurance market – including insurers, insurance brokers and their referral partners – to understand and ensure compliance with the IA’s requirements on the referral fees.
