Agency inspection findings: unlicensed sales, client money and undisclosed inducements
Songjiang Insurance Brokers Ltd holds an insurance broker licence. The regulator inspects the period 1 January to 30 June against licence conditions and conduct rules, which require that premiums be paid into a segregated client account and remitted to insurers within 30 days of receipt; that no person advise on or sell policies without an individual licence; that commissions and related-party payments be disclosed in writing before the client signs; that a 15-day cooling-off right be offered on all individual life and health policies; and that client data not be transferred to third parties without written consent. Records show CNY 4.2m of premiums received, of which CNY 1.1m sat in the firm's general operating account for 47 to 62 days. Three of twelve advisers had passed the qualifying exam but their licences were still pending; they wrote 26 policies generating CNY 380,000 of commission. A CNY 90,000 marketing fee paid to a sister company that introduced 40% of the firm's clients was never disclosed. Nine of 15 life policies had no cooling-off notice, and the call-centre vendor received client phone and health data under a contract containing no consent clause.
1. Rank the findings by severity and justify the ranking against the interests the rules protect.
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Severity should be weighted by client detriment, systemic reach, licence risk and reversibility - not by the size of the number.
- Unlicensed advice (26 policies, CNY 380,000 commission). Most serious. The rule exists so that clients receive advice from someone whose competence has been assessed. Twenty-six households were advised by unqualified staff, and every sale is now contestable. It is also aggravated: the firm knew the licences were pending and allowed sales to proceed.
- Client money in the operating account for 47–62 days (CNY 1.1m). Joint-highest, because the exposure is financial and irreversible if the firm fails. Commingling puts policyholders' premiums at risk of the firm's creditors and delays cover; a premium held 62 days may leave a client uninsured after a loss.
- Undisclosed CNY 90,000 related-party fee affecting 40% of clients. The conflict is structural, not incidental: the introducer shapes the client base, so the fee may have steered a large block of business. Disclosure failures here undermine the whole advice model.
- Missing cooling-off notices (9 of 15 life policies). Procedural but directly harmful - clients lost a statutory exit right on long-term products.
- Data transfer without consent. Lower immediate financial harm, but a separate privacy notification obligation and a reputational risk.
Note that 2 ranks above 3 on financial risk but 1 outranks both because it attacks the licence itself.
2. Set out a remediation and reporting plan with sequenced actions, and advise whether the 26 policies are void.
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Immediate (0–7 days). Stop all sales by the three unlicensed advisers; move the CNY 1.1m into the segregated account and reconcile every receipt in the CNY 4.2m to insurer statements; suspend the sister-company arrangement; suspend third-party data transfers.
Short term (7–30 days). Identify the 26 policyholders and the 15 life policyholders; write to each life client issuing the missing cooling-off notice and, where possible, restoring the full period; obtain consent or cease the data processing; notify affected insurer partners, since they carry the policy liability. Self-report to the regulator with a root-cause analysis - voluntary disclosure generally mitigates penalty, and the client money and unlicensed-sales breaches are usually reportable within days, not weeks.
Medium term (30–90 days). Complete licence applications and evidence of competence; run a suitability review of the 26 sales and of the 40% of the book introduced by the sister company; refund or disgorge commission where sales were unsuitable; deliver training and appoint a compliance monitor; maintain a breach register with owners and deadlines.
Are the 26 policies void? Not automatically. The insurer remains liable to the client, who dealt in good faith and should not lose cover for the intermediary's failure. The client may have a right to rescind; the firm faces commission disgorgement, compensation for any loss and, potentially, licence conditions. Treat the policies as valid but tainted, and remediate by re-soliciting each one through a licensed adviser.
3. The firm argues that the three advisers were supervised by a licensed manager, so there is no breach; it also says the CNY 90,000 fee is an internal group matter. Evaluate both arguments.
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The supervision argument. Supervision affects culpability and penalty; it does not cure the absence of a licence where the rule is that no person may advise on or sell without one. The breach occurs at the point of advice, whatever the manager's status. Ask for the evidence that would make supervision meaningful: was the manager physically present at every client meeting, did the manager sign each application, did the manager conduct the needs analysis? If the three advisers ran the meetings, the argument fails. If the manager did the substantive advising and the staff merely handled administration, a narrower argument is available - but then the firm must explain how 26 policies were attributed to unlicensed staff. Expect an aggravated finding because the firm knew the licences were pending.
The fee argument. The fee is not internal. It is a payment that influences which clients the firm sees and which products it recommends, and disclosure is required in writing before signature - not as a generic "we may receive fees" line, but with the amount or the basis of calculation. Undisclosed, the client's consent was not informed. Recommended steps:
- Disclose the fee retrospectively and prospectively, with the basis of calculation.
- Review the 40% of the book for suitability, testing whether the introducer's products were systematically recommended.
- Consider refunding the fee and any commission from unsuitable sales.
- Check whether the arrangement is a prohibited inducement outright under the applicable regime, which would make disclosure insufficient.