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Bank Negara Malaysia issues policy document on Bancassurance / Bancatakaful

04 July 2022

Bank Negara Malaysia (‘BNM’) has on 30 June 2022 issued the Policy Document on Bancassurance/ Bancatakaful (‘Policy Document’) together with a set of Frequently Asked Questions (FAQs) on Bancassurance/ Bancatakaful. This follows from the issuance of an exposure draft of the Policy Document on 30 August 2021.
 
Save as otherwise mentioned in this article, the Policy Document will come into effect on 1 January 2023.
 
This article highlights the main areas relating to bancassurance/ bancatakaful that are addressed in the Policy Document.
 
Application
 
The Policy Document will apply to licensed insurers, licensed banks and licensed investment banks under the Financial Services Act 2013, licensed takaful operators and licensed Islamic banks under the Islamic Financial Services Act 2013 and prescribed institutions under the Development Financial Institutions Act 2002 (severally a ‘Financial Service Provider’ or ‘FSP’ and collectively ‘Financial Service Providers’ or ‘FSPs’).
 
The requirements in the Policy Document will apply to existing and new ‘bancassurance/ bancatakaful arrangements’, including renewal of such agreements, unless otherwise specified.
 
A ‘bancassurance/ bancatakaful arrangement’ refers to any distribution or marketing arrangement or agreement by a licensed insurer/ licensed takaful operator (severally a ‘licensed person’ and collectively ‘licensed persons’) with licensed banks, licensed Islamic banks, licensed investment banks and prescribed institutions (severally a ‘bancassurance/ bancatakaful partner’ and collectively ‘bancassurance/ bancatakaful partners’) that involves the sale/ marketing of all types of insurance/ takaful products including both individual and group policy/ takaful certificate via the following means:
  1. by the staff of the bancassurance/ bancatakaful partners;
  2. using the bancassurance/ bancatakaful partners’ distribution channels, including call centres, internet, branches and marketing booths, as well as third parties providing such sales support services to the bancassurance/ bancatakaful partners;
  3. using the bancassurance/ bancatakaful partners’ customer database; and
  4. the joint marketing of insurance/ takaful products with the bancassurance/ bancatakaful partners.
Bancassurance/ bancatakaful arrangements
 
The Policy Document allows a licensed person to enter into bancassurance/ bancatakaful arrangements with any number of bancassurance/ bancatakaful partners.
 
A licensed person is required to notify BNM in writing of any new bancassurance/ bancatakaful arrangements at least 14 calendar days before the commencement date of such arrangements and submit the following information to BNM together with the notification:
  1. the name of bancassurance/ bancatakaful partner(s);
  2. the products to be marketed or distributed by the bancassurance/ bancatakaful partner(s); and
  3. the period of the arrangement. 
Notification of termination of bancassurance/ bancatakaful arrangements
 
A licensed person must notify its policyholders/ takaful participants and BNM no later than seven days from the cessation (including non-renewal) of the bancassurance/ bancatakaful arrangements with its bancassurance/ bancatakaful partner.1
 
Responsibilities of the board and senior management
 
The board of a FSP is required to ensure that the governance arrangements for the management of its bancassurance/ bancatakaful business (including internal governance structures, policies, procedures and controls) are consistent with the requirements set out in the policy documents on Corporate Governance (CG), Fair Treatment of Financial Consumers (FTFC), Introduction of New Products and Introduction of New Products by Insurers and Takaful Operators (INP), respectively.
 
In furtherance of the responsibilities set out in the preceding paragraph, the board is required to approve the FSP’s internal governance structures, policies, procedures and controls with respect to the formulation of the bancassurance/ bancatakaful agreement, the implementation and monitoring of bancassurance/ bancatakaful arrangements and the design and distribution of bancassurance/ bancatakaful products.2
 
The board is responsible for providing adequate oversight on the implementation by the senior management of the internal policies, procedures and controls referred to in paragraph 9.3 of the Policy Document and to ensure that the FSP’s practices are aligned with the said internal policies, procedures and controls.
 
The board and senior management of a FSP are to be jointly accountable to ensure that the bancassurance/ bancatakaful products marketed and sold, as well as arrangements entered into do not result in poor consumer outcomes.
 
The senior management of a FSP must ensure that the operations of its bancassurance/ bancatakaful business and development of bancassurance/ bancatakaful products throughout the entire product lifecycle and any bancassurance/ bancatakaful arrangement entered into do not directly or indirectly promote unethical conduct by staff such as improper targeting of consumers and pushing unsuitable products to consumers.
 
Upfront fees by licensed persons to bancassurance/ bancatakaful partners
 
Any upfront fees payable by a licensed person to its bancassurance/ bancatakaful partner (or any other party on its behalf), including any upfront fees paid by a licensed person at the point of entering, or during the course of, a bancassurance/ bancatakaful agreement, is to be fully borne by the licensed person’s shareholders’ fund.3 The provisions in this paragraph took effect on 30 June 2022.
 
By way of guidance, the Policy Document provides that a licensed person should incorporate conditions or appropriate targets tied to the payment of upfront fees that are aimed at:
  1. ensuring all parties to the bancassurance/ bancatakaful arrangement deliver quality sales; and
  2. preventing misaligned incentives from developing.4 
Accountability between licensed persons and bancassurance/ bancatakaful partners
 
A FSP must ensure that the bancassurance/ bancatakaful arrangements clearly stipulate the accountabilities and responsibilities of the licensed person and the bancassurance/ bancatakaful partner respectively and collectively in the bancassurance/ bancatakaful arrangements.
 
Where possible, the accountabilities and responsibilities should be measurable and subject to close monitoring by the FSP. In this regard, the FSP must ensure the bancassurance/ bancatakaful agreement includes a clear delineation of responsibilities between the licensed person and the bancassurance/ bancatakaful partner, particularly with respect to the resolution of customer complaints, customer queries, after-sales services and claims settlement process.5
 
Disclosure and marketing to target customer segment
 
Paragraphs 10.1 to 10.12 of the Policy Document set out standards and guidance for FSPs and licensed persons in relation to the marketing and sale of insurance and takaful products under the bancassurance/ bancatakaful arrangements. For FSPs, these include:
  1. clearly and specifically identifying the product as an insurance or takaful product (including those marketed via telemarketing), as the case may be, in respect of non-credit life insurance/ family takaful products6;
  2. sending a notification directly to policyholders/ takaful participants via appropriate means, upon conclusion of a bancassurance/ bancatakaful sale, to inform policyholders/ takaful participants that they have “purchased an insurance or takaful product from [the name of the licensed person]”;
  3. prominently displaying the annualised returns for insurance/ takaful products with guaranteed features (e.g. guaranteed survival benefits and/or guaranteed maturity benefits) in all of its marketing materials (including product disclosure sheet, sales illustration or brochures) that contain any illustration of returns; and
  4. in relation to the sales and marketing of insurance/ takaful savings products sold via the bancassurance/ bancatakaful channel, to mitigate the risk of poor targeting of consumers, by ensuring that such products sold to high-risk segments7:
  • the bancassurance/ bancatakaful partner’s sales supervisor is required to approve the product recommendation; and
  • the FSP is to notify the customer of insurance/ takaful savings product(s) of the matters stated in paragraph 10.14(b) of the Policy Document in the manner stipulated in the said paragraph. 
In respect of non-participating and medical and health insurance/ takaful products (applicable to both basic policies/ takaful certificates and riders), paragraph 10.12 of the Policy Document requires a licensed person to disclose the commissions borne by policyholder/ takaful participant, expressed both in terms of the actual amount and as a percentage of premiums/ takaful contributions payable for each policy/ takaful certificate year in the product disclosure sheet.8
 
Training requirements for staff of bancassurance/ bancatakaful partners
 
A FSP must ensure that staff of its bancassurance/ bancatakaful partner or its appointed third-party service providers involved in marketing and providing advice on insurance and takaful products must pass the following examinations and obtain the relevant qualifications before they are allowed to sell/ market bancassurance/ bancatakaful products:
  1. Pre-Contract Examination for Insurance Agents (PCEIA) and the Takaful Basic Examination (TBE) for distribution of insurance and takaful products respectively; and
  2. Certificate Examination in Investment-Linked Life insurance (CEILLI) for distribution of investment-linked products. 
The staff of a bancassurance/ bancatakaful partner or the appointed third party service providers are also required to comply with:
  1. the continuous professional development requirements (‘CPD’) as required;
  2. the code of conduct and ethics, applicable to insurance agents registered with Persatuan Insurans Am Malaysia (PIAM) and/or Persatuan Insurans Hayat Malaysia (LIAM), and takaful agents registered with the Malaysian Takaful Association (MTA); and/or
  3. a minimum of eight hours of annual CPD training requirement for sales/ marketing of only mortgage reducing term assurance/ mortgage reducing term takaful and other credit-related insurance/ takaful products. 
Where insurance/ takaful products are marketed through the call centre of the bancassurance/ bancatakaful partner or a third-party call centre engaged by the bancassurance/ bancatakaful partner, only the team leader is required to comply with the minimum qualification and annual CPD requirement set out in paragraphs mentioned above.
 
Reporting requirements
 
The periodic reporting requirements to be complied with by a licensed person in relation to its bancassurance/ bancatakaful arrangements are set out in Part E and the relevant reporting formats are set out in Appendix II of the Policy Document.
 
Guidelines to be superseded
 
When the Policy Document comes into effect, it will supersede the following:
  1. Guidelines on Bancassurance issued on 17 June 2010 (BNM/RH/GL 003-25);
  2. Guidelines on Bancatakaful issued on 17 June 2010 (BNM/RH/GL 004-18); and
  3. Circular on Marketing of Bancassurance/ Bancatakaful Products issued on 24 December 2008 (BNM/RH/CIR 008-8). 
Alert by To’ Puan Janet Looi (Partner) and Fariz Abdul Aziz (Partner) of the Corporate Practice of Skrine.
 
1 Paragraphs 8.5 to 8.7 of the Policy Document provides guidance on the manner in which notification of termination is to be communicated by a licensed person to its policyholders/ takaful participants.
2 Refer to paragraphs 9.3 and 9.4 of the Policy Document for further details of these requirements.
3 Paragraph 9.15 of the Policy Document clarifies that this obligation will apply prospectively to existing bancassurance/ bancatakaful agreements, as well as to new and renewals of existing bancassurance/ bancatakaful agreements.
4 Refer to paragraph 9.17 of the Policy Document for examples of good and poor practices.
5 Paragraph 9.25 of the Policy Document provides by way of guidance, examples of the accountabilities and responsibilities that should be included in the bancassurance/ bancatakaful arrangement.
6 Footnote 15 of the Policy Document explains that non-credit life insurance and family takaful products refers to all life insurance and family takaful products, general insurance and general takaful products other than credit-related products such as mortgage-reducing term assurance, mortgage reducing term takaful, personal reducing term assurance and personal reducing term takaful products.
7 Paragraph 5.2 of the Policy Document defines “high risk segments” as the segments of consumers who are more susceptible to the risk of harm or mis-selling such as individuals earning a monthly income of up to RM5,000, first time buyers of an insurance/ investment product, students and retirees.
8 Where a product combines both insurance/ takaful and banking elements, a licensed person is required to unbundle the insurance/ takaful element and disclose the commissions and charges/ expenses referred to in paragraph (d) except in relation to Perlindungan Tenang products.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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