Lehman Minibonds and Now ILAS: Rise of the Hong Kong Politico-Consumer

Here’s an interesting book review I just came across which provides an illuminating perspective on the ILAS mis-selling scandal, placing it in the context of larger social developments in Hong Kong.


“The minibond saga, in which banks sold complex structured products known as “mini-bonds” to depositors at the time they came into their branch simply to renew their time deposits for another term, is well documented. The deal foisted on the banks, which saw most investors get the vast majority of their principal investment returned, marked the start (rather than the end) of a growing retail investor-rights consciousness in Hong Kong.

From mini-bonds, the focus has now shifted to Investment Linked Assurance Scheme (“ILAS”) products – investments products wrapped in the form of an insurance product. Although ILAS products give retail investors access to institutional funds, they do often come with high administration costs and lock-up terms which means getting access to your money without incurring a hefty penalty is difficult. These products have proved popular over the years in Hong Kong, but there have been a growing number of incidents where investors are prepared to speak up in cases where they allege these funds have been missold to them.

The Hobbins court case, one of the defining cases on intermediary commission disclosure, put ILAS products very much under spotlight. However, investors have also found other routes to express their grievances at misselling other than through the courts, with a number of blogs detailing horror stories of ILAS products being sold to persons who could ill afford to buy them (see, the blog entitled “the Rape of Hong Kong” as an example). Pressure from below has instigated change with new commission disclosure requirements on intermediaries selling ILAS products set to come into force, along with an overhaul of the insurance regulatory system targeted for 2015, where the introduction of a new and powerful Independent Insurance Authority will put an end the current self-regulatory regime for insurance intermediaries.”

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