As part of ongoing efforts to tighten control over markets and protect the rights of those involved in all non-banking financial activities, Dr. Islam Azzam, Chairman of the Financial Regulatory Authority, issued a circular to insurance companies to enhance disclosure and transparency of insurance policies that include gold-related investment strategies.

The circular requires insurance companies to disclose to their clients the nature of the insurance product, prohibits confusion or misleading marketing, and documents the client’s knowledge of the nature of the insurance product, after the Authority observed a number of negative practices and complaints from clients regarding confusion when marketing through banking channels between insurance products and savings or investment instruments or banking products and services, especially with regard to insurance products related to investments.

The circular stipulates that the company must disclose to the client, before contracting, in a clear, accurate and non-misleading manner, the insurance nature of the product, its advantages, risks and essential conditions, and state any component or investment strategy associated with it, in a way that enables the client to make his decision with knowledge and clarity.

If the insurance policy includes an investment linked to gold or any other investment asset, the nature of this investment and its management mechanism must be explained, and the fund or investment manager, as applicable, must be disclosed.

The circular also prohibits the insurance company from implying that it owns or directly manages the asset subject to investment if this is not true, while clarifying whether the client has the right to receive the asset in kind or redeem it, and the conditions of receipt or redemption if any, as well as clarifying the basis for determining the value of liquidation or redemption in accordance with the provisions of the policy.

The circular emphasizes the prohibition of using any phrases, means, or marketing practices that would cause confusion for the customer between the insurance product and deposits, accounts, or other banking products, services, savings and investment vehicles, or including in marketing materials incorrect or inaccurate data, or data that would create a perception contrary to the true nature of the product and its terms approved by the Authority.

In an important measure to protect and inform customers, the circular requires insurance companies to document the customer’s acknowledgment, before the contract is finalized, that he has reviewed the essential terms and conditions of the policy, that he is aware of the nature of the subject of the contract as an insurance product issued by the insurance company and not a deposit, account or banking product, that he has obtained the necessary information and disclosures to understand the nature of the product, its advantages and risks, and that the company has given him a sufficient opportunity to inquire about its terms and conditions.

This declaration does not exempt the insurance company from any of its legal or regulatory obligations relating to disclosure or the protection of customers’ rights.

According to the circular, insurance companies should review the materials, forms, and marketing methods used in distributing their products through banking channels, take the necessary internal measures and controls to ensure compliance with the aforementioned provisions, and provide the Authority within a month with the measures they have taken in this regard and with the customer declaration form that they will use in contracting operations.