BRIDGEFORCE 2014 COMPLIANCE MEETING

FSCO Compliance March 2014

Financial Services Commission of Ontario

About FSCO

FSCO is a provincial body with regulatory jurisdiction in Ontario and is governed by the Financial Services Commission of Ontario Act, 1997.

FSCO is an integrated regulator with solvency and market conduct oversight of the following sectors:

Insurance (Life & Health and Property & Casualty) Pension Plans Credit Unions and Caisses Populaires Mortgage Brokers and Administrators Co-operative Corporations Loan and Trust Companies

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Financial Services Commission of Ontario

FSCO Regulatory Core Activities

Market Conduct

Regulation and

Supervision

Regulatory Policy

Licensing & Registration

Filings & Applications

Monitoring &

Compliance

Enforcement &

Intervention

Regulatory Collaboratio

n

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Financial Services Commission of Ontario 4

DICO

RIBO

FMGF / OMIA OSC

MFDA

IIROC

Ministry of Finance

OSFI / FCAC

CCIR / CISRO

Other Regulators

Police Services

FINTRAC

March 2014

Financial Services Commission of Ontario

Outcomes of Risk-based Market Conduct Regulation

FSCO’s expectations for the conduct of individual licensees: Fair treatment of consumers and claimants Disclosure of information to enable consumers to make

informed decisions Compliance with laws Good corporate governance

FSCO’s expectation for system level conditions supported by individual licensees: Stable marketplace Proactive identification of issues Fair Dispute Resolution

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Financial Services Commission of Ontario

Removed unnecessary barriers to licensing

Introduced written disclosure of actual or potential conflicts of interest (O. Reg 347/04)

Insurance industry practices review: Questionnaire Industry sponsored codes of ethics

rather than impose rules Principles based

Priority of the Client’s interest Disclose actual or potential conflicts Recommend suitable products

2004

2006

Compliance Regulatory and Supervisory Landscape

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Financial Services Commission of Ontario

Agreement on Internal Trade, the Ontario Labour Mobility Act, the Ontario-Quebec Trade and Co-operation Agreement and industry requests for harmonization.

Life Insurance Product Suitability Questionnaire Agent non-compliance activity Follow-up on improvements

Canadian Insurance Regulators Disciplinary Actions database

2012

2013

Compliance Regulatory and Supervisory Landscape

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Financial Services Commission of Ontario

Consultation on a Proposal to Modernize Disciplinary Hearings for Insurance Agents and Adjusters

Develop a harmonized proficiency standard to replace the LLQP and the standard currently in place in Quebec

New FSCO computer system under development to handle all types of licences on line

2013

2014

Compliance Regulatory and Supervisory Landscape

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Financial Services Commission of Ontario

Consumer Complaint Handling System

Consumers have come to rely on a high level of complaint handling and dispute resolution service from the “Industry First Response” framework.

Ontario’s consumer complaint handling system is working well.

All stakeholders must continue to refine and strengthen industry standards for Consumer Complaint Handling Protocols.

Work with companies to ensure that complainants who have unresolved complaints are aware of the opportunity to have those complaints reviewed independently.

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Financial Services Commission of Ontario 10

Complaints – Life & Health Insurance

IMPORTANT: This presentation and the data included herein is intended for limited purposes and should NOT be used by any other parties or in advertising or any publications without FSCO’s prior written consent. The information above should only be considered in the context of this illustration.

March 2014

Claims / Settlements, 36%

30% Administration,

30%

14%13%

10%9%

Life and A&S Products

30% Life - Whole 14% Life - Other 13% Life - Universal10% Life - Term 9% Disability

69%

19%

12%

Life Investment Products

69% IVICS – Seg Funds 19% Other 12% Annuities/RSPs

30%

26%

13%

13%4%

Top 5 Life and A&S Causes

30% Marketing & Sales

26% Licensing

13% Claims & Settlement

13% Adminis-tration

4% Other

47%

26%

12%

11%4%

Top 5 Life Investment Causes

47% Marketing & Sales

26% Administration

12% Licensing

11% Product

4% Other

i.e. regulatory ac-tions by other ju-risdictions

Financial Services Commission of Ontario

How Do We Decide What Action to Take?

Within the Superintendent’s authority to do so

Public harm – number of victims or amount of money involved

Type of offence Deterrence value – specific

and general Seriousness of misconduct Frequency Sensitivity

Repeat occurrences or the risk of reoccurrence

Timeliness Chances of success Appropriate remedy is

available Matter is subject to

criminal prosecution or other litigation

Issue is systemic in nature Sometimes, because it is

the right thing to do

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Financial Services Commission of Ontario

Scope of Possible Compliance Actions

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http://www.fsco.gov.on.ca/en/insurance/enforcement/Pages/agents.aspx

Financial Services Commission of OntarioMarch 2014 13

Financial Services Commission of Ontario

Recommendations from the 2013 IMF Assessment of Canada Against the Insurance Core Principles

18. Intermediaries a) Maintain the positive momentum in promoting appropriate harmonisation of the regulatory regimes and supervisory practices with respect to intermediaries across provinces; b) Consider establishing proportionate expectation tailored for intermediaries, focusing on achieving fair treatment outcome for policyholders;

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Financial Services Commission of Ontario

Recommendations from the 2013 IMF Assessment of Canada Against the Insurance Core Principles

19. Conduct of Business (COB)

Strengthen the current COB regimes by: a) Continuing the proactive initiatives by CCIR and JFFMR to enhance consistency of COB regulatory regimes across provinces; b) Empowering FSCO to issue enforceable rules on product development and promotion as well as require insurers and intermediaries to conduct needs analysis before providing advice and meet policy servicing obligations;

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Financial Services Commission of Ontario

Recommendations from the 2013 IMF Assessment of Canada Against the Insurance Core Principles

21. Countering Fraud in Insurance

While their enforcement work has included action against intermediaries in relation to misrepresentation of insurance cover to a customer, consider the merits of setting out both AMF and FSCO expectations of intermediaries in the area of fraud controls more clearly.

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Financial Services Commission of Ontario

Recommendations from the 2013 IMF Assessment of Canada Against the Insurance Core Principles

22. Anti-Money Laundering and Combating the Financing of Terrorism

In relation to intermediaries, consider how best AMF and FSCO should set out their AML/CFT expectations in more detail, drawing on their supervisory work and experience.

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Financial Services Commission of Ontario

Emerging Issues - Complexity

1. Products are targeted and marketed to customer groups for which they are not suitable.

2. The customer does not understand the product being targeted at them.

3. The intermediary does not understand the product.

4. The company does not fully understand how the product will perform or is unable to monitor the risks to customers.

5. The company cannot fully support a product after it is launched (systems / volumes).

6. All financial services sector market participants will be affected by global regulatory reforms and market trends.

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Financial Services Commission of Ontario

Questions?

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