NATIONAL & INTERNATIONALREGULATORY DEVELOPMENTSIMPACTING ADVISORS
TakeawayCanadian regulatorsare held tointernationalstandards
Lesson from HSBC
GC “It’s not unlawful - can do”
CCO “Cannot do - goes againstthe spirit of the law”
$1.9 billion fine
Advisor
SettingStandards
AdoptingStandards
EnforcingStandards
FollowingStandards
Identification of “High-risk” Jurisdictions
2008
Evaluationof Canada
----deficiencies
identified
Deficienciesaddressedby Canada
Canadaremoved
fromregular
follow-upprocesson Feb
2014
Nextevaluationof Canada2015
Corporate GovernanceRegulation
Financial/CapitalRegulation
Business Conduct
Regulation(Advisors)
You
FSCO
CCIR
IAIS
G20
Business ConductGalaxy
1- Administer theInsurance Act
2- Enhance publicconfidence in theregulated sectors
FSCO’sMandate
CCIR’s Strategic Plan
Ensure that the Canadian regulatory system meets all internationally agreed upon standards
U.S. Insurance Regulators
NAIC WorksToward UniformGlobal RegulatoryStandards
April 3, 2009 News Release
IAIS
• Over 200 jurisdictions in some 140 countries
• Mission: Promote effective and globally consistent regulation/supervision of the insurance industry
• Responsible for developing supervisory principles, standards and guidance for the regulators
Advocis and IFB of Canada
WFII, the single voice ofinsurance intermediaries
in internationalpublic affairs
80% ofworldtrade
2/3 ofworldpopulation
“Far more needs to be done to protect consumers against unfair, deceptive and abusive practices. We are committed to implement enhanced standards globally and consistently in a way that ensures a level playing field and avoids regulatory arbitrage.” G20 Leaders Declaration 2009 Pittsburgh Summit
Most extensive sets of comparativeinformation ever collected in the field
2009 – 2010Market Conduct
Survey of35 countries
Complex financial products
Complex decisions
Complex contracts and terms
Massive market power imbalance
Imperfect business conduct regulation
Deficient consumer redress mechanisms
Lax business conduct supervision
The Findings1
2
3
4
5
6
7
All financial consumers shouldbe treated honestly and fairly
at all stages of their relationshipwith providers of financial services
FTC
Internationally Agreed ICPsICP 1 Objectives, Powers and Responsibilities of the Supervisor
ICP 2 Supervisor
ICP 3 Information Exchange and Confidentiality
ICP 4 Licensing
ICP 5 Suitability of Persons
ICP 6 Changes in Control and Portfolio Transfers
ICP 7 Corporate Governance
ICP 8 Risk Management and Internal Controls
ICP 9 Supervisory Review and Reporting
ICP 10 Preventive and Corrective Measures
ICP 11 Enforcement
ICP 12 Winding-up and Exit from the Market
ICP 13 Reinsurance and Other Forms of Risk Transfer
ICP 14 Valuation
ICP 15 Investment
ICP 16 Enterprise Risk Management for Solvency Purposes
ICP 17 Capital Adequacy
ICP 18 IntermediariesICP 19 Conduct of BusinessICP 20 Public Disclosure
ICP 21 Countering Fraud in Insurance ICP 22 Anti-Money Laundering and Combating the Financing of Terrorism
ICP 23 Group-wide Supervision
ICP 24 Macro-prudential Surveillance and Insurance Supervision
ICP 25 Supervisory Cooperation and Coordination
ICP 26 Cross-border Cooperation and Coordination on Crisis Management
FTC
AdvisorApplication
• The regulator sets requirements for the conduct of business to ensure customers are treated fairly.
Principle19
• The regulator requires advisors to establish and implement policies and procedures (codes) on the FTC that are an integral part of their business culture.
Standard
19.2
Conduct of Business
Oth
er F
TC O
utco
mes
Expe
cted
from
Adv
isor
sActing with care when dealing with customers
Providing customers with clear information, beforeduring and after the point of sale (disclosure)
Reducing the risk of sales which are not appropriate tocustomers’ needs (product suitability)
Ensuring that the advice giving is of a sound quality
Managing conflicts of interest properly
Handling customer complaints in a fair manner
Avoiding unfair or deceptive acts and practices
Protecting personal information on customers
What is yourmost valuable
asset?
How do youprotect it?
TCF
Reputation
Building
Best strategy
FTCRisk-based Regulation
ProductSuitability
Risk-based Regulation
causin
g harm to
tangible expression of
Risk Outcome
Managing risks to achieve outcomes
FSCO is conducting a review to understand and assess the process that advisors use at the point of sale in making suitable product recommendations.
Product SuitabilityLife Insurance Agent
Questionnaire
Industry reference document
The Approach: Serving the client through needs-based sales practices
Proactive identification of issues:
Sound knowledge of the risks which may impede desired marketplace outcomes increases the probability that solutions can be found before potential risks become major problems.
• Compliance Risk• Governance Risk• Culture Risk
International Standard 19.6
The regulator (FSCO) requires advisors to ensure that, where customers receive advice before concluding an insurance contract, such advice is appropriate, taking into account the disclosed needs of the customer.
Principle 6 - Responsible Business Conduct
Advisors should assess the related financial capabilities, situation and needs of their customers before agreeing to provide them with a product, advice or service.
New Consumer Code [to be binding]
Responsibility to Consumers:
Acting in the best interests of the consumer could include evaluating and assessing the needs of the consumer, including their financial situation and attitude to risk, and using that information to ensure that appropriate products and services are presented and discussed.
2013 Insurance Banana Skins Survey
No.1 risk for the
insurance regulators
Managing Conflicts of InterestCCIR
Principles
• Priority of the customer’s interest• Disclosure of conflict or potential conflict• Product suitability
How to
• Means left to the industry (flexibility)• CAILBA, Advocis, IFB of Canada and CLHIA
developed Uniform Disclosure Protocol
ComplianceReview
• 2007-2008 CCIR/CISRO surveyed application • Survey Result: No regulation necessary
International Standard 19.7
The regulator requires advisors to ensure that any potential conflicts of interest are properly managed.
High-level Principle #6
When conflicts of interest cannot be avoided, advisors should ensure proper disclosure, have in place internal mechanisms to manage such conflicts, or decline to provide the product, advice or service.
Advisors are required to have and adhere to policies and procedures (codes) on the FTC that are an integral part of their business culture. [International Standard 19.2]
Advisors in British Columbia, Alberta, Saskatchewan, Manitoba and Quebecare subject to a binding code of conduct tangibly expressing FTC outcomes.
Identification of “High-risk” Advisors
Yes
Yes
No
• Culture
• Strategic business plan
• Protocols or approaches
• TCF core values
We customersSubstance(Governance)
Form(Compliance)
February 3, 2014
Constrained by limited resources, FSCO has adopted both a reactive and industry-wide targeted approach to supervising large numbers of insurance advisors.
The provincial authorities should continue to harmonize their COB regimes, while ensuring adequate supervisory resources for effective COB supervision. FSCO should be equipped with adequate resources and financial capacity to deal with the size and diversity of the Ontario marketplace.
Increasing the Effectiveness of SupervisionConsultative Document, November 18, 2013Guidance for regulators on Risk Culture
This paper identifies the foundational elements that contribute to the promotion of a sound risk culture. It aims to assist regulators in identifying those core practices and attitudes that may be indicators of risk culture.