2022 - FSRA - [2022-007] - Comments - Consultation on Proposed Principles of Conduct for Insurance Intermediaries

  • 2022 - FSRA -  [2022-007] - Comments - Consultation on Proposed Principles of Conduct for Insurance Intermediaries  ---  [BonkNote]  --- - [Binder-22p]  ---  [link]
    • ID: 2022-007
    • Comment Due Date - May 3, 2022
  1. Advocis - [2022-007] -  Paniz Ghazanfari - 4p
  2. CADRI - [2022-007] - Geoffrey Beechey - 2p
  3. CAFII - [2022-007] - Brendan Wycks - Canadian Association of Financial Institutions in Insurance (CAFII) - 4p
  4. CAILBA - [2022-007] - Eric Wachtel - 1p
  5. CLHIA - [2022-007] - Justin Glinski - 3p
  6. Desjardins Group - [2022-007] Sam Palmerio - 1p
  7. IFB - [2022-007] - Independent Financial Brokers of Canada - 4p
  8. IIAC - [2022-007] - Adrian Walrath - Investment Industry Association of Canada - 2p
  1. Advocis - [2022-007] -  Paniz Ghazanfari - 4p
    • We support FSRA’s effort in adopting CISRO’s Principles of Conduct for Insurance Intermediaries (“Principles”).
      • We agree that the Principles can further the objectives of the CCIR/CISRO’s Fair Treatment of Customers (“FTC”) guidance by focusing specifically on intermediaries. As we stated in our response to CISRO’s consultation on the Principles, we believe that certain substantive elements of the Principles can be further enhanced.1 In addition, we seek clarification in regard to aspects of FSRA’s implementation plans for the Principles in the province.
    • CISRO Principles of Conduct for Intermediaries
      • Given the utmost importance of customers' interests, we are of the opinion that this principle must be given priority as the first principle in the list.
      • Compliance - In addition, with respect to the principle of ‘compliance’, we believe it is important that insurance intermediaries be mandated to comply with not just the letter, but also with the spirit of the rule and law.
        • Moving away from a narrow interpretation of law would prevent individuals from avoiding the policy intentions based on a mere technicality.
        • This approach would be aligned with the principles-based approach that FSRA is advancing in its regulatory framework: in our submission to FSRA on April 29, we expressed our support for a principles based and outcomes-focused regulatory approach.2
      • Competence - Regarding the principle of ‘competence’, we believe that it is necessary for intermediaries to maintain a high level of skill in addition to developing relevant knowledge.
        • CE Credits - Accreditation
      • Advice / Consumer Expectations - In recent years, consumers have shifted their expectations to expect increasing professionalism.
        • This shift is reflected in regulatory reforms, such as the FTC Guidance, Client-focused Reforms from the securities realm, and most notably, through the implementation of the Ontario Financial Professionals Title Protection framework.
        • Because of the level of trust inherent in the advisor client relationship and the significant financial impact that quality advice has on consumers’ financial outcomes, we believe that professionalism in the industry is critical and we would modify this Principle to reflect this more explicitly.
    • Implementation of the Principles by FSRA
      • We recognize it is FSRA’s intention to help intermediaries achieve FTC outcomes by publishing guidance such as the Principles.
      • We do ask FSRA to be mindful that there are now several rules or pieces of guidance that touch upon the same core themes about consumer protection and treating customers fairly: there is
        • the CCIR/CISRO FTC Guidance,
        • the Unfair or Deceptive Act or Practices Rule, and now,
        • the Principles.
        • Adding to the confusion, the Principles are expressly intended to fit within the “four walls” of the FTC Guidance, but are somewhat different from the latter in their focus on intermediaries.
      • Lastly, we ask for further clarification regarding how the Principles will be enforced. We suspect that FSRA’s Life Agent Unit (“LAU”) may be involved as pursuant to the Interpretation and Approach, the ‘supervision process’ appears aligned with Phase 4 of the Life and Health
        Insurance Agent Supervision Framework3 wherein the LAU will be scaling up the examination and review of life agents’ conduct.
      • The framework, which was published in March 2022, incorporated only the FTC guidance in the LAU’s regulatory approach without mention of the Principles.
        • We ask FSRA to clarify whether the Principles will formally make part of the LAU’s Phase 4 examinations.
    • 3. CONCLUSION
      • We appreciate FSRA’s efforts towards integrating the Principles into Ontario’s regulatory framework. We ask FSRA to consider the substantive issues we raised as part of CISRO’s earlier consultation, as well as the implementation issues that are specific to this province.
  • 2 - CADRI - [2022-007] - Geoffrey Beechey - 2p
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  • 3 - CAFII - [2022-007] - Brendan Wycks - Canadian Association of Financial Institutions in Insurance (CAFII) - 4p
    • CAFII strongly supports a principles-based regulatory (PBR) approach. PBR produces the desired regulatory outcomes by engaging regulated entities directly in the regulator’s objectives; and by rooting the regulatory regime in a strong foundation of dialogue and the pursuit of common objectives, it is more effective at achieving the desired outcomes than is a rules-based approach.
    • PBR is also better aligned with a regulatory regime designed around fair treatment of customers (FTC); and it optimally balances FTC with fostering and supporting industry innovation. As well, PBR is fully consistent with the increasingly prevalent recognition that the most important element in achieving FTC is focusing on the corporate culture of regulated entities.
    • We are pleased by the fact that FSRA does not take a “one size fits all” approach in the Proposed Principles; and we therefore strongly concur with the Authority that All insurance intermediaries and insurers should conduct their business following the Principles of Conduct that are relevant to their role in the industry. Expectations for conduct may differ depending on the nature of the relationship to the customer, the type of insurance provided, and the distribution method. (Page 6.)
      • However, that said, we do have two important concerns to raise with respect to the Proposed Principles.
        • Our first concern stems from the statement that “In the future, FSRA intends to assess the potential for incorporating the Principles of Conduct into the UDAP rule” (Page 6), as we believe that doing that could give rise to possible deviations from a principles-based regulatory approach, unless it is positioned with exceptional care and handled in the same manner on an ongoing basis.
          • Our concern about the contemplated incorporation of the Proposed Principles into FSRA’s recently developed UDAP rule would be somewhat mitigated if it is clearly stated that the Proposed Principles’ becoming a component part of the UDAP rule is solely for the purposes of creating a ‘fall-back measure’, i.e. to provide enforcement capabilities to FSRA in cases where a regulated entity is clearly not adhering to the Proposed Principles.
          • As a general rule, however, CAFII strongly believes that the Authority’s first avenue for ensuring proper behaviour among industry participants should be through the Proposed Principles itself as a stand-alone document.
        • Our second issue of concern relates to implementation of the Proposed Principles.
          • CAFII and its members strongly believe that industry participants’ adherence to the Proposed Principles is far more important than having the industry share the Principles with and explain them to customers. For example, delivering fair treatment of customers in all of its facets is exceedingly more important than would be any requirement for industry players to explain to consumers that the interactions they are experiencing conform with FSRA’s expectations around Principles of Conduct for Insurance Intermediaries.
          • With respect to this matter, CAFII is troubled by the assertion that “It is expected that intermediaries and insurers that directly distribute insurance, share and explain the Principles of Conduct to customers” (Page 7) because we view the imposition of such a communication requirement as something that will only confuse consumers by muddying the waters; distract them with what are largely ‘internal industry considerations’; and undermine and detract from the positive aspects of their user experience in the purchase of insurance protection.
        • About CAFII
          • CAFII is a not-for-profit industry Association dedicated to the development of an open and flexible insurance marketplace. Our Association was established in 1997 to create a voice for financial institutions involved in selling insurance through a variety of distribution channels. Our members provide insurance through client contact centres, agents and brokers, travel agents, direct mail, branches of financial institutions, and the internet.
          • CAFII believes consumers are best served when they have meaningful choice in the purchase of insurance products and services.
          • Our aim is to ensure that appropriate standards are in place for the distribution and marketing of all insurance products and services.
          • CAFII’s members include the insurance arms of Canada’s major financial institutions – BMO Insurance; CIBC Insurance; Desjardins Insurance; National Bank Insurance; RBC Insurance; ScotiaLife Financial; and TD Insurance – along with major industry players Assurant; Canada Life Assurance; Canadian Premier Life Insurance Company; Canadian Tire Bank; CUMIS Services Incorporated; Manulife (The Manufacturers Life Insurance Company); Sun Life; and Valeyo.
  • 4. - CAILBA - [2022-007] - Eric Wachtel - 1p
    • We would like to note potential for additional regulatory burden and confusion as there are now several rules or pieces of guidance that touch on similar core themes about consumer protection and treating customers fairly. We would encourage FSRA to consider the need for clarity and simplicity of linking these various documents given the intention to hold entities to which they apply to account and compliance with this guidance.
    • As well, we are concerned with the suggestion that entities should review and explain the Principles to clients.
      • The sales process is already lengthy and detailed; perhaps instead entities could be required to note the principles on a website or include in their disclosure document, and draw the clients attention to them where they can be reviewed.
  • 5. - CLHIA - [2022-007] - Justin Glinski - 3p
    • Having reviewed your “interpretation” and “approach” we have some insights to share about the roles of intermediaries in relation to this guidance.
    • Importance of Harmonization
      • We support the approach that FSRA has taken in adopting the CISRO Guidance by reference. The use of the same language and principles promotes a consistent understanding of these expectations. It also greatly reduces regulatory burden that would otherwise be associated with differing interpretations across the country.
    • Partnerships
      • This guidance distinguishes between partnership insurance agents and other ways of organizing a business. The law of partnerships is distinct, and we would caution against introducing this term. It has implications for liability to those who are partners. Further, we are unclear about why this guidance is distinguishing between corporate and partnership agents. Intermediaries have requirements regardless of their organizational structure.
      • Where FSRA intends to refer to a business such as an MGA, National Account, or other type of business they should be specific.
    • Intermediary Responsibility
      • Intermediaries, such as MGAs, run businesses that are distinct from insurers.
        • They are best placed to design their own compliance programs.
        • Therefore, it is important that MGAs have their own obligations.
        • Their sightlines into product distribution are also different from that of an insurer.
      • Currently, insurers are required to ensure that MGAs adopt policies and procedures that support a compliance program. MGA compliance obligations only exist through their contracts with insurers. However, the authority to build and maintain a compliance program lies with the MGA’s management. As a result, the authority and responsibility are held by separate entities which makes implementation and enforcement challenging. Moreover, MGAs have their own separate contractual relationships with advisors. Insurers are not party to these contracts and therefore are limited to the extent to which influence can be exerted. For example, on page 8 it is noted that an insurer’s compliance system must screen each agent for suitability.
        • An MGA should also have their own independent requirements to conduct screening since they have a separate contractual relationship with an advisor.
      • Contractual and regulatory obligations are not equivalent
        • A contractual obligation should not be equated to a regulatory obligation.
        • Contractual obligations do not carry the same weight as set out in rules, regulation, or legislation.
          • The only way for a private company to enforce a contractual obligation is through contractual remedies.
          • Only a regulator, like FSRA, can revoke a licence and stop someone from selling insurance.
          • Also, FSRA has capacity to impose penalties and other sanction that go beyond contract remedies.
          • FSRA should also consider the number of different contractual relationships that support the market for insurance and the challenges that poses to consistent implementation.
      • Sharing and Explaining the Principles of Conduct
        • We agree that consumers should be aware of their rights, potential conflicts of interest, what certifies an advisor to give advice, and how to lodge complaints, etc. However, we are unsure that it is necessary to explain each of these principles to a consumer in this form. Rather, these topics should be included in an advisor’s written conflict-of-interest disclosure. Conflict-of-interest disclosure is a standard practice as outlined in the CLHIA’s Guideline 14 (G14).
      • Enforcement action
        • We would like to better understand what type of enforcement mechanisms FSRA intends to use against intermediaries who are noncompliant.
      • Compliance and suitability of screening systems
        • Insurers do not have outsourcing relationships with intermediaries. Outsourcing is a term that is defined by OSFI under its Guideline B10, Outsourcing of Business Activities, Functions and Processes. Instead, FSRA should refer to an insurer’s relationship with intermediaries in terms of contracting. For example, “MGAs with which an insurer has contracted”. For the same reason we suggest avoiding the term “delegation”.
      • Appendix B - The following are examples about which we have questions and concerns:
        • “An insurance agent misrepresenting a life insurance contract for a retirement savings vehicle” – There are life insurance contracts that are retirement savings vehicles. For example, segregated funds are designed as a savings tool and are life insurance contracts. The guidance might be referring to permanent life insurance products that have an investment component or that can be borrowed against. We ask that this example be made more product specific or removed.
          • [Bonk: Explore. More Clarification Needed.  IULs? - LIRPs?]
          • [Bonk: LIFE180, Infinite Banking, Savings vs Investing - NAIC - 1990s, MetLife - ACLI -]
        •  “An MGA omitting to report the unsuitable activities of an intermediate (contracted agent) to the insurer” – We agree than MGAs should report such conduct to an insurer when it is detected. However, FSRA should also encourage an MGA to report misconduct to FSRA.
  • 6. - Desjardins Group - [2022-007] - Sam Palmerio - 1p
    • Desjardins supports FSRA’s adoption of the Canadian Insurance Services Regulatory Organizations (CISRO) Principles of Conduct for Insurance Intermediaries.
    • The Principles reflect minimum regulatory conduct standards that are common across Canada regarding the fair treatment of customers, while recognizing that each jurisdiction has its own regulatory approach for the conduct of business.
    • We believe that consumers benefit from a principles-based, risk-based and outcome-focused approach to regulation. The advantages of principle-based regulation include providing the necessary room for organizations to determine how best to serve client needs and ensuring their fair treatment by meeting regulatory consumer protection intent at the lowest possible cost to consumers.
    • We also support the adoption of CISRO’s guidance as without national regulatory harmonization, most insurers will be faced with increased complexity, cost, and potentially conflicting compliance expectations across the country.
  • 7. - IFB - [2022-007] - Independent Financial Brokers of Canada - 4p
    • Therefore, IFB supports regulatory expectations that are harmonized across jurisdictions whenever possible to encourage consistent consumer experiences and regulatory efficiencies, while avoiding to a greater extent the cost, duplication, and confusion arising from inconsistent approaches. The CISRO Principles of Conduct/or Insurance Intermediaries and the CCI R/CISRO Fair Treatment of Customers guidance have provided notable foundations to support this consistency.
    • IFB has supported principles-based regulation as a more responsive and flexible approach which permits intermediaries of various size and complexity to achieve similar desired outcomes, without prescribing a specific methodology to achieve these outcomes.
      • Importantly, it helps regulators and industry adapt to changes in the marketplace, such as those arising from the emergence of new business models, products, and platforms, while still ensuring consumers dealing with these new entrants or with their more traditional insurance counterparts, are protected.
    • Specific comments
      • IFB agrees with the rationale for the Principles as set out in the Guidance. We interpret them as an alternative to FSRA developing a code of conduct, such as exists in some other jurisdictions.
      • The use of Guidance documents, such as the Principles of Conduct, provide insurance intermediaries with important educational resources that help them understand how FSRA will assess compliance with their regulatory responsibilities.
      • "share and explain"
      • Scope- The Scope, as set out, is very broad in its application. FSRA says it will apply to licensed P&C and L&H insurance sector entitles and intermediaries, as well as unlicensed intermediaries, including bank/credit union employees that help distribute or service insurance products. It also includes MGAs, P&C MGAs and TPAs.
      • ...Reg. 347 /04. There is no corresponding reference for P&C, or for any of the other intermediaries included in the Scope. We wonder how this will be enforced, particularly for insurers, or others, when screening unlicensed sellers of insurance who are not subject to Reg. 347 /04 or the Insurance Act in Ontario.
      • For many years, IFB has advocated for incidental sellers of insurance (ISI) to be licensed in Ontario. ISI licensing regimes exist in some other jurisdictions so insurance regulators can have oversight and improve protection for consumers who are offered, or sold, such insurance in conjunction with another product. IFB encourages FSRA to consider establishing a regulatory framework that encompasses the sale of such products and improves its direct oversight.
      • Appendix B: Examples of conduct contrary to the Principles of Conduct
        • Consistent with our comments above, the examples provided in Appendix Bare applicable to life and health insurance agents, and to some extent MGAs in the life and health sector. There are no examples applicable to the other intermediaries defined in the Scope.
          • To address this, IFB would like to see a more fully articulated list of examples which are applicable to each category of intermediary captured in the Scope of this Guidance. For example, what would FSRA consider to be conduct failures for insurers offering direct-to-consumer insurance? What is a failure(s) for a TPA or P&C MGA? We support the provision of examples as we think they will be helpful to intermediaries, but they should be inclusive of all the intermediaries defined in the Scope.
        • In the L&H examples FSRA has presented, it describes them as indicative of "failures" to adhere to the Principles of Conduct.
          • We agree this is true for most of the examples, as they demonstrate clear contraventions of the Insurance Act, Reg. 674 or Reg. 347 /04. However, the examples of an insurance agent acting as the Executor of the customer's estate and an insurance agent being the beneficiary of a client's insurance policy are not as clear. There is no doubt that these represent risky, conflict of interest situations for agents and should generally be avoided. However, there are circumstances in which they can be acceptable, such as when they relate to policies held by family members or business partners.
          • In our view, these situations would constitute a conduct failure if the advisor neglected to disclose the conflict in writing to the customer and obtain their consent, as would an instance where the licensee pressured the client to gain their consent or misled the insurance company on the policy application as to the role of the advisor.
            • It is our understanding that most insurance company applications ask if the advisor will be the beneficiary, owner, or payor of the proposed policy and, if so, the insurer will require further explanation.
            • It is also our understanding that similar questions may not be asked in relation to purchases of a segregated fund contract, and we wonder if this is why FSRA highlighted when an advisor is a beneficiary of a client's segregated fund.
          • We further note that there are a number of areas related to conduct that are not covered in Appendix B.
            • One example would be expectations around safeguarding client information
        • Closing thoughts
          • This Guidance document can have significant value for those included under the Principles, and other users, by providing a clear, plain language explanation of each Principle and FSRA's expectations of the professional behaviour and conduct associated with each Principle.
          • We encourage FSRA to include information applicable to all intermediaries captured under the Scope and expand upon examples of potential misconduct.
          • FSRA may want to consider providing examples of misconduct under each Principle, rather than listing examples in a separate Appendix where users have to sort through to find the pertinent information and perhaps link back to the Principle to find its meaning.
          • This format may become unwieldy as more information is added. IFB suggests that the B.C. Insurance Council's guidance on its Code of Conduct is an example of a comprehensive and easy to follow approach.
  • 8. - IIAC - [2022-007] - Adrian Walrath - Investment Industry Association of Canada - 2p
    • The IIAC is the leading national association representing Dealers who comprise the vast majority of the financial services provided to Canadian retail investors. Our members distribute a variety of securities such as insurance products, mutual funds and other managed equity and fixed income funds and provide a diverse array of portfolio management, and advisory services.
      • A number of our members would be considered Intermediaries based on the definition in the Proposed Principles, based on their role in distributing and servicing insurance products.
    • I. Harmonization and Principled Approach
      • The IIAC supports a principles-based approach to regulation, that takes into consideration risk and business models. In particular, we appreciate FSRA’s recognition of these values by stating:
        • industry has some latitude to determine how best to achieve the expected outcomes of this Guidance, and reasonably demonstrate application of this Guidance and the Principles of Conduct, as appropriate to the nature, size and complexity of their business operations and activities.
        • In addition, we support FSRA’s direct adoption of the CISRO Principles. It is important for intermediaries that are national to have consistency in how the CISRO Principles are interpreted and applied.
    • II. Interpretation and Approach
      • a. Sharing and explaining the Principles of Conduct.
        • We request confirmation that this processes to share the CISRO Principles will be prospective for new clients after the Effective Date. In addition, we question if it is necessary to require the CISRO Principles to be explained to clients. Elements of the CISRO Principles would be in policy and procedures already provided or available to clients, for example conflicts-of-interest. If the requirement is to remain, we believe that Intermediaries should have flexibility to determine how to satisfy the explain obligation.
    • III. Enforcement action
      • We would like to better understand what type of enforcement mechanisms FSRA intends to use against intermediaries who are noncompliant, and how FSRA intends to conduct their reviews.
    • IV. Appendix B
      • In general, we are in agreement with the Examples of Conduct Contrary to the Principles of Conduct outlined in Appendix B.
        • However, we note that there may be limited circumstances, related to the below examples of conduct, where FSRA should note the conduct is not contrary to the Proposed Principles.
        • An insurance agent misrepresenting a life insurance contract for a retirement savings vehicle.
          • The above example should be removed or modified to reflect that there are certain life insurance contracts that can be appropriate as a retirement savings vehicle, such as segregated funds. If it is modified, we believe it should be more product specific.