IFB 2017 Toronto Fall Summit November 8, 2017 FSCO Update on Current and Future Compliance and Enforcement Initiatives Heather Driver, Director, Licensing IFB 2017 Toronto Fall Summit November 8, 2017

Financial Services Environment Agenda About FSCO Financial Services Environment Financial Services Regulatory Authority (FSRA) Regulation of Financial Planning Key FSCO Initiatives Life Insurance Industry Working Group Examinations Update Review of Key Enforcement Issues CISRO/CCIR Update Questions IFB 2017 Toronto Fall Summit

FSCO Key facts IFB 2017 Toronto Fall Summit

Program Administration and Other Services Fsco’s regulatory role Program Administration and Other Services Administer special purpose funds Motor Vehicle Accident Claims Fund Pension Benefits Guarantee Fund Provide dispute resolution services between accident benefit claimants and insurance companies Provide registration services for co- operative corporations Regulatory Supervision Ensure compliance with the laws governing each regulated sector Administer and enforce statutes and corresponding regulations for the regulated sectors Develop and implement administrative and regulatory policies and procedures Provide advice and recommendations to government IFB 2017 Toronto Fall Summit

Compulsory Automobile Insurance Act Legislation administered by fsco Insurance Act Compulsory Automobile Insurance Act  Automobile Insurance Rate Stabilization Act Registered Insurance Brokers Act Prepaid Hospital and Medical Services Act Motor Vehicle Accident Claims Act Co-operative Corporations Act Credit Unions and Caisses Populaires Act Loan and Trust Corporations Act Mortgage Brokerages, Lenders and Administrators Act Pension Benefits Act IFB 2017 Toronto Fall Summit

Business, individuals and plans regulated by fsco IFB 2017 Toronto Fall Summit

June 2017: FSRA Board of Directors appointed. Update on financial services regulatory authority (fsra) 2015: Expert Advisory Panel appointed to review the mandates of FSCO, the Financial Services Tribunal (FST) and Deposit Insurance Corporation of Ontario (DICO). March 2016: panel’s final report to the Minister; 44 recommendations including the establishment of a new, independent and integrated regulator that is more consumer-focused. December 2016: Financial Services Regulatory Authority of Ontario Act passed - establishes initial parameters of FSRA. June 2017: FSRA Board of Directors appointed. Expected in near future: legislative amendments regarding FSRA FSCO continues to carry out its mandate as the financial services regulator in Ontario. IFB 2017 Toronto Fall Summit

regulation of financial planning in ontario Regulatory framework is product-based e.g., FSCO regulates distribution and providing of advice for insurance products; securities regulators oversee distribution and providing of advice for investment products. Expert Committee appointed by Minister of Finance; final recommendations published March 2017. 2017 Ontario Budget: government would take steps to close the gap which currently allows financial planners to perform their work without regulatory oversight or specified proficiency requirements, including: Enact a registry of financial planners and advisors Limit use of titles Examine the feasibility of a universal statutory best interest duty in Ontario Consideration of the expert committee’s recommendation related to referral arrangements Implementation Working Group formed by Ministry of Finance; includes representatives from FSCO and other regulators. Progress report to be released soon. IFB 2017 Toronto Fall Summit IFB 2017 Toronto Fall Summit

Licensing requirements   Provides insight or advice to FSCO on regulatory issues and/or supervisory matters pertaining to the life insurance industry, e.g.:  Licensing requirements Compliance and monitoring initiatives, such as complaint handling and offsite or on-site examinations FSCO’s outreach and communication initiatives Emerging issues in the marketplace  Members from life insurers and industry associations Meets at least quarterly Life insurance industry working group IFB 2017 Toronto Fall Summit

On-site examinations began Introduction OF Life agent on-site examinations Year 1 (2015/2016) On-site examinations began Agent selection based on prior complaints & reports of non-compliance 214 on-site examinations completed Year 2 (2016/2017) New, proactive risk factors applied to the selection process for life agents On-site examinations continued 200 on-site examinations completed 22 follow-up desk reviews completed Year 3 (2017/2018) Continued to select agents based on risk profiling assessments On-site examinations continue New desk review approach begins Fall 2017 Results of desk reviews will identify agents for further on-site examinations as required IFB 2017 Toronto Fall Summit

QUESTIONNAIRE TIMELINE REMINDER Introduction of LIFE AGENT desk Reviews QUESTIONNAIRE TIMELINE REMINDER Commences in Fall 2017 Delivered to agents by e-mail and registered mail 15 business days Questionnaire responses & supporting documents submitted to FSCO by email Reminder email delivered to agents 5 days prior to submission deadline No response Files will be escalated to Regulatory Disciplinary Officers for enforcement action DESK REVIEWS > INTRODUCTION

PRODUCT SALES DEALING IN MORTGAGES OVERVIEW OF Questionnaire SECTION 1: LIFE INSURANCE AGENT Contact information Industry background / experience Other business activities SECTION 2: PRODUCT SALES Distribution channel Volume of business Types of products sold (average face values) SECTION 3: DEALING IN MORTGAGES For life agents who may refer mortgage products Types of products referred Referral fees received in 2016 DESK REVIEWS > QUESTIONNAIRE

SECTION 4: DOCUMENTS ATTACHED ATTESTATION ITEMS TO NOTE OVERVIEW OF Questionnaire (CONT’d) SECTION 4: DOCUMENTS ATTACHED ATTESTATION ITEMS TO NOTE Evidence of current E&O coverage Evidence of completion of CE Evidence of ‘0’ insurance sales in 2016 (if applicable) Responses are true to the best of Agent’s knowledge Represents current practices of Agent’s business Responses relate to Jan – Dec 2016 business activity only Questionnaire applies even if ‘0’ business conducted in 2016 Fillable, electronic document to be scanned & emailed to SCO DESK REVIEWS > QUESTIONNAIRE

Monitor industry compliance CURRENT APPROACH (2017-2018) On-site exams Desk exams Risk-based approach Monitor industry compliance Further exams conducted on-site as required Refine exam program (incorporate product suitability elements) Standardized questionnaire Identify potential risks CURRENT APPROACH (2017-2018)

Written Disclosure of any or potential conflicts of interest Ontario’s requirement for agents Regulation 347/04 Written Disclosure of any or potential conflicts of interest Written Disclosure of names of all insurers that agent represents as well as all providers of financial products or service other than insurance Maintains Errors and Omissions insurance in an amount of at least $1M Completes Continuing Education Requirements Report changes to contact information to the Superintendent within 5 days after the change is effective Prohibits certain practices IFB 2017 Toronto Fall Summit

Regulation 647/04 Life Insurance Replacement Declaration Ontario’s requirement for agents Regulation 647/04 Life Insurance Replacement Declaration Provide written disclosure when a client is considering purchasing a new life insurance policy to replace a policy that has been rescinded, lapsed, surrendered, changed to paid-up insurance or changes in any manner that reduces benefits or circumstances set out in regulation FSCO’s expectation is that written explanation is clear and comprehensive so that anyone reading the disclosure understands why the existing policy does not meet the client’s needs; how the new policy would meet those needs and the risks associated with replacing the existing policy Adhere to other requirements in regulation around the disclosure and policy delivery Federal FINTRAC (AML/CTF) and Privacy Protection Laws http://www.fintrac.gc.ca/intro-eng.asp https://www.priv.gc.ca/leg_c/leg_c_p_e.asp IFB 2017 Toronto Fall Summit

False information on Application Forms Continuing Education Key issues Unlicensed Activity False information on Application Forms Continuing Education Errors & Omissions Insurance Failure to disclose conflicts of interest – NEW ISSUE IFB 2017 Toronto Fall Summit

Key enforcement tools FSCO has several tools at its disposal to address issues of non-compliance, including: issuing a Letter of Caution, advising that regulatory action may be taken in the event of another violation issuing Minutes of Settlement where an agreement is reached about the appropriate resolution of the non-compliance applying administrative monetary penalties (AMPs) placing conditions on a licence suspending or revoking a licence failing to issue or renew a licence Issuing a Cease and Desist Order FSCO’s progressive approach to enforcement begins with education and moral suasion to change behaviour in the regulated sectors. When there is evidence of non-compliance FSCO will take enforcement action. Any action taken is commensurate with the size and complexity of the regulated entity, as well as the impact to consumer protection. IFB 2017 Toronto Fall Summit

Contravention Enforcement Unlicensed activity Contravention Enforcement It is an offence to act as an insurance agent while unlicensed as per Subsection 392.2(6) of the Insurance Act; subsection 2(1) of Ontario Regulation 347/04 Compensation is not to be paid by insurer to person who is not licensed as per Section 403(1) of the Insurance Act Insurer failed to establish or maintain a system that is reasonably designed to ensure that each agent complies with the Act, the regulations and the agent’s licence as per Section 12 of Ontario Regulation 347/04. These requirements constitute primary means of protecting the public and promoting compliance with the whole regulatory approach. Administrative Monetary Penalty imposed - $15,000 IFB 2017 Toronto Fall Summit

Contravention Enforcement False information on Application Forms Contravention Enforcement It is an offence under 447(2)(b) of the Act to fail to comply with a requirement of, or any order or direction made under the Act. Life Agent stated on renewal application that she had completed 30 hours of CE credits in the previous two years. Unable to provide evidence of CE completion. FSCO relies upon information provided in licence applications/renewals to evaluate suitability Administrative Monetary Penalty imposed - $1,750 IFB 2017 Toronto Fall Summit

Requirement Enforcement Continuing Education Credits Requirement Enforcement Requirement under Section 14 of Ontario Regulation 347/04 for life agents to complete at least 30 hours every two years of continuing education acceptable to the Superintendent. Life agent failed to complete at least 30 hours every two years of continuing education acceptable to the Superintendent in respect of life insurance. Requirements are a means of protecting consumers – improve skills/stay current. Summary Administrative Monetary Penalty imposed - $1,000 IFB 2017 Toronto Fall Summit

Changes to enhance agent compliance with E&O insurance requirements Errors & omissions (E&O) insurance Requirement Changes to enhance agent compliance with E&O insurance requirements Not having valid E&O insurance coverage is an offence under the Insurance Act Subsection 447(2) and section 14 of Ontario Regulation 347/04. Failure to comply with this requirement could result in enforcement action. E&O Requirements are a most basic/vital/essential means of protecting consumers 2015: FSCO introduced mandatory updating of the E&O Insurance Portal in Licensing Link.. After 1 year the E&O compliance rate was 91%. 2016: Following consultation with industry associations, FSCO began to require agents to provide the names of the insurance companies they represent. The information is required whenever life insurance agents are updating Licensing Link to renew their licence or update their E&O information IFB 2017 Toronto Fall Summit

 Increased insurer compliance with legislative requirements, monitoring e&O Insurers have responsibility for oversight. Insurers can obtain relevant E&O information from FSCO’s Licensing Link. Life insurance companies can download the list of life insurance agents that have indicated that they represent them. Includes FSCO’s record of the E&O expiry date for each life agent. Outcome: E&O compliance rate has increased from 91% to 94.5%  Increased insurer compliance with legislative requirements,  Increased life insurance agent compliance with legislative requirements (E&O),  As the rate improves, FSCO will be able to focus regulatory efforts on other key areas IFB 2017 Toronto Fall Summit

Insurance Act Ontario Regulation 347/04 – Agents s. 16. Failure to disclose conflicts of interest- NEW ISSUE Insurance Act Ontario Regulation 347/04 – Agents s. 16. Conflicts of interest An agent who holds a life insurance licence shall disclose in writing to a client or prospective client any conflict of interest or potential conflict of interest of the agent that is associated with a transaction or recommendation. During recent FSCO examinations it was revealed that some agents are either unaware or and/or do not comply with this requirement. Potential AMP of $3,000 for agents Insurers also have oversight responsibility under section 12 of Ontario Regulation 347/04 to ensure that agents make required disclosures. IFB 2017 Toronto Fall Summit

Administrative Monetary Penalties against insurance companies in 2016 INSURANCE SECTOR Enforcement actions FSCO takes appropriate regulatory action when there is non-compliance with legislation Enforcement actions against insurance agents in 2017 (up to June 30, 2017) 9 Administrative Monetary Penalties, a total of over $29,200 8 Refusals 4 Revocations 3 Suspensions 2 Cease & Desist Orders Administrative Monetary Penalties against insurance companies in 2016 13, a total of over $301,354 Enforcement actions against insurance agents in 2016 27 Administrative Monetary Penalties, a total of over $58,322 11 Refusals 7 Revocations 4 Suspensions 1 Cease & Desist Orders IFB 2017 Toronto Fall Summit .

National initiatives Canadian Insurance Services Regulatory Organizations (CISRO) regulators of insurance intermediaries Canadian Council of Insurance Regulators (CCIR) – regulators of insurers CISRO and CCIR beginning to work together more on joint projects (e.g., insurer oversight, distribution models etc.) IFB 2017 Toronto Fall Summit

Segregated Funds Working Group: CCIR WORKING GROUPS UPDATE Segregated Funds Working Group: Mutual funds regulated as securities products, seg funds are insurance products. Working Group reviewed and consulted on gaps in disclosure created by introduction of CRM2 in mutual fund sector Position Paper to be released in November 2017 – will contain recommendations; each jurisdiction will decide whether and how to implement. Goal is to achieve at least equivalent consumer protection for seg fund policyholders as for mutual fund investors. Full cost disclosure will be required for segregated funds. Model disclosure statement will be released in early 2018 – being tested in consumer focus groups – insurers won't have to use the template but must include all the required disclosure elements on a minimum annual basis. IFB 2017 Toronto Fall Summit

Questions? IFB 2017 Toronto Fall Summit