1. 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

2. 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

3. FSCO Key facts
IFB 2017 Toronto Fall Summit

4. 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

5. 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

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

7. 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

8. 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 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

9. 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

10. 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

11. QUESTIONNAIRE TIMELINE REMINDER
Introduction of LIFE AGENT desk Reviews
QUESTIONNAIRE TIMELINE REMINDER
Commences in Fall 2017
Delivered to agents by and registered mail
15 business days
Questionnaire responses & supporting documents submitted to FSCO by
Reminder 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

12. 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

13. 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 & ed to SCO
DESK REVIEWS > QUESTIONNAIRE

14. Monitor industry compliance
CURRENT APPROACH ( )
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 ( )

15. 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

16. 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
IFB 2017 Toronto Fall Summit

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23.  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

24. 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

25. 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 .

26. 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

27. 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

28. Questions?
IFB 2017 Toronto Fall Summit