FSRA extends its appreciation to the nearly one thousand people who participated in the regulator’s first ever Exchange Event held on January 27, 2022. It focused primarily on principles-based regulation and the importance of enabling innovation across all the sectors FSRA regulates.
In case you missed it, the virtual event featured an address by Ontario Finance Minister Peter Bethlenfalvy, an in-depth interview with FSRA CEO Mark White, and expert panels on Principles-Based regulation and Innovation, as well as an address by FSRA Board Chair Joanne De Laurentiis.
WATCH: FSRA CEO Mark White explains how FSRA is working to protect drivers, pensioners, mortgage investors and how to balance competing interests in the sectors it regulates.
2022 FSRA Exchange Event – 02 The Future of Financial Services Regulation, Innovation, and Public Interest – Fireside Chat
Clare O'Hara: Hi, Mark.
Mark White: Ah, and there's my picture. Glen, thanks very much for the introduction. The camera had me worried there for a second but we're -- now we're ready to go. Also like to share my thanks to everybody for coming today. And Clare, it's great to see you. And I wish we could be doing this in person, but I'm really looking forward to your probing questions about FSRA.
Clare O'Hara: No, thank you for having me. It's great to be here. As you said, even if it's virtual it's great to hear that so many of us have -- have gotten together this morning. We have a lot of ground to cover. But Mark, I thought maybe we could jump into things. And I'd like to give you a couple of minutes just to sort of introduce FSRA. You know, what you personally hear about financial regulation and tell us a bit about what sets FSRA apart from its predecessor? Or predecessors.
Mark White: Well, sure. Yeah. Thanks, Clare. Well, those are great questions. I'm gonna take them into two pieces because first of all it's personal about why I do this and why I care about financial regulation. And -- and the simple reason is is that it actually makes a difference in the lives of everybody in Ontario. FSRA's goal, our mandate is to protect the public as we work towards financial safety, fairness, and choice for Ontarians. And while much of what we do is unseen, it -- it's a big responsibility.
We regulate sectors that are foundational to everybody's lives. Pension plans, mortgage brokers, life and health and P&C insurance, auto rates, loan and trust companies, credit unions, health service providers. And soon financial planners and advisors. It's -- it's busy. And our responsibility is to promote strong financial services sectors and we take protecting the public interest very seriously while we seek competitive markets and innovation as mentioned by Glen.
And I take this role very seriously. The government launched FSRA in 2019 to be an independent empowered regulator. We have a transfor -- formative mandate and where it enables us to regulate in a way that's open to business, to innovation, but dedicated to consumer protection. And our man -- our mandate has intentionally competing interests, and we have to balance those. And so it's a bold new approach and I think it's an approach that's making a difference. And wherever I go, whoever I mean, and I think about the work that we're doing and the need to act in their best interests, we as -- as -- particularly our -- we care about those who have a position of vulnerability.
You know, Clare, financial services, you know, you report on this. They're complex. And they're changing a lot. And whether it's about the strength of an institution or the fairness of a -- how they're getting services, consumers need somebody there to protect their interests and to -- and to also make sure that the markets can grow and that they can function well.
And so consumers in every corner of the province, they're our clients. We're dedicated to them and they deserve nothing less. And, you know, and that's what keeps me coming back into the office every day. I think you also asked me, didn't you, about -- so, what makes FSRA different than its predecessor --
Clare O'Hara: -- Right --
Mark White: -- Do you want me to go into that for a second?
Clare O'Hara: Yep.
Mark White: Yeah, cause that's -- so we merged with two predecessor organizations in June 2019 and I think FSRA is a different regulator. And some of it's because of the technical things given to us in the FSRA Act. We have a strong governance model with a great Board of Directors. We have rule making powers where we have a well defined mandate and we're -- been given the powers to regulate the public interests. And because of this we can regulate differently than our predecessors. And this is reflected in our mission. We want to be a dynamic, principles based and outcomes focused regulator that is serving the public interest.
And we also have core values that -- they guide our actions internally and externally: honesty, integrity, credibility, impact, collaboration, and empathy. And we've been in business two and a half to three years. And as a -- in that time I think we've demonstrated that we have an efficient and effective approach to regulation that's proportionate and scalable. It's risk and evidence based.
As Glen mentioned, we're a principles based regulator. We look at the outcomes. We're moving away from proscriptive checklists and a compliance focus. We want to evaluate regulated entities by do they achieve the desired outcomes? This requires an understanding of why we regulate and good judgement both by us and by those we regulate.
And with principles based regulation, entities are expected to understand and achieve the desired outcomes. But they can do so in a way -- and this is the -- this is the great part -- that's suited to their size, nature, complexity of the business, and where they are in the marketplace. It's not one size fits all. So principles based regulation is fundamental in everything we do. In our rules, in our guidance, our regulatory decisions, but it really comes to life in how we supervise the regulated entities. By using principles based regulation we evaluate whether the public good is furthered by their activities.
FSRA -- this also requests FSRA to really be action oriented, and we're building the capacity to actively supervise regulated entities to assess whether those outcomes are achieved and the consumer interests are protected. Internally, of course, this requires significant cultural change, and that also requires cultural change in those who regulate. And this makes our emphasis on communication, collaboration, and transparency all that more important. And you'll hear more about this in the panel on principles based regulation.
Something else that sets us apart, and Glen mentioned this, is innovation as -- and we're gonna have a great panel on that today. Our innovation office, it's there to help both new and existing market participants, helping innovate in a responsible way, a way that protects the public interest and maintains consumer confidence. And earlier this week our innovation office released the innovation framework and we started our first we call Test and Learn Environment for the auto insurance. This will help us validate and assess new and innovative products, services, business models that don't fit within the existing regulatory parameters to see if they can be introduced in Ontario without risk of public harm. And you'll hear more about this in the innovation panel.
So, you know, all these differences I think FSRA is quite -- quite a different organization than our predecessors. But, you know, our transformation's still underway. And I expect as we're guided by the engagement with our stakeholders we're gonna continue to grow and evolve to better serve the needs of our sectors and frankly to assist our sectors in making sure that they fulfill their role, which is providing competitor financial services to meet public demands.
Clare O'Hara: Great. Well thanks, Mark. I think that gives us a really good opening and -- and an overview of -- of what FSRA is. And as you pointed out, there's a lot of sectors that FSRA covers and I hope we can dive in and get into some of them. I -- I want to jump into a topic that -- that I've covered quite a bit. And -- and so the mutual fund industry is banning DSC mutual funds, deferred sales charges, coming up on June first. And when we jump into the insurance sector, you know, FSRA's regulation of segregated funds, which are somewhat similar to mutual funds, doesn't seem to align with the regulation of mutual funds on a matter of DSCs and cost disclosures. So I'm wondering, do you think these need to be harmonized for better investor outcomes?
Mark White: Yeah, it's a good question. Well, you know, and -- and as you Clare -- Clare, you of course cover this area and you write on it, so you know. But for those who might not be as close, segregated funds are a form of variable annuity. It's an insurance product but it has investment features. And you're right, very similar to mutual funds. And segregated funds and mutual funds, they can be close substitutes to investors. They're often sold by the same persons and even sponsored by the same fund managers. And so when we're regulating seg funds we think about the competing objectives we have of protecting consumers and core meaning and collaborating with other regulators in Ontario and across Canada.
And for seg funds, similar to you, I think my starting point is that the protections from mutual funds and seg funds should be harmonized unless there's a product or market reason to diverge. Otherwise we're gonna open ourselves to regulatory arbitrage and to unfair consumer outcomes. The Canadian Securities Administrators, as you pointed out, are banning DSCs from mutual funds in June. And because DSCs, they create a back-end cost to exiting an investment then, unless they investment's been held for several years. And this is a varied exit and a cost for investors, particularly for vulnerable individuals that have to exit unexpectedly.
And so FSRA, we're working through the Canadian Council of Insurance Regulators -- I'll call em the CCIR -- to consider is there a basis for distinguishing seg fund DSCs from mutual fund DSCs. And more broadly, how should we con -- think about seg fund sales incentives generally? And we're engaging with stakeholders on this. And so although se -- seg funds are a multi-year insurance product, so there are some differences from mutual funds, it seems hard to justify a back-end sales charge to consumers that need to exit early.
You know, but we are an evidence based regulator. We're committed to consult -- consultation transparency collaboration. And so we want to make sure we have a found facts -- factual foundation, a sound factual foundation for this. And we're gonna get stakeholder input, we're gonna build a CCR consensus, and then we're gonna make a decision.
So I don't have something to announce today. But please stay tuned, cause I think you'll be seeing stuff soon about the appropriateness of seg funding through sales charge. Now a second --
Clare O'Hara: --And -- and I'm not sure you have the answer --
Mark White: -- (INAUDIBLE) -- oh, sure.
Clare O'Hara: Oh, sorry. Go ahead. Go ahead.
Mark White: Please.
Clare O'Hara: I -- I was just gonna jump in to ask --
Mark White: -- I was gonna get to cost disclosure --
Clare O'Hara: -- And you may not have -- yeah. May not have the -- the answers to this. I just wanted quickly on the -- on the timeline for that, cause as we all know in the mutual fund DSC situation, that took a very long time to get to a ban. So I'm just wondering if maybe you can -- do you have a timeline at all of -- of, you know, where things could move along?
Mark White: I -- I think you'll see action through the CCIR in -- in parallel with the mutual funds.
Clare O'Hara: Great.
Mark White: That's my hope.
Clare O'Hara: Okay. And then on the --
Mark White: -- Now you asked about the cost disclosure --
Clare O'Hara: -- Cost di -- cost disclosure.
Mark White: Yeah. And so, you know, I think investors seg fund or mutual fund, they're entitled to know what are the costs associated with their investments both direct and indirect. And mutual fund investors, they currently receive disclosures of what distribution cost fees that they incur. And -- and I am sorry to say that segregated fund investors don't receive that. I -- I personally find that difference in disclosure is not acceptable. And I'm hoping that we'll be closing it soon.
But on a bigger picture, CCIR and the CSA we're working together on improving and harmonizing disclosure obligations for mutual funds and segregated funds with a goal of total cost disclosures direct and indirect. And significant progress is being made on this for both products. And we're looking at -- and a matter of fact we've been testing consumer reactions to -- to disclosure prototypes so that we can get a real sense of what will be most useful.
A joint consultation between CCIR and CSA on total cost disclosures, I expect that'll come on the near future and I think CCIR will soon be talking to the sector in a very formal way about the disclosure implements -- elements and their implementation. So I -- I see really good progress on our total cost disclosure fund.
Clare O'Hara: Great. So we'll certainly stay tuned for -- for some movement on -- on those two things. Jumping over to the mortgage brokering sector, you know, investors lost a lot of money with Fortress. And although times are good right now in real estate, you know, I'm wondering, you know, what has FSRA done to make sure that mortgage investors won't lose money if there are decline in values?
Mark White: Yeah, great question. And so Fortress involved what we call non-qualified syndicated mortgage investments, NQSMIs. A bit of a mouthful. And -- and those are complex. They're commercial project development financing rather than single family mortgages. Right? So there's a big difference. They're higher risk investment but they can have higher return. And, you know, there's been a focus on this by regulators and the media. And FSRA since our launch we strengthened investor protections at the point of sale and during investment. And frankly what we've -- we've done is we implemented right away that we're getting disclosure materials submitted up front, we're reviewing them to identify and actively supervise against high risk transactions.
We also put out guidance about what are the hallmarks of high risk NQSMIs that is transparent for mortgage brokers and for investors to understand where our concerns lie. And we're also actively monitoring the conduct of mortgage administrators. They're the folks who manage the NQSMIs and are supposed to be protecting the investors' interests. And so with these enhanced supervisory techniques, FSRA's been able to identify high risk NQSMI transactions and deter them and be -- be -- and frankly pre -- stop the sale to unsophisticated retail investors before it happens. We also use this information -- we've identified existing deals that expose investors to risk of loss, and we've been able to proactively and quietly ensure that the outcomes are better managed to get more money back to the investors.
Now importantly we've worked with the ministry and the OSC and we've implemented a new regulatory regime when these complex syndicated mortgages are being sold to less sophisticated retail investors. Those deals have similarities to equity deals and they should have similar investor protection. So we've transferred the responsibility for retail distributions of complex SMIs to the OSC last July. And that makes sure that they're treated on the same basis as other equity type investments. And then we stay in the business of distribution of NQSMIs to sophisticated investors, the sale of qualifying syndicated mortgages, and of course overseeing the administration of all SMIs.
You know, I also want to point out it's not stopping there. We've strengthened our regulation of mortgage administrators who handle mortgages on behalf of investors. They have requirements from approved disclosures. For example, they need to let investors know if events arise which could effect the -- the performance of the mortgage and not wait until bad things happen. We've also reduced regulatory burden by working with government to create a pathway to sophisticated entities to invest in mortgages without the protections that were intended for less sophisticated retail investors. And we're working with the government to implement its MBLAA review recommendations. Including a separate class of mortgage broker licensing for private lending so that we'll have a more efficient market and will better protect consumer outcomes.
You know, I think what we've done in the -- in this area actually shows that we're an effective regulator and we're proactively engaged dealing with a, you know, a problem that has been in the market for quite a while.
Clare O'Hara: What's the timeline around the new classes for the mortgage brokers that you -- that you just mentioned?
Mark White: Yeah, it's -- it's -- it should be happening -- really there'll be a transitional period over the next couple of years. But this is something that has really happened real time. And -- and frankly it's very important to do that because private lending is a different type of transaction, and this was identified in the MBLAA review by the government. And so we want to make sure that this new private lending class, it's there because you want to better protect the consumers and the investors who are engaged in that. And so we're gonna have to have a transitional path where people who are already in the marketplace where they have a chance to get this accreditation and then we'll have higher entry standards for new entrants who want to come in and work in the private lending market.
And so it won't affect people who are doing the more traditional vanilla mortgages. Those mortgage brokers just -- and agents can just continue with business as normal. And for those who want to engage in this more complex private lending, yeah, there's gonna be a little bit of extra burden for them. But, you know, we're -- we're really pleased with the response. The whole profession has been very supportive of this. They realize that that extra recognition of private lending as a distinct category of services is important to them and important to both the consumers and the investor (INAUDIBLE).
Clare O'Hara: Great. I see a lot of questions coming -- coming in to our Q&A and I just want to remind everyone they are able to -- to message in your questions. We're gonna try to get to them at the end. And -- and I can see them popping up so we'll -- we'll definitely jump over those later in this session.
So -- so jumping into a -- another area that -- that I've covered as well is on financial planners and advisors. You know, a lot of people, myself included, but a lot of financial firms have -- in the country have been watching Ontario around the regulation of individuals who are using the titles of Financial Planner and Financial Advisor. And earlier this month FSRA did send the final rule proposal to the Minister of Finance for approval. So I -- I want to sort of reach out and as you, you know, is the -- is this Financial Planner and Advisor title protection framework it, you know, it covers a lot of people who are already regulated in the industry. So with this new rule is it going to cause additional burden on the industry? Is it gonna be duplicate oversight for advisors? And secondly, you know, why aren't the SROs like the MFDA and IIROC being given exemptions for the -- the duplication?
Mark White: Yeah. Great -- great question, Clare. You know, to step back just a little bit, right now in Ontario anyone regardless of their skills and without being subject to supervision can offer themself to the public as a financial advisor or planner.
It's not reasonable to expect consumers to distinguish between qual -- qualified and well supervised finance professionals and those who aren't. You know, we wouldn't expect consumers to evaluate medical doctors or other regulated professions on their own. It's a longstanding consumer problem and this government has tried to address it through the Financial Professionals Title Protection Act. And so it's been given to FSRA as a principles based outcome focused regulator to work to achieve this act's objectives. Reduce consumer confusion over titles and improve consumer protections by creating minimum standards that is -- for these titles.
And to achieve that objectives(PH) we want to make sure that this consistent minimum standards around things like who's qualified, their conduct, how they're supervised, and what discipline they're subject to. And so to achieve this regulation but still to minimize burden, FSRA -- FSRA's implementation will leverage existing frameworks for licensing and designating bodies for financial professionals.
We're going to reuse the existing license and designation, and that avoids creating a new requirement for professionals who are within one of these approved credentialing bodies. The contemplation is there's gonna be several licensing and designation -- designating entities that are to come forth and be credentialing bodies. Those bodies have to apply. If those entities apply to become a credentialing body, and they'll get approvals that their licenses or designations will grant the right of title use. And once they're approved they're financial service professionals. They can use the titles which are approved without any disruption and without any new regulator supervising their activities. Cause they're already subject to the supervision of these designation of licensing entities.
And so when I look at this I think this actually is a simple solution. And it leverages existing regimes. And because of that there's no need to grant exemptions, because if an existing licensing or designation granting entity wants to have its people use the title it just needs to come and apply to be a credentialing body.
If -- and the reason for that, we want to make sure everybody is inside is that's how you get consistent standards for key requirements such as education, codes of conduct, supervision, complaints, discipline. And you also want to make sure that -- cause now we're gonna have multiple ways that someone can get the right to use the title -- we want to make sure that title users who fail in those minimum requirements are held accountable and that the public will be protected from them going to another source of using the title and going to market.
Now if we granted exemptions we wouldn't get that consistent minimum standards that are associated with the right to title use and the ability to make sure that title users who don't meet standards cease activity and that we can protect the consumers. So we've submitted the rules as you mentioned to the Minister's office. I know there's many competing priorities and objectives, time is scarce, but, you know, I'm optimistic that FSRA will soon have the opportunity to implement this important public protection.
Clare O'Hara: And -- and -- and just to finalize, is the -- the credentialing bodies have -- have they been a -- approved? Or is this something that will come after the Minister's approval that we'll then hear about who is going to be the -- the credentialing bodies for these titles?
Mark White: Well until the -- the legislation is enforced and our rules are -- we don't actually have, you know, we have the ability to certainly do some preparatory work for the legislation coming in, but we can't approve credentialing bodies really until we actually have that legal frame to do it. But I am pleased to say that there are several entities that are already in active discussions with us about their applications. And so, you know, we think that this is gonna be real and people are gonna be ready to go, you know, hopefully later this spring.
Clare O'Hara: Great. And -- and just to -- to follow up with that, to keep it the best investor protection standard is there a fiduciary standard for financial planners and advisors under this new framework?
Mark White: That's a great question. I mean, the -- the -- the regime as I talked about, it gives FSRA the power to oversee the credentialing bodies. FSRA does not become the regulator of conduct of the title users. And that's because we want to avoid a duplicate regulatory regime and additional burden. But, you know, the -- that actually works because these people are already subject to oversight. And so what we're trying to do is to make sure that they will have consistent regulation across all the title users by having those minimum standards.
And so because this isn't a vehicle for FSRA to impose new conduct standards which go beyond the existing norms established by securities regulators, what we're doing is we're making sure that there's a requirement -- a flexible requirement, and our proposed rules have this -- that if you want to be a credentialing body and you want your people who you approve to be able to use the titles, you're gonna have to meet certain requirements. Title users will have to deal with requirements -- this is right in our rule -- competently, professionally, fairly, honestly, and in good faith.
There'll be a requirement for codes of ethics, professional standards, and education requirements. And there's also a requirement for effective processes to deal with complaints and to discipline title users. And so this will allow us to reflect the existing consensus of security regulators on what is the fair treatment of clients and make sure that all the people who use the title will be subject to that minimum standard. And the great thing is, Clare, if securities regulators evolve, for example, that they go to a full fiduciary standard at some point in time, we'll then have the flexibility through this framework we've created to elevate the requirements for the credentialing bodies so that then all the titles -- title users will have to follow that new standard as well.
So I think this really is a good, flexible regime that will put the -- the minimum protections across and evolve as securities regulators want this to evolve.
Clare O'Hara: Great. So -- so jumping over to another sector that FSRA covers is under credit unions. And -- and obviously one of the larger regulatory issues that arose in this sector was around PACE Credit Union. You know, PACE Credit Union has been in administration since 2018 due to failed governance, mismanagement, and misconduct by its former leadership primarily related to new business activities. So -- so I'm wondering two things here. You know, the government does have a pending credit union act, the CUCPA 2020, that is gonna give credit unions even more room for business growth. So -- so one, I'm wondering if you can give us an update on where things stand with PACE Credit Union. And secondly, is FSRA comfortable with the credit unions having this additional flexibility? You know, how are you going to safeguard for similar occurrences happening in the future?
So maybe you can jump off with PACE, cause I threw a few questions at you.
Mark White: Yeah. So -- so PACE, that's a quick one. So PACE Credit Union, it continues operations and it's serving its members' interests. I can't comment -- there are continuing litigation matters. And I also can't comment on strategic alternatives which may be under consideration. But I am pleased to note late last year there was successful resolution to the claims by PACE members concerning the securities distributed by it's now insolvent subsidiary PACE Securities Corporation. So that's important progress on that.
As to your larger question, so about opportunities for credit union growth, it is -- I always go back to our mandate. Our general mandate about -- includes fostering strong, sustainable, competitive, and innovative financial services sectors. And our credit union mandate says we have to contribute to the stability of the sector by considering the need for credit unions to compete effectively and take reasonable risks.
We have a role therefore in managing prudent growth, and I have considered the CUCPA 2020 and the additional opportunities for new business and investments. With this flexibility credit unions may expose themselves to additional risks. And that's why we've developed proposed new rules on sound business and financial practices, capital adequacy, and liquidity reporting and adequacy.
These news -- new rules, they're principles based and outcome focused and they set requirements that will re -- that will mean credit unions will have enhanced risk management and governance practices. Practices more closely aligned with international best practices and very importantly practices that equip credit unions to prudently expand their businesses and to manage new risks. Credit unions will only be permitted by us to take on new business investment activities if they can show the risks are prudently managed. In reviewing the proposed activities, we'll assess whether the credit union has strong enough risk management capabilities to effectively identify, evaluate, monitor, and mitigate significant risks.
You know, also over the next year we're putting in place a new risk based supervisory framework for credit unions. This is a new approach. It includes our new risk data initiative and it'll enable us to focus on the areas of highest risk in individual institutions so we can better understand the risk profile of credit unions so they can identify issue of concerns and deal with them proactively.
So overall, you know, given the increasingly sophistication of credit unions and these new frameworks for managing and supervising risks, and given the need for credit union to serve their members and to offer choice in financial services, I’m confident that it's prudent to move forward.
Clare O'Hara: I -- I think another area just to touch on with credit unions is right now, you know, they're -- they are heavily exposed to residential mortgages and FRSA -- FSRA put out mortgage guidance that some are saying is -- is easier on credit unions and off-seas B20 guidance to the banks. So are you concerned that credit unions are overexposed to residential mortgages? And -- and will you regret being more lenient if housing prices start to decline?
Mark White: You know, the protection of credit union members' deposits and the stability of the sector and high standards of business conduct are all things that we care about as part of our mandate. And you're right. Residential mortgage lending, it's more than half of the credit union loans. So it's really important that there's prudent practices and procedures to manage that risk. And it's also important that borrowers be well equipped to take on the debts they incur. That's part of conduct.
And so our residential mortgage lending guidance you mentioned, released a year ago, it carefully balances enabling credit unions to earn returns, meeting their members' home purchasing needs, and ensuring that members, depositors, borrowers, and the credit unions are not put at unnecessary risk. This guidance is principles based as opposed to some more proscriptive approaches that have been adopted in other jurisdictions.
This considers that credit unions exist to serve their members. They're not there to generate a profit for shareholders so there's a greater alignment of interest. And credit unions have close ties with their community, and they should have superior knowledge of their members. So we have a diverse credit union sector. Some are quite large and some are, you know, more limited and serving a more focused community. And so a one size fits all approach, it's not optimal.
A principles based approach sets out the desired outcomes and requires good processes customized as opposed to specific thresholds and metrics. This enables credit unions to determine the most effective means of achieving these outcomes. And it avoids arbitrary thresholds and metrics that may not be situationally appropriate. So let me give you an example. When assessing der -- debt service coverage -- now that's an important aspect of lending -- rather than applying a specific debt service stress test that credit unions uniformly apply and say yes or no, we expect credit unions to determine and to be able to explain to us what are the appropriate debt service levels to protect the credit union against loss and also to protect the -- its borrowers against being financially overextended.
I think this regulation of residential mortgage lending, it should permit credit unions to serve their members well, to compete effectively, and to take reasonable risks. And given its importance though we of course will continue to proactively monitor the mortgage lending processes and risks. But after years' experience, you know, I can say that I'm comfortable with this lending activity in credit unions.
Clare O'Hara: Great. Thank -- thanks for your answer. I feel like we could probably spend a whole lot of time on credit unions. But unfortunately with our time we're -- we're gonna jump over to the auto insurance sector. Clearly an area that is a hot topic with many Canadians. It affects 10 million consumers that are required to purchase this product in order to drive on the roads. And during the pandemic there's been a -- reports of windfall profits by auto insurers in Ontario. So what is FSRA doing, you know, during the pandemic as this virus continues on to protect the consumers from these unreasonably high rates?
Mark White: Well, you know, we closely monitor what drives auto insurance costs. And frankly we report -- now we've added public reporting on how cost benchmarks, the drivers of costs and rates, are changing.
And so during the pandemic you're right. There was an unprecedented drop in the number of collisions and claims partly offset by some increased accident severity. And as rates are always set on a forward-looking basis these lower costs resulted in higher than usual auto profits in 2020. And this may continue in 2021. Now FSRA observed this trend while it was happening and we took action. We established a use and file emergency rate reduction framework in 2020 to enable auto insurers to voluntarily and quickly provide consumers with immediate rate reductions. We also used existing regulatory tools to support relief and worked with government to confirm that non-discriminatory rate rebates could be used to provide consumer relief.
FSRA also on the other side was actively engaged with insurers to asset -- to assess what consumer relief should reasonably be available by each insurer, and we work to encourage insurers to provide and maintain rate reductions and other consumer relief.
Now using all these pathways, insurers made more than a billion dollars in consumer relief avail -- available through rate reductions, rebates, and other means. And, you know, as rates are also set prospectively, policy holders who renew at a lower emergency rate continued to pay that lower rate for the balance of their term.
So ha -- profits may be high, that's a valid opinion. But at FSRA, we don't approve or regulate profits. We approve rate filings based on historical data and when ap -- we give the approval then insurers can use that to set rates for future years. Now we do have guidelines. They permit insurers to include up to a five percent profit provision in their pricing. But the actual profit, which is the commendable windfall, is a function of profit and loss. And the truth is ultimate costs won't really be known for several years because of the nature of injury claims.
Finally, you know, while this trend may not continue indefinitely, you know, I'm very pleased that it has been widely reported from multiple sources that Ontario insurance rates declined materially in 2021 including declines on average across the province and in many big markets like Toronto and Brampton.
Clare O'Hara: The -- another topic in -- in the auto insurance sector is around consumers who can be harmed by insurers who are not offering contracts to eligible consumers. And I know you sort of mentioned in your opening around some things in the auto sector. But, you know, consumers can be hurt if there's arbitrary underwriting rules such as a postal code that can impact them and it increases the price without really reflecting risk.
So, you know, what is FSRA doing to ensure fair treatment of consumers when they're -- when they're shopping around for their auto insurance?
Mark White: Yeah, a great question, Clare. And auto is always of course a, you know, it hits everyone who is at -- you know, over 10 million people have auto policies. So it hits us all. And, you know, we are committed to strong consumer protections related to auto insurance. We want to make sure that insurance is available to eligible consumers, that rates are just and reasonable, and that underwriting rules are fairly applied.
You know, we monitor complaints closely. We look at market practices, and we try and identify is there consumer harm going on? If so we want it remedied and if not we will take enforcement action. So, when you refer to predictor practice which we identified in the marketplace through surveillance and targeted examinations and it -- and we observed that insurers and their distribution representatives may not be honoring their obligation to offer auto insurance to all eligible consumers at the lowest available rate. This obligation is called the take all comers rule.
Now this is a hidden harm. Because consumers are likely not aware that -- that there was an absence of a quote from an insurer that may have given them the benefit of a lower rate. It's an example of how FSRA has to be that voice for consumers where they can't see what's going on because of lack of transparency. For example, insurers -- there's examples of them not offering coverage to -- to renewal customers, to auto only customers where they don't have home included, to consumers who had an accident, to consumers resident in certain locations, or to consumers that just have short histories of obtaining insurance.
Another example of the breach of the take all comers rule is -- is withdrawal of authority from -- from brokers and agents. And then the insurers not responding with a quote on a timely basis on its own. So of course the insurer -- the customer then just goes off and chooses from the quotes that are on the table. On November 15th last year we issued take all comers guidance. We reiterated that auto insurers are required by law to provide all Ontario consumers with timely auto insurance quotes and the lowest quotes available to them.
This includes the obligation to accept all business that meets the insurer's FSRA approved underwriting criteria. And while some of these breaches, you know, may have been inadvertent or an attempt to reduce insurance fraud, which is an issue, FSRA is actively supervising insurers on this issue. We're requiring them to review their practices. We're requiring them to report on this review later in 22, and to establish remediation plans for any practices where there are breaches.
Now with respect to the -- you also asked about auto insurance rating territories and the use of postal codes is part of that. Now this has actually been in the law for years, and insurers are required to set rates using territories. Traditional rate setting requires objective factual criteria such as geographic location so that you can distinguish between risks based on claims experience. My suggestion for consumers who believe that their driving behavior justifies a lower rate and that they're getting a higher rate just because of some of those factors like geographic location, I urge them to look at user -- user based insurance, we call it UBI.
UBI is offered by quite a few insurers now. It uses modern technology to access actual driving behaviors, not just based upon criteria which you fit into different pigeonholes. And then it adjusts your rates accordingly based on your actual driving behavior. It's also important from a safety point of view because drivers learn more about unsafe driving practices. You know, we're -- this is all part of a bigger topic. We recently released guidance to auto insurance companies. We want them to be aware of how we want them to approach rating and underwriting errors, the need to identify and to resolve those errors, and importantly to remediate any consumer harm.
The final thing I'll mention is, you know, our work to protect insurance consumers that are taking up one more level, it includes the proposed principles based and outcomes focused rule on unfair and deceptive acts and practices. Once in place this rule will better equip FSRA so that we could protect insurers from a broad range of unfair conduct.
Clare O'Hara: So -- so just on -- on the UBI with the -- with the drivers, I just wanted to ask -- so is that something drivers have to ask the -- the auto insurance for themselves or do they have to sort of seek it out online? Or is it just they have to go to their insurance companies and say they -- they want to adjust their rate with this technology?
Mark White: Yes, it's -- it's a different form of policy so that your rate reset. And you -- and I -- in many of them you actually, you know, they'll get experience and, you know, it's -- it's -- it's -- some I think use devices in your car or some I believe can actually even use your own cell phone. And it measures your actual driving behaviors. And so that's why I say it has great safety benefits cause you can learn the things you're doing that actually may be, you know, exposing you to unnecessary -- you and your family to risk as, you know, it -- of course the insurance is important to protect against financial loss. But really, the most important thing we should all be seeking to do is to reduce the harm that happens on the road from unsafe driving.
Clare O'Hara: Great. I -- I'm just gonna jump over to one of our audience questions, cause I see it sort of pop up on my screen and it has to do with the auto insurance sector so I figure why not pop it into -- to when we're on the topic. But someone, you know, Mark, you mentioned balancing competing interests in your opening remarks. Could you expand on how FSRA does this, say for example in the auto insurance sector.
Mark White: I'm sorry, balancing competing risks in the auto insurance sector?
Clare O'Hara: Right.
Mark White: Yeah. Well, you know, it -- you know, it's -- it's in several different respects. So we have a mandate to protect consumers from unfair business practices. And so we are constantly looking at that. And so there's a sort of a whole area of conduct regulation to protect auto insurance consumers. Importantly, you know, we're not a -- a complaints resolution bureau where if someone has a problem with their contract -- sometimes there are contractual disputes which need to go through ombudsperson processes and we look at those though, the complaints, to try and understand are there patterns of behavior? Ultimately as a, you know, risk based regulator we want to actually understand what are the processes within insurers and in their distribution channels that either protect in -- consumers from unfair outcomes or are resulting in practices that result in unfair outcomes.
So that's on the conduct side. On the rate setting side where we -- you know, we approve rates when they -- when a insurer wants a change, and we look at their underwriting criteria. There there are legislative standards just in reasonable rates. There are underwriting criteria which are approved. And so then we basically look at rate filings and underwriting criteria applications and we make sure that we're balancing those interests.
So overall both from the conduct side and on the auto rate side we're constantly trying to find what is the right balance from having a competitive, strong, sustainable auto insurance and P&C insurance sector while making sure that we're protecting those legitimate consumer public interests.
Clare O'Hara: Great. So jumping over to pensions, you know, again another sector -- as we mentioned in the beginning of this discussion there's a lot of different sectors that FSRA oversees and pensions is one of the last ones we're gonna touch upon. But, you know, pensioners have lost a lot of money through underfunded single employer pension plans with failed sponsors like Nortel or Sears. So other than relying on the pension benefits guaranteed fund to mutualize losses with strong pension plans, you know, what is FSRA doing to protect pensioners in -- from losses if their employer fails in those single employer plans?
Mark White: Yeah. Yeah that's a great question. And it's right in our mandate, again, we're required to protect the rights and benefits of pension plan members. And that means more than relying on the PPGF to top up benefits if a plan's insolvent.
Members in a underfunded single employer pension plan become creditors in their employee's insolvency. And our goal is to protect their interests before the insolvency occurs. We observe that there are poor outcomes for plan members when they're underfunded and their employer is insolvent. Because of this we implemented our actively monitored supervisory approach almost two years ago. This active monitoring focuses on pension plans where we're concerned about the security of the pension promise due to some combination of underfunding and the employer's financial weakness. We utilize predictive tools, things I learned at OSFI, to conduct a quarterly risk assessment of all PBGF eligible plans including plan funding, employer financial health, proposed transactions, you know, things that might expose plan members as unsecured creditors to a loss if there's an insolvency.
And so these plans are subjected to enhanced supervision and engagement. We have a specialized team at FSRA that does this active monitoring. A key part of this is engaging with direct discussions and reminding pension plan administrators such as the employer's board of directors that they have a fiduciary obligation, a high standard to protect the interests of the plan beneficiaries.
So while, you know, our actively monitored work, these meetings are highly confidential, we've seen positive results with planned fiduciaries taking steps in several companies to reduce the risk to pension plan beneficiaries. They've done things like improve their governance, increase the plan funding, advance de-risking strategies and used more conservative assumptions in assessing whether the plan members were at risk.
And, you know, while there will be underfunded plans and insolvent employers in the future, we're -- we're not gonna be able to stop that -- this is a great example how FSRA has quietly and proactively used our guidance and our supervisory tools to improve outcomes for the people in Ontario.
Clare O'Hara: Great. And just following up on that with jointly sponsored pension plans, you know, they're also a huge part of retirement security, you know, what's FSRA doing to make sure that they're well managed and that the -- those investments are sound at the same time?
Mark White: Yeah, I mean, those large public sector plans, you know, they are a very important piece of what we have going on in Huron and Ontario. And they're very large. The largest one is about half a trillion dollars in assets they manage or 60% of the pension plan assets in Ontario. 1.6 million people depend on them for financial security. And going back to our mandate, I already mentioned that our -- we protect the rates and benefits of plan members and that these plans sometimes add flexibility to what those benefits are. And solvency doesn't tend to be a big risk cause they can often adjust benefits through (INAUDIBLE) inflation indexing for example.
But our mandate also requires us to promote good administration of pension plan. And that's an obligation that we take seriously with these large public sector plans. You know, they're sophisticated investors. You know, they're among the largest institutional investors in the world in some cases. They transact globally and they are very innovative in their investments.
And so while I don't have any specific concerns to share about our DSPPs, our public sector plans, we're mindful that even large and apparently well managed asset pools, you know, with the example of AIMCo in Alberta in the last few years is an example. They can have breakdowns in their risk management and governance that cause material investment losses. So we have been engaging our six largest public sector plans since our launch to understand their investment and risk management practices in targeted areas.
We looked at their alternative asset risk management, we surveyed their practices, we compared them, and we released a report in 2021 on our findings. And we now have a benchmark to supervise in this area more actively. And we're also piloting a liquidity coverage ratio. And this will give transparency and consistency on reporting and liquidity risk management. We'll get a better understanding of their liquidity risks and how they're affected by different investment strategies. And this can serve as a basis for stress testing, which is really important.
We're also now starting to look at the broader investment risk management in governance practices. Now while these plans have their own well developed investment risk management in governance practices. Now while these plans have their own well developed investment risk management governance processes and controls, we want to look across them to form a view on best practices. We want to be able to identify ultimately whether we think a particular plan has good administration of its plan assets.
Now it's a short time we've been launched. This is complicated. But I think we've come a long way. We still have a long way to go. And -- but I do think that we're on the path to reaching a more mature state where we can better supervise these large public sector plans.
Clare O'Hara: All right. So -- so pension plans, a lot of conversation has also been around, like, climate change and ESG and -- and so where does FSRA come down on what pension plans should be doing to respond to the risks of climate change?
Mark White: You -- you know, awareness among the institutional investors has definitely accelerated about ESG, particularly the climate. Because it affects investment risks and opportunities. And pension plans, you know, the JSPPs but all of the single employer pensions, even the multi-employer pension plans, this is an important part of their standard of care that they have. They have a prudent investment investor obligation. And the plans and their fiduciaries, you know, they have an obligation, I think they know this, to ensure all risk and return factors are considered when looking at investment strategies.
And so climate change specifically, you know, any ESG generally, they have to consider these risks. And we expect plans to look at these broader risks as part of their good administration obligation. It's part of protecting the plan assets that will fund the pensions. Now, given the long term nature of pension obligations and pension investments, climate change risk is a particularly heightened risk for pensions when you compare to other funds with a shorter prospective.
Now pension plan risk from a climate perspective is a derived risk. Plans don't produce a lot of carbon but they do invest in many businesses and activities that can contribute to global warming. They also have the opportunity to invest in businesses that could help alleviate global warming. And this means that plans need to have -- because it's a derived risk -- they need to have good reliable and consistent information on the carbon impact of different investments. Initiatives such as the federal taskforce on climate related financial disclosures and the work that's going on by securities regulation -- reg -- regulators about disclosures, those are very important because that's how pension plans will be able to understand and manage this risk, and potentially be a force to help us towards a greener future.
We're also engaged with the cross Canada CAPSA committee of -- of -- association of pension supervisors. We're developing ESG guidance. We're working on that actively. And I -- I'm hopeful that there'll be draft guidance later this year which would be released for consultation so that everyone can see the thinking of all the leading pension administrators in the country.
Clare O'Hara: Great. So I'm gonna jump over to -- to some of our questions that are coming in and -- and as I'm scrolling through there's quite a few in there. So forgive me if I don't get to all of the questions that we have. And then we'll jump back to -- to a couple other questions that we have as well. But -- so -- so right now it says what steps has FSRA taken to protect both public and private investors in the private mortgage space? So both public and single private investors in the private mortgage space.
Mark White: So I'm -- I'm not quite understanding public investors in the private mortgage space. I certainly understand single or private. So maybe what they mean is public in the sense of a pub -- more public distribution where there's multiple investors.
So, you know, I go back to there's two big streams here. There's the non-qualifying syndicating mortgage investments and there I've already talked about that we've done everything from proactive disclosures and then we look at those substantively. We've identified one of the high risks in a non-qualifying syndicated mortgage investments and we proactively then managed those offerings when they're in the marketplace, and we've also went out and worked where we've identified higher risk existing transactions to deal with the mortgage administrators to make sure that they are better managed for outcomes.
So that's, you know, the non-qualifying, you know, we have the securities commission for true retail offerings where now they'll get the full protection of securities regulation. So I think on the non-qualifying syndicated mortgage investments we're really in a much better place than we were two or three years ago. There are also a whole area of private lending and because financial institutions -- because some of their requirements right now it can be hard and high house prices, it's hard for people to get mortgages. So there is more and more activity where individuals are going to private lending alternatives.
And the question I believe was about the investors in those private mortgages. And so there -- yes, there are requirements. I -- I've -- I mentioned how we're actually going to credentialize(PH) and require a higher education and qualification level so that the people in mortgage brokerages who are putting these deals together, that they have enhanced knowledge and skills. We're also, as I mentioned, looking at mortgage administrators and we're -- we're actively working to make sure that mortgage administrators understand their obligation, cause they essentially manage those investments on behalf of the investors during the term.
And finally, you know, we're working with mortgage brokerages particularly where we have these private lending transactions and they're being, you know, sold individually or sold in groups or bundles to private investors, those mortgage brokers have both an obligation to the borrowers who they're trying to get money for but also their investors. And that includes very importantly making sure that it's a suitable investment for the individuals who are investing in those private mortgages.
Clare O'Hara: Great. And another question that came in, and they're not specific to when they say brokers but I think they're talking about the auto sector. So it says here will FSRA also investigate insurers canceling contracts with brokers? Because the brokers are quoting and writing policies for clients that the insurers don't want.
Mark White: Yes. This -- this is part or the whole take all comers issue. So, you know, it -- it -- if a insurer is using its market power, let's say because the broker is basically saying no, I need to give a quote to this customer, and the insurer preferences that they already have too much business from a customer in that geography or with that profile and they don't want that quote to be given, that would be an improper practice for an insurer to use its market power and to cancel its brokerage arrangement because the broker is actually doing its job of trying to obtain the quotes and provide them to a consumer.
So that is an example of a potential take all comer breach that we are expecting insurers to review their practices for. You know, and obviously the -- there may be anecdotal issues we're aware of. And of course sometimes the facts can be very complicated on a particular case because maybe the broker feels it's because they were trying to provide quotes the insurer didn't want, maybe the insurer has a different perspective that the brokerage was not doing something else which was required under the terms of their arrangement.
But what we look for more importantly than those individual anecdotes and, you know, contractual problems, we're looking for patterns. And we're looking for are insurers, are the distribution channels functioning properly? Do they have good controls and processes in place so that important consumer protection rules like take all comers are actually honored in practice and -- and because you actually have systems and controls to make sure that those are put in place. So a very important question raised.
Clare O'Hara: Great. We're just gonna jump back to this segregated funds topic. You know, so -- so we talked about the will it be similar to DSC funds. The other big thing that's happening in the mutual fund in -- industry is client focused reforms. So is FSRA considering new market conduct standards for selling segregated funds similar to the client focused reforms that's happening in the securities industry?
Mark White: Yeah, I -- a great question. You know, we do actually care greatly about what goes on in securities and we always look at that. Securities regulation is, you know, a very important part of the marketplace. And we always have to be careful that we don't just try to adopt what happens in the securities realm with segregated funds. Because they are of course a -- a different product.
And so the CCIR since frankly before FSRA was even launched was working on this -- in this area. And so there's good work from 2017, 2018. And we're not only want to build on that but we're actually looking at the insurance distribution channels including the role managing general agents. And we're actually building supervisory capability about the life agents and how they deal with consumers on behalf of -- of the -- the -- the insurers who create the products.
And so our goal, we share this with the CCIR and some self-regulatory organizations, we want to have principles based guidance that has clear expectations for insurers and their intermediaries that will cover the segregated funds throughout their life cycle. And then we want to be able to proactively supervise against that.
And so, as I said, we look at the client focused reforms. They're not completely applicable to insurance because of product differences, but the goal is the same. It's about fair treatment. And so we want to make sure that insurance consumers are treated fairly when they invest in seg funds and the -- that it starts with how the products are developed, how it goes through the sale process, and then how it's managed through the whole product life cycle.
It's very important, though, you know, and one of our objectives is collaboration with other regulators. We want to have harmonized rules for insurance products across Canada wherever possible. It would be burdensome to insurers and distribute -- distributors to have provincial variations. And it's -- would also be confusing to consumers who won't understand the differences cause they can be quite nuanced. And frankly unfair to consumers if those differences operate to their disadvantage.
So FSRA through CCIR I expect will be consulting on segregated fund guidance this year. This guidance should, you know, unless there are substantive reasons which we'll identify and discuss publicly, we'll try and bring se -- segregated fund client outcomes into alignment with the client focused reforms for securities. And then as we get that guidance in place that then of course gives us that tool, that platform again to actively supervise insurers and intermediaries. I mentioned the role of MGAs, our -- our work on life agents to make sure that their processes and controls and practices give seg fund investors fair treatment in Ontario.
Clare O'Hara: And just to confirm, you are meeting with other provinces in that -- in that guidance. You're talking to other provinces about streamlining something. Great --
Mark White: -- Absolutely --
Clare O'Hara: -- So jumping over to innovation --
Mark White: -- They --
Clare O'Hara: -- Sorry --
Mark White: -- Yep --
Clare O'Hara: -- We have a bit of a delay. So. I'm just gonna jump over to another audience question around innovation. So FSRA recently released its innovation goals for the financial services sector. And new pension related products have been popping up recently. So to what extent is FSRA looking to encourage innovation in the retirement securities space?
Mark White: You know, it's a -- it's a -- that is a really great question. So we actually just put out an innovation framework. And, you know, it -- it -- it actually doesn't explicitly apply to the pension sector because the pension sector's a little bit different. It's not a for profit sector. It is part of differed compensation. There are fiduciary standards. But that isn't to say that our pensions are not innovative and that other people in the marketplace are also trying to innovate to solve pension problems.
And so I'll give you an example of that. And there is a -- a particular fund that is out. It's in distributions. It's a securities product, I believe is a mutual fund, that actually tries to mutualize longevity risks. And so as they say this is the decumulation phase of your retirement savings. So, you know, that's a very important issue how you mutualize that. And we're looking closely, cause that has some aspects of an annuity, a variable annuity. And as of course dealing with pension risks. So we're very open and we are actually looking at this one product that I mentioned is in the market. We're in an active dialogue with other regulators who are involved and with the -- the -- the promoter, the sponsor that created this, you know, important new innovation. Cause we want to understand it and make sure that it's gonna be offered in a way that's gonna be safe, you know, for the investors that people can understand what they're getting from this product.
So I think that, you know, there is a really important opportunity for in, you know, looking at some of these pension issues. As I say there is a decline in defined benefit pension plans. You know, there's not many new ones starting except for in the public sector. They have -- the numbers tend to dwindle. And so with people then having their own defined contribution or group RSPs that allows you to accumulate income. But then how do you manage it through your retirement and particularly how do you manage the risk that you could live to be 105 years old or you -- you may not be so lucky.
And so how -- you know, you just need to be able to find that. And so the mutualization of that longevity risk is a -- is a really important issue and I'm -- I'm so glad to see that there is innovation going on. And our innovation framework even though, you know, it may not be targeted specifically at pensions as I mentioned, it does outline that we have other tools. So we can use our discretion in certain ways, we have rule making authority, we could have discretion under rules. We can allow for trials to go on. So we're not here to basically to stop innovation.
We actually want to encourage innovation as we say in our framework in a way that we can ensure is controlled and in the public interest. So if there's some pension -- some innovators out there that think they have a solution to pension problems, Marlena, who you're gonna hear from later at the innovation office, you know, that she heads up, she can't wait for your call.
Clare O'Hara: Great. So -- so we are running down our time here. I'm gonna give you sort of last words, Mark, on sort of where do you see FSRA in the future? You know, there's an upcoming election. Are you gonna be asking for a bigger budget, more power, what do you see in store for FSRA?
Mark White: Well I -- I, you know, I will say, you know, the -- the elections, that's a political process and we just continue to do our job. I think one way or the other it doesn't -- that doesn't change what we do.
And our budget also, I should point out, Clare, we're funded by assessments against this -- the regulated sectors. And so those are sometimes fixed fees for a mortgage license or a insurance li -- agent license. And the bigger sectors, they also pay on a variable basis based on the costs that we incur to support regulating them. So I'm not even concerned about that from -- because our -- our discussion, although that budget of course is importantly subject to political oversight and ministerial approval, you know, that is something that we have been working out with the sectors and -- and that's been going well.
So your more fundamental question. So, you know, where's FSRA gonna be a few years from now? So we're -- we're a young organization. And we've made tremendous progress in our less than three years of existence. But we still have plenty of work to do as we grow and transform. You know, I hope, let's say five years from now that our principles-based and outcomes focused regulation, it'll be well understood and internalized across the sectors we rate -- we regulate. And the reason why that's important is it'll get us away from proscriptive regulation and a compliance mindset.
Our regulatory relationships can become more sophisticated and frankly less burdensome. Regulated entities, they'll be able to align with the outcomes that benefit the public that we're all trying to achieve. So you get better regulatory outcomes, stronger consumer protection, as the entities will be working in a way that is naturally aligned with achieving those public goods.
I also hope three to five years from now that our supervisory capabilities and our regulatory tools, the ones that are necessary to getting full effect to our mandate, that will be fully developed. And will be less reliance on guidance and rules in one hand and on enforcement on the others, what I call the barbel, and that we'll have that strong middle as a respected, thoughtful, and well-resourced supervisor with tools and resources to fulfill our mandate in a variety of ways.
I'm -- also think that, you know, five years from now our involvement with consumers -- because it's already continued to grow and mature so much in the last few years -- the work of our consumer advisory panel, I'd like to give a shoutout to those people who volunteer their time to provide us great counsel. I think that work will broaden and deepen. And beyond that cap work, we'll also have increased consumer participation in our policy making agenda and we'll -- our consumer research which we're building the foundations now, I think that'll also give us a great leverage point.
And so, you know, we'll understand the public better, cause understanding the public interests is at the core of what we do, and the public interest is incredibly diverse. And so that's really important to us particularly for vulnerable consumers.
I mentioned the innovation office. They're gonna move from theory to practice. That means going away from supporting trials to supporting the introduction of new products and services. The -- I think our framework will be revised, fully implemented, our test and learn environments that I mentioned, they'll be not only operational but constantly evolving. And the test of innovation success, and I put this challenge for the panel coming, I think it's about can we successfully bring down barriers to support innovation and the public interest so that we will see new financial products and services being offered to people in Ontario.
You know, I also look at our -- a bit internal and we're a learning organization. We're constantly looking for ways to improve our processes and people. And that includes using information technology and data to modernize how we regulate. We call this FSRA Forward. In five years we'll be fully utilizing our FSRA Forward technology to deliver regulatory efficiency through simplified and fully digital operations, a 360 view of regulated entities, case, content, and relationship management, and we'll have data analytics and enhanced client portals. I have a dream for this. It'll also allow us to redirect human resources to higher value added tasks, or to reduce our fee assessments.
Finally, culturally we want to be recognized, and I think we are today but I want to build on this, to be a place that talented people motivated to serve the public will want to work. I want them to come here because they know what we do in FSRA, it makes a difference and they want to be part of that success. So that's my initiative to --
Clare O'Hara: -- Great. And I'm getting -- thank you so much, Mark. I'm getting the hammer on our time today. I appreciate we were able to get to all of the sectors that you oversee and it was a great discussion. Thank you so much for inviting me to join you today.
Mark White: Thank you, Clare. And you know what, they were tough questions but I hope this gave people a great insight into what we're doing at FSRA and our important work. Thanks for taking the time to come today.
During his interview Mr. White spoke about FSRA’s transition to a Principles-Based Regulator.
“We are moving away from prescriptive checklists and a compliance focus. We want to evaluate regulated entities by, do they achieve the desired outcomes,” said White. “And with Principles-Based Regulation entitles are expected to understand and achieve the desired outcomes and they can do so in a way that’s suited to their size, nature and complexity of their business and where they are in the marketplace, it’s not one size fits all.”
Mr. White was also asked about how FSRA is working to protect drivers, pensioners, mortgage investors and how to balance competing interests in the sectors it regulates.
Mr. White emphasized that to make Principles-Based Regulation work there needs to be a cultural shift by both the regulator and the regulated, but perhaps most importantly there needs to be open communication, collaboration and transparency. During her address Ms. De Laurentiis made it clear that FSRA wants to hear from everyone.
"As the Board Chair of FSRA I want to challenge the leadership in all the sectors we regulate to collaborate and engage with us," said De Laurentiis. "We want to hear from you, and your consumers, and hear your ideas about where the sector is today and where it is going and needs to go, in order to meet the needs of those who buy your product or use your services."
During the Exchange Event discussion also centered around the ability of a regulator to enable innovation in the financial services sector.
FSRA has established a new Innovation Office which recently released an Innovation Framework along with Test and Learn Environment Guidance. The goal of the Innovation Office is to help emerging and existing innovators develop their ideas in a sustainable, responsible and accessible way, while maintaining consumer confidence in financial services. One of the expert panelists, Dr. Ford said a regulator can enable innovation if it's Principles-Based.
"Principles-Based Regulation is absolutely the right system for thinking about private sector innovation and how to deal with it," said Dr. Ford. "A purely rules-based system is going to produce maybe one of a couple of different outcomes, one will be that it will stifle innovation good, bad or otherwise, because the rules just prevent any kind of flexibility or creativity on the part of industry actors and on the part of the regulators."
WATCH: Experts like Dr. Cristie Ford, Professor at UBC’s Allard School explain why FSRA’s principles-based approach to regulation is going to help unlock new innovations.
2022 FSRA Exchange Event – 03 Principles-Based Regulation Panel
Glen Pedassery: Good morning, everyone. Just doing a quick check in as we are resuming. First and foremost allow me to apologize for the abrupt switch over to the timer. We were supposed to -- I was supposed to let folks know that we were going to be going onto a bit of a technical break to allow our production team to set up for the next session. But that kind of switched over before I had a chance to get on to the microphone, so my apologies for that.
Just as a heads up then for everyone going forward, after every session we will actually be taking a 10 minute break to allow for the team to actually set up virtually for the next -- next program that's in there. So allow me to thank Mark and Clare and everyone who had taken the time to submit questions. I actually thought it was a very engaging dialogue.
Two things: if you didn't get your question answered and you submitted it, we will endeavor to respond to everyone through the publication of the session and the questions that were received with answers. And also if you have any additional questions please send it to [email protected] and we will get back to you. So that link and that email will be provided as well later. So I just wanted to give people an opportunity to know that we acknowledge receipt of your Qs and we endeavor to give you the As. And then any additional Qs and As we will actually make sure we respond to as well.
There were several questions throughout the moderated session that was asking about the taping and production of the session after. So confirming that we will be providing the copy of today's session through the FSRA website, so people will be able to access it and actually replay it at their own leisure.
So a few minutes ago you heard Mark speak about the importance of principles based regulation. This is a significant shift in FSRA's approach to regulation and in fact our approach in partnering with those that we regulate. To better explore what this shift looks like, I am pleased to introduce my colleague Jordan Solway, who is the Executive Vice President of Legal and Enforcement at FSRA. He will actually lead you through this next session. Jordan, over to you to introduce our panelists and begin.
Jordan Solway: Thanks, Glen. And good morning. Very excited to be honored to Chair this panel. We have a -- an incredible dream team of speakers. I'm gonna start by introducing Stephen Fuller who is the Senior Vice President of TCI Global and the Head of International Government Affairs at Travelers -- Travelers Insurance. Steve is a little bit of an international regulatory man of mystery. He's worked previously in countries such as China where he was count -- country manager for -- for Chubb Insurance. He was -- his job was Asia Pacific Zone Manager for Marketing and External Affairs. And he also worked as the Interim India Country Manager.
He works extensively with international regulators, government officials, legislative oversight committees, and international trade associations. He's involved also in ongoing regulatory reform and capital standards in the United States and internationally. He's also Chair of the America Property and Casualty Insurance Association's International Committee and an advisory board member of the Rand Corporation's Center for Asia Pacific Policy. Please join me in welcoming Steve.
We also are -- I'm also pleased to welcome Simon Archer who in his own way is a Renaissance Man. A partner at one of the leading law firms in labor -- labor law in Canada, Goldblatt Partners. Simon works with professional associations, trade unions, boards of trustees across Canada in negotiating pensions and benefits, trust administration, fiduciary issues, public interest litigation, insolvencies, corporate accountability, and governance. Simon also was appointed previously by the Minister of Finance of Ontario to represent the interests of workers in unions in an expert review of the regulations that apply to Ontario (INAUDIBLE) where he served as a researched for the Ontario Expert Commission on Pensions. He's also a Director of Comparative Res -- of Comparative Research in law and political economy forum at the -- at Osgoode Hall Law School. He also teaches at King's College London and has been an adjunct faculty professor at Osgoode Hall Law School, York University, as well as Universities King's College and the University of Western Ontario.
Separate and apart form that very extensive qual -- extensive qualifications. He's also an accomplished soccer player, a vegan chef, and he even restores antique espresso machines in his spare time, of course, taking a principles based approach.
Last but never least, and three hours behind us in Vancouver but many years ahead of us in her understanding of PVR is Dr. Cristie Ford who is a Professor at the Allard School of Law at the University of British Columbia where her area of specialization is regulation and governance in Canada, the U.S., along with international finance and securities regulation. Dr. Ford is a recipient of the Curtis Memorial Award for Teaching Excellence and also served as the Associate Dean for Research in the Legal Profession at UBC. She is the author of two books, one I would add is a leading text on securities regulation which she co-authored with the former Governor General David Johnson. She also has -- is widely published including recently in the McGill Law Journal where she wrote a piece on principles based securities regulation in the wake of the financial crisis.
Dr. Ford has also co-edited the leading international journal Regulation and Governance and presently sits on the executive board and the board of the Journal of International Economic Law. Very similar to Simon, Dr. Ford has been retained by governments including the Federal Department of Finance to advise on banking and securities regulation and has been a Killam Faculty Research Fellow at UBC. So you'll see we have a very qualified panel that we're gonna get right into it. And I'd perhaps like to start where Mark's fireside chat ended which is PBR is obviously a foundational aspect of FSRA as a new regulator. There was a clear vision by FSRA for PBR to use its statutory objects to draw out specific regulatory outcomes based on identified principles in our statutory objects. Things like promoting high standards of business conduct, protecting the rights and interests of consumers. FSRA also wants to utilize PBR to provide our regulated entities and sectors with more flexibility in determining how they achieve compliance with regulatory expectations while remaining accountable for achieving those outcomes. And the ongoing operationalization of PBR in living these principles in a way the sectors can understand.
So my first question is really to you, Dr. Ford. Which is does PBR work?
Cristie Ford: Yes. But I think it really depends on how you build it. So principles based regulation, if you think of it as only high level principles which are not meaningfully enforced and -- and understood in -- in -- in sort of a more comprehensive way with lots of attention to communication between the regulator and the regulated, if all you have are high level principles without the regulatory structure to implement them meaningfully then I think it's fair to say they don't work. That really just amounts to deregulation.
If what you have is a principles based system which has a regulator in place that can work with those principles in a meaningful way that can collect information from the industry, that can engage in a communicative way at -- while still being independent that can operate in an outcomes oriented way based on data that it's gathering on an ongoing basis. And I think what you really have is a system that is far better than a purely rules based system. And it is more likely to achieve outcomes that are in line with regulatory goals.
Jordan Solway: Thanks, Dr. Ford. Maybe I could just turn quickly to Steve. Because you've got a very broad international experience working with financial regulators around the globe, particularly in Asia and -- and the UK. Just to supplement Dr. Ford's answer, can you comment on your experience and really what are the circumstances that are best for PBR to be successful in your view?
Stephen Fuller: Yeah, well first thank you for the kind introduction, Jordan. And thanks also to FSRA for inviting me to participate alongside such highly respected and accomplished panelists and moderator. I feel underqualified, but as the sole representative from an insurance (AUDIO GAP) company I am unique. To answer your question, I think Hong Kong is a very good example of a well-functioning PBR framework. And indeed it should be as Rob Curtis, one of the Hong Kong insurance authorities senior most regulators was the lead drafter of the international association of insurance supervisors insurance core principle on principles based regulation. And the in -- the insurance core principles are basically regulatory -- it's regulators. That's the best example of a se -- of a successful PBR framework that I know of especially since I've spoken to all the companies operating there as well as to the regulator is a New South Wales in Australia.
And speaking of Australia, a big shoutout to Canada on a great Australian Open; totally riveting tennis. In New South Wales, back to the question, there was a complex problem that needed to be addressed. Basically mandatory third party liability, auto insurance sector, had become highly litigious resulting in very high premiums, slow claims handling, and minimal compensation for claimants. So basically you had a -- a perfect storm. So in 2017 the government and in particular the Ministry of Finance took a leadership role to address that problem. The Ministry of Finance empowered and tasked the regulator, the state insurance regulatory authority, SIRA, which took the important first step of canvasing consumers and then worked extensively with the insurance companies to get their recommendations, their advice, and their buy in. And in that collaborative process mutual trust was established.
And I think for New South Wales the key here was first recognizing and addressing an -- an important problem that consumers wanted address -- addressed and then setting up metrics to measure the outcomes. In this case better access to insurance and lower rates and new market entrants were a plug for the regulator and a faster rate approval process was a big benefit for the insurance companies. In the system rates can be approved very quickly because of the excess profit and loss provisions that were put in place. And those provisions protect companies if they lose money and they protect consumers if the companies make too much money.
And again, I -- I think the means through which this hybrid system was developed was early and extensive interaction with the companies and consultations with consumers. I think that high degree of interaction and then the trust that was earned were both critically important. And interestingly all of the in -- Australian insurance companies that I spoke to were very positive about their relationships with SIRA, the regulator. And for the public SIRA continues to monitor consumer satisfaction through its call assist program. And under this call assist program SIRA follows up with claimants and provides in person or virtual assistance when necessary. Thanks.
Jordan Solway: That's great, Steve. I mean, I -- as you know when we were working on the UDAP rule two summers ago through your reference we were introduce to, right, you know, the Hong Kong regulator, the Australian regulator. And I was really struck as were my colleagues by how even though geographies are different and maybe the markets are slightly different, but we're all dealing with very similar problems with similar challenges.
So, you know, the -- your observation about collaboration, cooperation, the use of data, and fundamentally trust really resonates.
Maybe just to shit a little bit, because insurance is an area where PBR has -- in other jurisdictions has been demonstrated to be successful or effective. I often hear that PBR is difficult to implement in statutory or regulatory regimes which can be very proscriptive. And when I think of script -- proscriptive act, I look at the pension benefits act in Ontario which is a very comprehensive regulatory framework. And so maybe Simon, if I can turn to you, is an expert in that area, whether you can identify or provide your insights as to what you think the main challenges are and whether you can be truly principles based in an area like pensions.
Simon Archer: Thank you, Jordan. Yes. Well just to jump to the conclusion, I think you can. And -- and Dr. Cristie outlined some of the conditions that are necessary to make sure it's successful. But although it's a detailed code, pension -- pension law in Ontario and in Canada has always been a mixture of both principles based and rules based elements. And just to draw out some obvious examples, perhaps, investment and governance functions are typically very principles based obligations and compliance obligations whereas funding and benefit obligations tend to be a bit more rules based. And there's always a mix of the two in regulating the pension sector.
Commissioner Arthur is -- actually back in his 2008 report gave a very useful sum -- summary and description of -- of the mix and how it has evolved over time at least in Ontario. And I think it's still a useful guide and introduction to the way in which the system has evolved. In a principles based modality I think there are probably two major challenges to make successful. From the perspective of regulated entities themselves, pension plans themselves and their stakeholders, understanding their role in a principles based system, it is a big challenge or can be a big challenge particularly small or medium sized entities with more limited resources and capacity to take on the challenge of understanding and developing compliance with -- with the law.
They're also heavily dependent on the advisory community to do so. And so there's a challenge to develop that dialogue with the regulated entities themselves, but also with the advisory community that's such a big part of decision making in the sector. From the point of view of the regulator, in order to make it a success I think one of the big challenges is how to define compliance with a principle and perhaps more particularly how to define breach of a principle and what's gonna happen in the event of breach.
I -- I -- I -- and I think Dr. Cristie said earlier, you know, a successful PBR system is only effective at achieving the outcomes that we all want when there's a real apprehension on the part of the regulator and the regulated entities that the regulator will enforce the principles and will have a strategy that incorporates guiding behavior through guidance and dialogue, but also by detection of violations and proudly ensuring the defaults get corrected. And that's a big part of maintaining the trust and the dialogue that we've already identified as a key part of principles based regulation.
Jordan Solway: That's -- that's very helpful. I think some of your observations, particularly, you know, that -- there -- there seems to be a misconception in a PBR context that you can't have rules. And I think you've -- you've successfully addressed that. And also this -- also this notion of scalability. But one of the points you made really I'd like to focus on perhaps Dr. Ford. I -- I can call on you and not specifically, you know, identifying what compliance looks like. And I often think about, you know, the old community standards test which is you know it when you see it. That's used in a different context but in the context of securities regulation which I know you've had considerable experience in BC, Dr. Ford, can you comment on how some of these challenges can be addressed?
Cristie Ford: Sure. Well I think my role here may be just to amplify some of what -- what Simon said. Because I agree very much with what he said. And maybe I can just step back a little bit to -- to also emphasize this idea that principles based regulation doesn't mean doing away with the rules. There will always be a place for rules. And understanding, I guess, also the distinction between sort of law on the books as written and law as it is actually implemented.
So you could have a principles based system but as written, so you have a principles based statute. The BC Securities Act is a principles based statute now. And what that means is that things are often passed at a fairly high level of generality. Not always though, there are clear rules guiding things like procedural fairness. So -- so it's calibrated to different, you know, different -- different situations will -- will call for a -- a greater or lesser amount of specificity.
And so all laws and all systems operate on a continuum between principles and rules. But what, you know, but principles based implementation is really -- it -- is really a separate thing. And it can take place even if you don't have a principles based statute. And in fact that's what the BC Securities Commission did before it had the principles based statute, it just adopted a different way of engaging with its statute and a different way of dealing with industry actors.
So it started sort of as a defile -- default by not reaching for rules first. So it -- it -- and it still starts by considering whether existing principles cover a situation rather than just piling on with a new set of detailed rules. And then from there there were some important shifts in regulatory culture that really followed from that. One was this -- this -- this approach really based on thinking about principles, articulating them in a flexible and outcome oriented way in partnership -- I -- I guess partnership is too strong a word -- in communication with industry actors. So accepting input, having an ongoing dialogue which allowed the regulator in concert with industry to sort of put some meat on the bones of those principles.
And so that really required a few things which -- which Simon has already alluded to. Expertise for sure, a -- a -- a communicative relationship with industry, restraint in trying to fill in the details by themselves. So -- so a lot -- so regulatory guidance, absolutely, but based on an ongoing conversation with industry so that the regulator has better information. But then again, as Simon said, regulatory credibility is really kind of the bottom line. At the end of the day the regulator has to maintain a degree of independence, a degree of confidence about its own position and interpretation whether it's talking about rules or principles. So understand, you know, having a baseline understanding of what a principle fundamentally, you know, looks like in practice and then having the -- I guess the independence and the support and the resources to follow through with that all the way through to the enforcement stage if necessary.
Because I think it was William Douglas in the United States in the 40s who said if you have a big shotgun before -- behind the door then hopefully you will never have to use it. And I think that's the idea. It has to be there; the enforcement function has to be there. But ideally what -- what happens instead of sort of moving to enforcement first and foremost is that ongoing communication between a regulator and a regulated actor can help support that actor in interpreting the -- the regulation in a way that is conducive to their compliance and that actually is really sort of more effective for all concerned.
Jordan Solway: So just -- that's very helpful, Dr. Ford, and I think that we've, you know, certainly we've been trying to follow that since FSRA's inception through our guidance, looking at our sector statutes with a fresh set of eyes, applying modern approach to statutory interpretation in the absence of having, you know, specific principles. So I think that's all very much consistent.
But one of the things I wanted to -- to pick at if I could, particularly when it comes to PBR, is this notion -- and Mark referred to it this morning -- of innovation. And I know like me you're a big fan of Scott Galloway or Professor G. And he often talks about what he refers to as unlocks, where you're unleashing a leap forward with a new innovative approach. And he's, you know, he often cites a whole bunch of these including, you know, U.S. college admission in the United States. And I guess my question is we've, you know, talked a lot this morning thus far about the communication, about focusing on problems, on feedback loop, on the communi -- on the use of guidance.
When it comes to innovation, I guess, is PBR the right system to manage these types of profound changes, to create these unlocks? Maybe you could comment on that if -- if you don't mind.
Cristie Ford: I'm sorry, you -- were you referring to me?
Jordan Solway: Sorry, yeah. Sorry, Dr. Ford I was referring to you. I apologize.
Cristie Ford: Oh. I apologize. So yes, absolutely. And I've spent a lot of time thinking about innovation and regulation in the years since the financial crisis. In fact, I have a book called Innovation and the State. And I guess my -- ultimately I think PBR is absolutely the right system for thinking about innovative -- private sector innovation and how to deal with it. And if you imagine trying to deal with a highly innovative sector based on a very rules based rigid sort of detailed system I think it can be clear why that's not going to work.
And -- and really it's because the rules are just not flexible enough, not sort of capacious enough to be able to imagine new ways of doing things. And so a purely rules based system is going to produce maybe one of a couple different outcomes. One will be that it will stifle innovation, good bad and otherwise, because the rules just prevent any kind of flexibility or creativity on the the part of industry actors and on the part of regulators.
The other thing that might happen if you have a pure rules based system is that you will just get loophole behavior and circumvention on the part of industry actors. Or people will go elsewhere. So -- so -- so the rules will be avoided, undermined, eroded, you know, the action will end up being elsewhere and the rules will not again achieve the effect that they're aiming to achieve.
Putting rules in place in a highly innovative system is a little bit like trying to put wallpaper on a cat. It's -- you can pretend that you're doing something really sort of comprehensive but ultimately you're just -- you're papering over a problem that is not staying still for you. So a principles based system is absolutely the better way to go if you want regulation to stay relevant, if you want it to actually be responsive to industry. And through the communication with industry a principles based regulator has better information. So because there is a meaningful communication loop with industry, the regulator has better access to information, understands what's going on, understands the challenges that industry actors are facing, and also understands sort of where the risks might be arising for consumer protection, for example.
So that is I -- I think in my view really quite a -- a -- a clear answer, but I think the second piece has to also be an appreciation that innovation is not by definition beneficial across the board. To assume that innovation is always going to sort of -- lift all boats or is going to be congruent with the kinds of objectives that the regulator wants to see is I think not a -- not reasonable. Understanding who's innovating, in what context, for what purposes is essential. And that is the kind of information that a well-functioning principles based regulation has better access to. But again, it requires at the end of the day a confidence on the part of the principles based regulator so that you don't just end up ceding the field to private actors.
Innovation is always going to have enormous potential and enormous risks. Any innovation of any significant magnitude can bring improvements for individual industry actors and for the public, but it's -- but there needs to be a public voice there. And that is, you know, a voice that is interested in the public good above all. And that really ultimately is the irreducible role of a regulator. So there has to be a degree of confidence, resourcing, support capacity, and outcome orientation so that the -- some -- so that the regulator is looking at what the effects of that innovation are on an ongoing basis. And then you have a system that really stands the best chance in a complicated and difficult world of advancing positive innovation and minimizing the negative.
Jordan Solway: Yeah. I always think about this in the context of coming back to our statutory objects. And the ones in particular are, you know, protecting the rights and interests of consumers and also making sure that we're promoting high standards of business conduct. So I think that's -- that's a helpful response.
Simon, if I can turn to you, and again I don't mean to pick on your sector, but Mark referred to some of the innovations this morning. But can you have innovation in the pos -- in the pension sector? And if you can, is PBR the right tool for that?
Simon Archer: Sure, pick on pensions. We all do. Before I turn to your question though I -- I've committed I think the Zoom equivalent of standing up without my trousers on by referring to Cristie as Dr. Cristie already. I'm very sorry, Cristie. I apologize.
But okay, pension and -- and innovation. There is innovation. We can and do see innovation in the sector right now. And it's important because perhaps I think the biggest challenge for the sector and big social challenge generally for Canadians is to pick adequate and affordable retirement savings programs available. There's a sort of long, slow, looming crisis coming and we've heard about it over -- over decades now. And so that's a big innovation challenge for us. And of course as Cristie has said, one of the big advantages of the PBR approach is the dialogue that you can have with actors, regulated entities, when they come up with new ideas, ways to try and meet those challenges.
For pensions it's expanding coverage and particularly even though it's a big challenge defined benefit like coverage so there's certainty and predictability, affordability. Those kinds of plans and benefits are the kinds of things we want to see in the sector. And a flexible approach to how that's gonna be regulated encouraged and a dialogue with your regulator to help achieve that is a fantastic tool and a fantastic opportunity to be used. And we've seen examples of that in the public sector plans in particular. They're leaders globally at what they do and both on investment side but also on making plan benefits available to more employers and more workers in Canada generally.
There's been a big expansion of their offerings to folks outside their more traditional sectors. And -- and really the only caveat I'd have to say to that is of course innovation can be a bad word as well as a good word. And distinguishing bad innovation from good innovation is something that we really need the regulators' guidance on. Creative non-compliance is not good innovation we think, whether that's in, you know, poorly communicated risks in some kinds of new benefit arrangements with housing in some target plans. Or hidden risks or conflicts in investment practices that aren't quite well enough understood. And other examples like that.
So innovation's a neutral thing in some ways. It -- but it can be also a good flavor or a bad flavor and I think that's what we have to be alive to from the principles based approach perspective.
Jordan Solway: Thank you, Simon. When I think about unlocks, Steve, maybe I'm gonna put this to you, I think in our sectors probably the greatest unlock is Ontario Auto. And the ability to actually improve the value proposition to the consumer. Maybe Steve you can chime in on that, whether you think P -- PBR is sufficient. Is that the silver bullet for Ontario Auto or are there other things that we should be thinking about to, you know, to make the product -- to, you know, unlock -- unlock the value for consumers for the product?
Stephen Fuller: Yeah. Well first, having worked in 30 plus countries across five continents, one observation I have is that the most effective regulatory regimes are the ones that feature truly independent regulatory agencies. Independence, technical expertise, and authority are the hallmarks of effective well-run regulatory (INAUDIBLE). Ministries of Finance may not always have complete sight line into the complexities and subtleties of insurance and reinsurance. This in part is why so many in the industry fully support FSRA's new innovation framework which I think can be viewed as an important pillar of a principle based regulatory framework.
For FSRA to be empowered to hold regulatory sandboxes, to have the authority to waive certain regulations to entice investment and (AUDIO GAP), that's a major step forward and in keeping with world class financial services markets. That said, insurers currently are not allowed to offer choice and optionality when it comes to the auto insurance product as it is locked in legislation beyond FSRA's purview.
I think Ontario consumers would love to have the ability to purchase a scaled down tailored to their individual needs auto insurance policy. To pay only what (AUDIO GAP) what you really need I think that has a nice ring to it. But if FSRA's innovation framework does not allow companies to touch the product, I’m afraid there will only be marginal gains when it comes to the innovation framework at least for the auto insurance sector.
Bottom line in my mind, FSRA has very strong leadership, technical expertise, insights, and proximity to the file but needs to be further empowered to deal with the auto insurance product if Ontario is going to be viewed as an attractive market for new market entrants, for new insurance companies, and in order to keep the current carriers healthy, creative, and innovative so that they can provide the best possible service to Ontario consumers.
Jordan Solway: And, Steve, if I could, cause I -- I think that's, you know, you're raising an important point is -- is that your experience in internationally and other markets where they've been able to solve -- because I think auto is a common problem in many markets.
Stephen Fuller: Well yeah, and I (AUDIO GAP) the example I gave about New South Wales I think, you know, they had a number of the same problems that Ontario has currently. And I think that whole process that they went through, working closely with -- with the companies and consumers but also being further empowered by the Ministry of Finance I think, you know, those elements combined helped them solve that problem and deliver, you know, much better products to consumers.
Jordan Solway: And -- and has that -- in New South Wales has that been a sustainable solution to your knowledge?
Stephen Fuller: Yes, based on my conversations just, you know, I guess about six months ago with the -- with the insurance carriers and also with the regulator and also based on some of the outreach that SIRA, the regulator, has done in contacting consumers and really keeping, you know, taking the pulse of consumers. You know, the fact that the -- the -- the companies have excellent relationships with the regulator, that's also quite a -- a -- an important factor.
Jordan Solway: Thank you, Steve. Maybe if I can just switch gears, you know, we've talked this morning about PBR requiring a coordinated effort, ongoing communication between the regulator and the sector, and from FSRA's perspective we've been trying to do that through our guidance. And maybe I can ask, sort of turn the tables a little bit and start you with -- with Si -- start with Simon. Can you comment how effectively you think our guidance is? And perhaps if you have -- can identify specific examples good or bad.
Simon Archer: Well they've put me on the spot. Okay. Well, look, I think FSRA's done a commendable job of taking the existing -- and I -- I'm speaking primarily about the pension space that -- that I know best. But as I say, a commendable job at taking an existing body of guidance that it inherited which was developed over many years and -- and different approaches to administering the statute. And been reviewing it and reflecting the new regulatory approach in the new guidance, risk assessment methods, outcomes focus and -- and so on. And it's a massive undertaking. A lot of detailed work with stakeholders has occurred.
I've been part of that and I've been happy to be part of that in generating this new guidance and updating the former regulatory approach. I think on the whole this new guidance has been helpful in generating and sustaining this essential dialogue. There's been good dialogue with the JSPPs, the Jointly Sponsored Pension Plans. That was mentioned earlier. And there was a -- a couple of questions about that put to Mark. Also in the multiple employer space there was new guidance issued last spring. I think it's been helpful in generating conversations that hadn't happened for a long time if -- if at all, both at the regulated -- both at the board table, the trustee table, but also with the regulator as well, an opportunity to kind of introduce each other and talk about expectations together moving forward. And I -- I think it's been successful at generating those conversations. And so that's good.
And also even on difficult subjects in these sort of risk based approach and the monitoring approach in PPGF eligible plans which is of course contemplating failures at sponsors and -- and risks to plan members. And so a difficult piece of guidance to issue and talk about, and I think that a good job was done there.
I think in terms of big challenges, probably our greatest collective challenge right now, and this is a challenge across all prudentially regulated sectors, is -- is the one that Mark mentioned earlier in his remarks, and that's the climate change challenge. We have a lot of work to do I think to develop guidance that will assist pension plans in understanding what to do about it. And as I said, particularly medium and small actors in the sector, big actors maybe further ahead in tackling these issues. But we have to I think -- and we've seen other principles based regulators doing this in the UK in particular, the financial conduct authority has been issuing some useful guidance which is helpful to refer to in thinking about our own.
But, you know, review of disclosure and -- and reporting to members and to the regulator what sort of standards at the asset and portfolio level are needed to ensure that the price signals are working in the way that it is intended to meet the -- the global and national targets. And that work is still very much underway as Mark said. Look forward to developing more of it. And I think that's one of the most urgent pieces of policy guidance that we'll need to see in -- in the very near future.
Jordan Solway: So I -- I think it's -- it's fair to say and I -- I've observed this that your sector is perhaps, you know, the most engaged our of all of our sectors given the complexity of -- of registered pensions and the issues you're dealing with, cause you're dealing obviously not just with providing the benefit but asset management issues.
Maybe if I could turn to you, Dr. Ford, because I think this raises a really important question in my mind, which is, you know, looking at it from the sector's perspective can you comment on what you think is the -- what's the level of engagement that you think as the minimum level that's required for that sector in order to really reap the full benefits of PBR?
Cristie Ford: Right. Well I think thinking of it as a minimum level I guess I -- I would say the more you engage with the regulator the more trust you will generate with the regulator, the better your communication with that regulator will be and the more beneficial that relationship to you. So you can hope not only for -- for guidance in the written form but also for guidance at a sort of a more comprehensive level. So -- so really understanding principles based regulation without the communication with the industry actors, you're not going to get the kind of effective system that one would hope for.
So for -- for -- for folks in the industry I think it's important to understand that this is really a compliance focused not enforcement focused regime. It's about being engaged. It's aimed to be or the intention is that it be cooperative to the greatest extent possible. Now again, it doesn't mean there's no enforcement stick in the background. There is. But this is -- the point is that this is not a gotcha regime, right? Where the regulator is looking for low hanging fruit and is seeking to I don't know catch you on some small rule violation. It really does look at overall regulatory priorities and by employing a risk based outcome oriented data driven regime, you can -- you can be confident that you're not going to be sort of caught out as long as you're communicating with the regulator.
So -- so what this really means is it's in the industry -- it's in the interest of industry actors to really come to the regulator with problems earlier to demonstrate good will, and this allows the regulator to really focus its resources, its enforcement resources on the folks who are real, you know, causing -- a -- a -- real problem actors to mitigate that harm while not needing to do that with industry actors with whom they have a good relationship.
And I guess I would -- I think of this as being sort of a little bit equivalent to an example of start-up financing. So if you are a small start-up company, there are a lot of them here in Vancouver, you will have all kinds of debt instruments with various different lenders as well as, you know, various other ways of financing yourself. But if a small start-up company finds itself in default of a covenant on its -- associated with a -- with a debt obligation, what they need to do is contact, you know, counsel who will contact the lender and say I think we might be in breach of a covenant.
And the -- when -- when that communication happens earlier the chances are, you know, very very strong that that debt -- that that lender is not going to enforce on the covenant and re -- you know, and -- and require repayment immediately. What will happen is there will be a waiver, there will be communication, people will understand why the covenant was breached, and this will modify or it will, you know, and -- and the underlying debt obligation and -- and -- and lending it doesn't go away. Because there's that early communication and because ultimately everyone's interests are served by having industry actors operate effectively and well. And nobody's interests are served by having a oppositional relationship there. And that's really the same when it comes to a principles based system.
So understand that that relationship is important and it matters and it is to both of your benefits. I guess also understand that principles based regulation requires you to think about your own internal compliance. And to understand what you're doing to ensure that you have in place a system to prevent and detect internal violations of law in a timely and effective manner, that you respond effectively to them, that you communicate with the regulator when you fine them. And it's not about sort of the -- the letter of the law or reading the rule without its spirit and working to just sort of tick boxes on what you are required to do and not required to do.
Now I -- I should say this is easier for bigger actors with more built out compliance departments and more resources. So for smaller actors, again, get in touch. Talk to your regulator. Talk to FSRA. And there may be times when having a series of background rules or, you know, that kind of clearer support is useful for smaller industry actors. And -- and that's okay. There will also I think be a transition period. And so it's reasonable to understand that there's going to be a time period during which people are working at the contents of principles, building the relationship with the actor, adjusting sort of on the fly, and it will always be evolving, right?
And so again, so long as, you know, so -- so communication is in your interest. I don't know if there's a -- a minimum amount of time that you want to be communicating with your regulator of if that's really the -- the way to think about it. Be -- be -- the way to think about it is that this is one of your relationships that matters and -- and there are real advantages to being straight up with your regulator in this system.
Jordan Solway: That's a -- that's a great answer. And I think, you know, a couple things that really I -- I would focus on would be -- and I often say this. Probably people are gonna cover their ears at FSRA. But, you know, PBR is a -- it's a journey, it's not a destination. In that you're never gonna sort of be at the point where you're finished. It's constantly evolving. The dialogues with your sectors are constantly changing and your focus on -- on problems and issues I -- I come back really, or I -- I would end where Mark's -- Mark commented, which is if you do this right you're gonna have much better regulatory outcomes and you will reduce the burden on the industry. Right? But there's a lot within that to get to that point and I think that, you know, the staff within FSRA and the sectors have been trying to, you know, work with each other towards that goal.
The other thing I would just comment on cause you've raised it. You know, I -- I don't want anyone to get the impression that the enforcement function at FSRA is like the Maytag repair man. You know, our enforcement function is very active and very busy. My colleagues Chris Solis and Alyssa Sena(PH) can attest to that. There's always, you know, there's always issues you're dealing with particularly to your point, Dr. Ford, where, you know, some participants you can be as principles based as you want and communicate as much as you want. But they're just gonna flout the system. I mean, you have to deal with them. You have to make sure there's public confidence in the system and that consumers are protected. So enforcement is alive and well in case there's any misconception about that.
I am looking at the time. I hoped maybe I could get one question but I -- one final question if Steve's -- I can put it to you but if you could try to just be somewhat brief so we can wrap up. You know, from the sector's perspective and you -- you come from obviously the insurance side. What do you think is the best way to operationalize PBR if you're a -- an insurance company or a broker or an agent in order to achieve those desired outcomes?
Stephen Fuller: Yeah. Well I'll try to be very brief. One method for operationalizing PBR in the insurance sector is through the own risk and solvency assessment process, or the ORSA. And ORSAs allow management to identify and focus on areas where risks are high and ORSAs allow regulators to assess the effectiveness of management's efforts. ORSAs are (AUDIO GAP) jurisdictions in Canada. Insurance companies conduct -- conduct ORSAs in accordance with expectations set out by the super -- superintendent of financial institutions, the Office of the Superintendent of Financial Institutions, OSFI, the solvency regulator, and each insurer will produce its own unique ORSA based on the complexity of its business and profile.
I'm not sure if you want me to say anything more, Jordan, given the -- the time.
Jordan Solway: No, that -- that's helpful, Steve. I just I'm -- I'm conscious of where we are. So I didn't think about that. ORSA's a great example of, you know, how you're using your own assessment and the risks in your business and adjusting it accordingly so your capital is adjusted. So that -- that's actually a helpful way to think about it.
Stephen Fuller: Right.
Jordan Solway: I -- I'm going to wrap up just in the interest of time. I really want to ask the audience obviously in a round of virtual applause and joining me in thanking really what is an incredibly talented panel of experts for their insights on PBR and for spending the time this morning, particularly Dr. Ford who's three hours behind and woke up especially early for us. So thank you very much. I'd also say as is clearly evident from the tenure of this panel that this does not work as a monologue. And so I would also extend thanks to our sectors for their ongoing support and patience as we work at FSRA to implement PBR and achieving our shared vision to get to those desired outcomes, to protect rights and interests of consumers, make sure the market is sufficiently innovative and competitive, and obviously also promoting high standards of business.
So I wish to thank you for giving us the time this morning. And I'm gonna turn it over to Glen now for introduction to the next session, or I believe we go to break.
Glen Padassery: Thanks, Jordan. And thank you our esteemed panel guests who joined Jordan today. I think it was a really instructive dialogue. We are trying to maintain our timing for the event and so we're about to go back on break and we will return at 11 a.m. sharp, so I have 10:56. So we're returning in four minutes. So thank you for your patience and we'll be back in a couple of minutes.
During the Innovation Panel, Director of Financial Health at Fintech Cadence, Elvis Wong told the Exchange Event that FSRA’s new Innovation Panel will help encourage start-ups to invest in Ontario.
“What they want isn't no regulation. What they want is clear regulation and guidelines so that they know how to operate and what they can do. And, more importantly we've talked a lot about principles-based regulation. They want to feel like they're being encouraged by the sector as well.”
WATCH: Director of Financial Health at Fintech Cadence, Elvis Wong explains how FSRA’s new Innovation Office will help encourage start-ups to invest in Ontario.
2022 FSRA Exchange Event – 04 Innovation Discussion
We -- welcome back everyone. So the next session is something that's really important to everyone here at FSRA and I’m sure for the regulator sectors. One of our key priorities is to help Ontario become a leader in financial innovation in Canada and around the world. To ensure that consumers across the province have access to the latest advancements in financial services while protecting the public interest, we are gonna talk to you about what we are doing and explore the FinTech landscape in Ontario.
I am pleased to introduce Marlena Labieniec, the Director of Innovation at FSRA. She will be joined by Layial El-Hadi, the Executive Director of Fintech Cadence, and Elvis Wong, the Director of Financial Health at Fintech Cadence. Over to you, Marlena.
Marlena Labieniec: Thank you, Glen. And I will just wait for my colleagues -- for my panel to show up.
Good morning everyone, and thank you again, Glen, for such a warm introduction. As Mark mentioned at the start of this morning's conversation, the innovation office has just officially released FSRA's innovation framework. And to really quickly remind you all, the objective of the framework is to set clear expectation and guiding principles to help market players bring innovative products in a sustainable, responsible, and accessible way.
The framework speaks to some of the tools and processes we have built to put in place to make this easier and to make it easier for market players to propose new ideas, products, and services while of course we continue to maintain consumer confidence in our financial services system in Ontario. We have also just opened our doors to our test and learn environment. We are launching this as a pilot with scope that is suitable for a pilot. But the goal is to expand -- expand through proactive engagement with sectors and start up growth engines like Fintech Cadence. FinTech Cadence is Canada's Fintech hub, founded in Montreal. Their mission is to foster innovation in the Fintech sector and create world class Canadian Fintechs.
They collaborate with many great talents, start-ups, universities, researchers, VCs, incubators, accelerators, and financial institutions to work and innovate together. Talking about collaboration, guys.
Elvis and Layial, thank you so much for joining me today. I invited you this morning to discuss how you believe FSRA and the innovation office can support start-ups trying to create value and deliver responsible innovation for consumers in Ontario. I would love to get your thoughts on how you think the innovation framework can support Fintechs and Insurtechs and potential challenges that we might be faced with. And lastly, some of the key trends that you're seeing these Fintechs and Insurtechs trying to address and where you see they're trying to derive benefit for Ontario consumers.
So why don't we just dive right in? You guys have provided a lot of great support and insightful feedback throughout our consultation. As you are quite familiar with the innovation framework, often we hear that regulation is seen as a threat to innovation. What do you think of FSRA as a multi-sector financial services regular -- regulator undertaking an innovation facilitation role? What are your thoughts?
Layial El-Hadi: Hi, Marlena. Thank you very much for having Elvis and I here today and it's been really wonderful listening to all of the panels prior to us as well. So it -- it, you know, to the best of our ability we'll try and give our experiences and our opinions here where valuable.
I think first and foremost it's very important to note that a regular play -- a regulator plays a very tremendous role in the development of Fintech in general. And I think if we understand that and we go into the context of the conversation is that you can't have Fintech in Canada without having regulators. And then you take the next lens and look at so is it key as you're asking, Marlena, for us to have -- for FSRA to have an innovation framework? Absolutely. Right? It needs to have -- I think regulators need to have an understand that whether we want to or not -- and I -- I'm assuming everyone on here listening today wants to have innovation happen. Then it's really key to kind of give a playbook or and a positioning of where FSRA stands on it.
And what do I mean by that? I mean that it's really key for, one, internally FSRA to understand why is this important to us? Why do we want innovation to happen? And I think we've already heard quite a few people earlier on today address that particular point. And then internally understand if we agree that innovation needs to happen and we want to support it, then what is FSRA's role internally? And I think that's what the framework serves really wonderfully to do.
But then and more additionally, so, I think what's really key is that everyone else participating in this ecosystem, start-ups, financial institutions, incumbents, et cetera, understand then what is that positioning? And what role can regulation play to not only support innovation but to actually encourage it. And I think that's what we're seeing really wonderfully happen with the framework itself.
Marlena Labieniec: Thank you. Elvis --
Elvis Wong: -- And I want to --
Marlena Labieniec: -- Any thoughts from you?
Elvis Wong: Yes. I want to add on to that. In the previous panel it was talked a little bit about how not all innovation is beneficial. And what we'll say here at Fintech Cadence is that we believe that regulation is necessary for -- for Fintech innovation in Canada. Because we want the good players to survive and the good players to thrive. And then we don't -- do know that there's other start-ups that might not be in the best interest of Canadians. And we want the regulators to be able to both encourage good innovation to thrive and -- and the bad players to potentially be monitored. Right?
So, I think that any start-up here in Canada, I think there's a bit -- bit of a discussion around how regulation kind of can hurt innovation. But we truly don't believe that's the case. And I think what start ups want isn't -- what they want isn't no regulation. What they want is clear regulation and guidelines so that they know how to operate and what they can do. And -- and it -- more importantly we've talked a lot about principles based regulation. So we -- they want to feel like they're being encouraged by the sector as well. Right? So it's not that they have to follow these rules and these checklists, but that they -- they -- (INAUDIBLE) the regulators are for thinking and what they're doing.
Marlena Labieniec: Thank you. I think both touched on a very good point, the importance of transparency and clarity as well as ensuring that of course we continue to support and encourage responsible innovation.
So farther to move on on our innovation framework, do you believe it's sufficient and effective in actually helping us achieve our ambition statement in making Ontario a best in class market for financial services innovation? Anything that you would want to take away or mention around that?
Elvis Wong: Yeah. So we reviewed the framework in detail and we think it's very comprehensive. So we really -- really appreciate the approach that's being taken where it's both -- I believe you mentioned it's proactive internally. So really it's FSRA thinking about what are some of the things that we can see in the credit union sector and the mortgage sector and the insurance sector, seeing some of these changes are happening elsewhere globally, and then being proactive and thinking of how we can adopt a regulation so that it makes sense for Ontario.
But at the same time also making sure that you're engaging with us, like Fintech Cadence, and external stakeholders for that outside in approach as well. So we think it's comprehensive from that standpoint and then also from the element of really, like, being mindful of both the financial institutions that are in the room today and what they're trying to do, but also what Fintechs are trying to do and trying to take in both perspectives.
So we really -- we like the comprehensive element. I think the challenge -- the framework is -- is sufficient. The challenge is actually getting it to be actioned upon and -- and really actually starting doing the work.
Layial El-Hadi: Yeah, and if I can just jump in here on that last note Elvis, that -- that's exactly it, right? So a lot of work, and we know, Marlena, a lot of work went into this framework. And I think the ability to leverage it now and be transparent to all the stakeholders in a manner in which they understand what it means, you know, I think something we always see with Fintechs is they hesitate to engage with regulators because they find it very complicated. These are not individuals who know how to navigate compliance. They don't necessarily know how to navi -- or understand what role regulations might even play.
And so we're really starting at talking to entrepreneurs at a level of this is what a regulator's role is. And on top of that, this is how the innovation framework that we've developed, how it's gonna help you thrive. And what exactly it means for you. I think sometimes Fintechs will not only not understand regulation but think it comes with a big price tag with it as well. And I think once they start getting that anxiety of, okay, well regulation means compliance. Does it mean I have to hire lawyers? Does it mean I need to pay for somebody to manage this process for me? And I think once entrepreneurs see that or have that misconception they really take a step back and say, okay, well that's a problem I'm gonna try and deal with when it really arises. Whereas with this innovation framework if it -- it's implemented the way it's been designed to, if it's really transparent like Elvis mentioned from the very beginning, and simplified, I think Fintechs would be more willing to engage in the conversations. As -- as will other stakeholders as well.
Marlena Labieniec: Right. And we've noticed that happen more organically with the establishment of our office. The outside in approach that you mentioned that's reflected in our framework is key for us to ensure that there's an understanding and opportunity for collaboration. And an open door policy. Through hubs like yourself and others we have been engaging in building that relationship with -- with Fintechs and Insurtechs to better understand some of the innovations that they are trying to address and problems to solve for. But of course where does the regulatory friction happen and how then we could best support it and our tools and processes and elements of the framework were built upon that.
So thank you very much for sharing because I think that we also think that is key. So we talked --
Layial El-Hadi: -- Yeah so when you --
Marlena Labieniec: -- Oh sorry. Go ahead.
Layial El-Hadi: I was just gonna add, I think what you said there is really key. Being top of mind is what's really gonna help the success of this framework. And what's really gonna help innovation in Ontario in general. Right? I think with the announcements and the publicity around it. That's wonderful. I think start-ups will hopefully engage with you like you're seeing consistently and you guys are being proactive by working with organizations similar to us. I think it needs to happen consistently, whether it's a monthly reminder, you know, FSRA exists, this is why you should be engaging with us. This is how you can engage with us. And it's consistently being placed as top of mind. I think that would also ensure the success of the implementation of the framework.
Marlena Labieniec: Okay. Great. I think that's -- so I think you've somewhat addressed some of the challenges or not even challenges but some of the considerations that we have to keep in mind as we now move to the implementation stage. A consistency, transparency, open communication, and anything else that you would advise us to focus on or maybe take away to ensure that Fintechs and start-ups also feel supported.
Layial El-Hadi: Yeah, I can jump in first, Elvis, if you don't mind and then please feel free to add on anything. I think you also -- and again, not to be too repetitive here, Marlena, but you also touched on something that's really key, and that's the friction point.
So what is the regulatory friction point that some of these start-ups are facing is also really important. I think, you know, we've talked about quite a few start-ups having challenges in navigating this. But it's again lack of understanding perhaps from their side. And in all tren -- in all honesty, tre -- a lack of understanding perhaps from regulators of what is that process. What is the urgency needed in terms of them building a product?
Entrepreneurs are concerned of paying their employees, getting sales, develop -- product development, so at what point do they need to engage with regulators? And that is their responsibility and accountability. But also for the regulators and FSRA here as particular leaders say, okay, this is what it means to develop a product in cybersecurity. This is what it means to develop an Insurtech product. This is what it means for them to collect data. This is what the product -- this is the technology that they're using. This is the artificial technology components that they're utilizing. So that when you guys are in conversation with each other it's easier for the start-ups to be able to explain what could potentially be the friction point and then feel supported and understanded by the regulators and -- and of course vice versa.
Marlena Labieniec: Thank you. Thank you for that.
Elvis Wong: So on that note --
Marlena Labieniec: -- Yep --
Elvis Wong: -- I think that one of the things we wanted to bring up was how ambiguous regulations in the past have hurt Canadian Fintechs. So not necessarily in -- in Ontario and in -- in the insurance space or -- or FSRA is a domain(PH). But definitely there's been quite a few start-ups that we know of that have launched in Canada, launched in Ontario, were successful in getting customers, helping them. But because of unclear regulations around -- in their -- in their cases open banking, unclear regulations around what they can do, they have actually moved to the U.S. to serve U.S. customers.
So there's a couple of examples with NorthOne which first moved from Quebec to Ontario to the U.S.. Thrive Savings is another example, or some of our start-ups have actually shut down because they just felt like they couldn't operate under that regulatory environment. And it was purely cause of regulations, not because of customers, not because of funding. But because of that -- because of just unclarity in the -- in that sense in the open banking sense. So I think that there's really the challenge would be just making sure that there is the clarity and guidance for these innovations to happen as -- as Layial talked about.
Marlena Labieniec: Thanks --
Layial El-Hadi: -- Yeah and -- yeah.
Marlena Labieniec: Go ahead.
Layial El-Hadi: I think this meeting -- this whole panel is gonna be me cutting you off, Marlena. I apologize. I was just gonna add (INAUDIBLE) in terms of -- in terms of that as well it's -- it's -- sometimes it's the start-ups not understanding or not being able to navigate the regulatory landscape. But it's also other stakeholders that could potentially be partners or customers of these Fintechs not also wanting to dabble in the, you know, in any wri -- ba -- bad waters if you will in reg -- in terms of regulations. And of course usually we see incumbents fall into that bucket or financial institutions, rather, credit unions, whomever, who are hesitant to shake up any regulations because they have a lot more to lose than perhaps a Fintech with a smaller number of clients, et cetera.
And so I think, you know, we're talking about innovation and the landscape of Fintechs and Elvis mentioned some great examples of Fintechs that have had to go over to the states for -- with their customers or to navigate the la -- regulatory landscape. But it's also very key that we ensure that the incumbents as well know how to navigate in -- innovation regulatory landscape as well so that they can also leverage the Fintechs that are currently building new and exciting products.
Marlena Labieniec: Right. And our framework definitely addresses both. And making sure that both parties have an equal playing field. As we not only support innovation but al -- also open the door to our test and learn environment where we're be able to more -- where we'll be able to test some of these innovations and pilots under -- under a defined -- under defined parameters. And -- and ensure that it's data driven results that we're obtaining.
Layial El-Hadi: Yeah.
Marlena Labieniec: So, moving on you guys financial ca -- Fintech Cadence started in Quebec where you have built excessive partnerships and various programs with AMF and variety of other key stakeholders in this ecosystem.
Can you maybe speak to some of your lessons learned from there? Some of the key takeaways that we should be considering based on your experience with AMF in -- in Quebec.
Layial El-Hadi: Yeah, absolutely. I mean, I think obviously having common built our organization in Montreal we have a lot of positive things to spe -- say about how the collaborative ecosystem has helped Fintech in general.
Now I'm very much here looking at it from a Quebec landscape, so please keep that in mind as you're listening to the responses here. But I think one of the reasons why the landscape in Quebec and particularly in Montreal has been able to thrive it's because the stakeholders have all been from the very, very early days in conversation with each other. And what I mean by that is venture capital and funders are talking to financial institutions to see well what are the challenges, what are the products you could potentially be using?
Fintechs are talking to financial institutions. Fintechs are talking to venture capital or funders. And of course and very key aim at this part of all of these conversations, right? So I think one of the things we've seen work really well is the AMF -- very similar to what FSRA is doing now, coming in and saying this is why innovation is important and we really want to encourage innovation. But the top of the line is like you said is consumer confidence. And so how are we able to do that properly? And then the other component that I think made AMF quite successful is they didn't have the answers to everything. They didn't necessarily know what is the technology being integrated in all of cryptocurrencies for example. I know that was one of their strategies in the early days.
They, you know, there was a humility around how they spoke to Fintechs to be able to understand the technology and the products and what can actually be the impact on consumers. I think we -- we're gonna pretend or we're -- we're gonna go on the assumption that a lot of Fintechs when they're building their solutions are doing so with the best of intentions. However, the might have blind spots that they're not aware of. And I think what we've seen work very, very well in Quebec is then the AMF has been able to be in conversations with these Fintechs and say these products are great, however you're missing this blind spot or this blind spot.
And the only they've been able to do that is because they were in conversation with the Fintechs from the very early days. They were always transparent about their view on innovation is important, but we have to be careful with the speed of it. And I think Fintechs were always comfortable going to them because they knew exactly who to go to and they could see the presence of the regulator in all other conversations. And I think if, you know, if -- not to harp too much on this, but I think if the Montreal ecosystem has been successful if you look at it as a success then it has been so because of all of these conversations consistently happening, a lack of silo-ness if you will, and an openness for all stakeholders to learn from each other and to understand that competition is good but not to the point where we're hindering a city or a province in order to develop innovation solutions.
Marlena Labieniec: Yeah. So what I'm -- and I -- I, you know, we've talked about this many times and wanted to make sure that as we engage proactively with -- with Fintech and Insurtech hubs and innovation centers that the collaboration is -- is key. And as you said, having a seat at the table, right? I think there's learning on both sides. Learning for us to better understand, again, what these innovators are trying to address and what problems they're trying to solve from a consumer perspective. And then also for others on the other side of the table to ensure that they have clear understanding and transparency around regulation and how can it potentially impact what they're -- what they're building.
Elvis any --
Elvis Wong: -- Yeah --
Marlena Labieniec: -- Have any thoughts from you?
Elvis Wong: No, I fully agree with Layial and I think it's -- it will be exciting to have FSRA engage on the ground with -- in Ontario and really replicate some of the work that we've done in Montreal and Quebec. So obviously Layial is -- is in -- is in Montreal but I'm actually from the Toronto ecosystem, right? And it -- I think it would be exciting because I do think that in Ontario we do have a very successful Fintech space. We have some great Fintechs that have gotten a lot of funding. But what I've found at least is that it's not as open as the Montreal ecosystem.
There's certain players that -- that get a lot of support but if you're a new Fintech it's very hard to break through. And part of that is because you -- you -- there isn't right now as much of that connection. So it's good for us to establish that so that people know where they can go, have that open door policy with FSRA and potentially other regulators in the future as well. And I think that will just provide a lot more clarity for -- for a new entrepreneur to actually get started and know what they're doing and have -- have a plan for a year or two down the line.
Marlena Labieniec: Great. Thank you. And Layial, sorry. I cut you off right before I went to Elvis, so I just wanted to make that I give you an opportunity to raise anything that -- else that you wanted to raise.
Layial El-Hadi: No, that's fine. Actually maybe it was for the better cause I was gonna go on a whole spiel about how, you know, we're very bullish about the fact that we really think Fintech is -- should be one of the top sectors in Canada. And actually I was just on a call with a partner earlier today saying the exact same thing. And with that in mind I think the more collaborative the ecosystem is across the board -- and sorry if I’m sounding very evangelistic here -- but across the board -- and when I say across the board I truly mean between Quebec and Ontario within Ontario, within Quebec, across Canada. Because when you look at it from what's happening globally as much as I love the Canadian Fintech ecosystem and think we've had some great successes, we're far behind on a lot of different components on a lot of them to be honest.
And so in order for us to start being competitive globally, or more so competitive globally, in order for us to be ahead of the curve, you know, we're already behind -- and I don't want to make this an open banking conversation. But we're already behind in terms of a lot of things that are happening in the UK, Australia, the U.S., Singapore, East Asia, from an open banking and regulatory perspective let alone technology that we're seeing. So I think the best way and the best lessons that we can are the ones happening in Montreal which is that collaboration, implementing that and leveraging the strengths that Ontario has and doing so with a supportive regulatory landscape for lack of a better word I think will only help us be more competitive globally and really addressing consumer needs for Canadians by Canadians which is ultimately what we want especially from a regulatory perspective is the best products for Canadians in the safest way.
Marlena Labieniec: Thank you. I think excellent, excellent point. So as we -- we have about eight minutes left and I just wanted to make sure that we touch on this last question. As we now move to our third year of the pandemic a lot of consumer behaviors have -- have fundamentally changed and were forced to change due to COVID. Unlike the urgent switch from people based business doing online digital platforms that happened in March 2020 what are some of the new trends and challenges that you're seeing at the -- these Fintechs and Insurtechs are trying to address? And where are they trying to add value or drive value for consumers?
Layial El-Hadi: Perfect. Elvis, you want to start and I'll --
Elvis Wong: -- Sure, I'll start it --
Layial El-Hadi: -- (INAUDIBLE) After you.
Elvis Wong: Yeah. I can go first. So my role at Fintech Cadence is the Director of Financial Health. So I'm really thinking of which start-ups are improving the financially -- financial lives of financially vulnerable Canadians? I -- I think one of the interesting things about Fintech is looking at how Canada's changing, figuring out which markets are currently underserved, and addressing those issues. So in this space a lot of Canadians are becoming freelancers, gig workers, self-employed. There -- it's -- it's just rarer now to be full time employed in a job for the pa -- past 20 -- for 20 years.
So that obviously affects pensions. That affects insurance that you have access to. So at least what I've been interested in, I've been seeing a lot more start-ups that are focused on niche -- what we traditionally would say are niche markets. But self-employed, freelancers that are growing. Right? And figuring out how do we provide insurance for the self-employed? For example, the non-profit industry, a lot of non-profit workers are actually contract workers. So they won't have access to retirement savings pensions. So how do you provide portable benefits, portable plans for some of these workers so that we -- we support -- support our -- our workforce, right?
So that's just one segment. But we also have other Fintechs thinking of newcomers, thinking of racialized(PH) Ca -- Canadians, thinking of we had one start-up that was focused fully on temporary for -- foreign workers here in Ontario in Canada where we have every year we have workers come from Mexico and -- and different places in Latin America. And they're actually here year after year for the summer. And they -- there's financial services that -- that they need that they're being underserved by the current ecosystem. So what are these segments and trying to address -- address some of these concerns is what I'm excited about in the ecosystem.
Layial El-Hadi: Yeah, and then --
Marlena Labieniec: -- Layial, over to you.
Layial El-Hadi: Just to add. Perfect. So just to add a bit -- di -- a bit of also perspective there, so that's -- I -- I think, Elvis touched wonderfully on some of the consumer needs as well. Maybe I'll just add two things as we're starting to see as well a lot of consumers are becoming more and more digital -- digitally savvy, are expecting a lot more from their financial -- not only from their financial services but all the experiences and ton -- touch points that they have with any kind of financial service as well.
So we're starting to see that. We're starting to see a bit more awareness in terms of what's happening globally as well so Canadians are able to compare and contrast the services. And then of course we've had these stories come up, you know, with GameStop and investments and all of these components as well happen throughout COVID. So I think consumers are also wondering what does investment look like for them when something drastically happens like a pandemic, how prepared am I? How much insurance do I have? And so we're seeing a lot more Insurtech Fintechs and a lot more solutions come and address those.
But I will say now unfortunately three years into this nightmare if you will we're also seeing some of the Fintechs move away from consumer based solutions. So -- and con -- other than the ones that Elvis had already addressed. And we're starting to see them move to more smaller businesses, entrepreneurs, and more B2B solutions as well. So we're starting to see that shift and that's really dependent on two things. One, more people from industry pro -- building and providing those solutions. But also it's quite challenging to build a very successful Fintech start-up directly to consumers. And so we're starting to see some of the entrepreneurs who've been in the space for a while pivot a little bit more to businesses and understanding what the requirements are there. Because there is usually, and I say this with a hesitation, but usually you'll see more success rates with businesses, specifically because of the regulatory landscape and because of the -- the landscape in general here in Canada.
Marlena Labieniec: Right. And maybe if I could maybe add to what would you feel that it's also consumer education is such a big piece, an important piece in all of this. Right? Because as, you know, things are changing so quickly are we ensuring that the -- there's enough consumer education around -- around these new product or businesses or new services? Right? The trust piece is such an important piece especially when it comes to finances.
Layial El-Hadi: Yeah. And, you know, you're hitting on --
Elvis Wong: -- Exactly.
Layial El-Hadi: Elvis, go ahead. Please go ahead.
Elvis Wong: No, I -- no, exactly. We think it's im -- like, so important for Canadians to be digitally literate to understand now when you can do so much on your phone with these apps, to really understand what they're getting into. Actually interestingly enough, earlier this week we were in a conversation with the financial consumer agency of Canada. And we're talking about this, how there needs to be a role for someone in Canada to really help Canadians understand Fintechs and product and services in general and understand whether it's good or bad for them and fi -- and being able to actually assess that.
And -- and there needs to be some unbiased sourced that can help -- help Canadians navigate this landscape for sure.
Marlena Labieniec: Thank you. So as we wrap up, Layial and Elvis, I wanted to thank you for joining me over this half an hour. For one of the many more -- many -- more discussions that I believe you will have and will need to have around how do we support innovation and how do we -- how -- enable innovation within our financial services sector. And -- and if any call to action that, you know, individuals on the other side could take for -- away from this our office is open for collaboration and discussion. We have our innovation office website. That is live. We have contact information on the website.
We also have FAQs on our test and learn environment as well as a quick summary of the framework. If you haven't read the detailed document. So I -- I invite you to have a look and I also invite you to get in touch with us on your exciting opportunities.
Thank you very much, again. And Glen, over to you.
Glen Padassery: Thanks, Marlena. And thanks, folks from Fintech Cadence. That was a great session and really informative. I just wanted to remind folks again who took the time to provide some questions through the question and answer box, we endeavor to respond to all of those questions and get back to you when we start posting the materials on the FSRA website. So rest assured we've been capturing everything and the teams will be going back and providing responses.
And I know there was one question that I can quickly answer. It was how do you spell Fintech Cadence? And the Cadence part is C-A-D-E-N-C-E. So anyone who wants to check out the Fintech Cadence website please feel free to do so.
So again, thank you, Marlena and team, for a great session.
Ontario Finance Minister Peter Bethlenfalvy applauded the provincial regulator for the progress it has made in less than three years.
“It's really hard to believe given everything that you have accomplished in such a short period of time that FSRA is still a very young organization, but you have already revolutionized the way non-securities financial services and pensions are regulated in Ontario,” said Minister Bethlenfalvy. “Your work will plan an instrumental role in Ontario's economic recovery and growth well into the future. But it's also important to remember what a critical role you play in the everyday lives of the people of our province. And the important role you play in continuing to serve the interests of the public.”
Please note that if you submitted questions during the event and we did not have the opportunity to address it, those questions along with their responses are now posted below.
Q: Auto-insurance: What FSRA's role in protecting people's interest when the auto-insurance costs are being increased on all consumers because there are increased numbers of claims? Do you think it is fair to have someone who has no accidents or speed tickets to continue paying higher costs for other individuals who fall into those traffic incidents? Why would you and I pay increasing costs for others' faults?
A: FSRA’s role is to make sure insurers are charging rates that are just and reasonable. There are a number of factors that impact what a consumer pays for insurance, including driving record, the geographic area where you live and work and the car you drive. If claims are increasing in certain areas, those who live there may see their premiums rise regardless of their clean driving record. FSRA has a strategy to review what “fairness” means in auto insurance pricing and will be consulting on this question. FSRA is committed to reforming auto insurance rate and underwriting regulation to improve outcomes for Ontario’s drivers.
Q: My question is about automobile insurance in Ontario. For some context, Ontario auto insurance is very expensive. One of the reasons is the cost of accident benefit claims. In 2011, the Ontario government mandated the use of a single billing submission system (HCAI) and issued licenses to use this system to business entities. In 2012 and 2018, HCAI and Canatics found that the medical professionals that were listed on the claims forms were not aware of what was being entered into this mandated medical billing submission system under their credentials. My question is, Part A. Why does FSRA not want to ensure that the medical billing submissions in their mandated medical billing submission system are verified by the medical practitioners whose credentials are being used to submit the forms? Part B. Has FSRA informed the automobile insurance industry of the ways to mitigate their individual exposure to this expensive risk?
A: Managing system costs and reducing fraud and abuse in the auto insurance system is important to FSRA and reflected in our Annual Business Plan priorities. By way of example, FSRA has prioritized enhancements to the HCAI system for the upcoming fiscal year. FSRA and MOF also completed a joint consultation last year on a Fraud & Abuse reduction strategy. We look forward to moving forward that work as well.
Q: Mark, you mentioned balancing competing interests, could you expand on how FSRA does this say for example in the auto insurance sector?
A: FSRA is committed to open, transparent and collaborative consultation with all stakeholders, including consumers. FSRA's activities in regulated sectors aim at achieving the best outcome for consumers in accordance with the statutory objects set out in the Financial Services Regulatory Authority of Ontario Act, 2016. We have a simple rule to guide our approach to auto insurance – consumers first, everyone else second.
Q: How does the FSRA plan to protect vulnerable consumers, specifically those injured in motor vehicle accidents, when Ontario Auto insurers have actively ignored guidelines and bulletins without fear of repercussion or cost? How is the FSRA protecting consumers from Ontario Auto Insurers challenging legal interpretations to decrease liability in the Statutory Accident Benefits schedule at an unproportionate cost to consumers? How will the proposed UDPA Rule better consumer protections?
A: Once it becomes effective the UDAP Rule will protect consumers by clearly defining outcomes that are unfair or otherwise harmful. The Rule is intended to improve the identification, deterrence and sanctioning of misconduct to better protect the public interest. This includes the unfair treatment of consumers, abusive claims practices and behavior that is deliberately intended to mislead consumers.
The License Appeal Tribunal assists claimants and insurance companies in resolving disputes related to statutory accident benefits as a result of motor vehicle accidents. Its mandate is to provide timely, cost effective and fair dispute resolution services for claimants and insurance companies.
For more information about auto insurance dispute resolution services, please visit: Automobile Accident Benefits Service
Q: Auto insurers had very few participants in "voluntary" rate reductions as evidenced by renewals
A: In response to the unique circumstance introduced by the pandemic, FSRA created new pathways for insurers to provide customers with reduced rates and rebates. In fact, FSRA processed 59 emergency relief filings in 2020 and facilitated 25 rebating programs for insurers. These programs made more than $1B in relief available to Ontario’s drivers. For more information, please see the recently redesigned FSRA webpage containing all the emergency rate filings made by Ontario auto insurers during the pandemic. The website is available here: All Approved PPA Emergency Relief Filings.
Q: Hi, College of Psychotherapists of Ontario has been established for a few years; however, there is no rate information in the regulated professional rate guide for regulated Psychotherapists. This has caused Auto Insurers reduce the rate significantly, equal to non-regulated professionals. This is unfair practice and devalues regulated psychotherapists significantly.
A: The Professional Services Guidelines (PSG) sets out hourly rates for certain health care professions/providers. The amounts payable by an insurer related to services not covered by the Guideline are to be determined by the parties involved (e.g. claimant, insurer and service provider).
Q: When an auto insurance policy is purchased, does the insurance sales person disclose the commissions paid to the sales person?
A: Disclosure commissions paid to sales persons at point of sale is recognized best practice in the sector.
Q: As you said, car insurance is decided based on geographical and claims. If premium is increased due to others negligence, why a innocent law abiding should suffer if premium increased?
A: FSRA’s role is to make sure insurers are charging rates that are just and reasonable. There are a number of factors that impact what a consumer pays for insurance, including driving record, the geographic area where you live and work and the car you drive.
If claims are increasing in certain areas, those who live there may see their premiums rise regardless of their clean driving record.
FSRA has a strategy to review what “fairness” means in auto insurance pricing and will be consulting on this question. FSRA is committed to reforming auto insurance rate and underwriting regulation to improve outcomes for Ontario’s drivers.
Q: Who are the people that represents the ombudsman for auto?
A: All insurance companies have a complaint handling protocol in place to respond to consumer complaints. FSRA encourages consumers to contact their insurance company’s Ombudsman office first if they are unsatisfied with the manner in which their insurer has handled their situation. Once the insurance company has come to a decision on a consumer’s complaint, they will send them a letter outlining their final position. A list of all Company Complaint Officers and their contact information for insurance companies
Q: Automobile Insurance - does FSRA have any considerations in making available filed underwriting rules from insurance carriers to spur competition and transparency for policyholders similar to the practice of the AMF?
A: FSRA is conducting a thematic review of the Take All Comers framework. As a part of that work, FSRA is considering ways to improve transparency around rating and underwriting practices to ensure the fair treatment of consumers. FSRA is currently assessing the options to best deliver on that work.
Q: FSRA is focused on disclosure of commissions so that consumers are aware of costs. What about auto insurance commissions paid to brokers? Will FSRA mandate disclosure to customers?
A: As stated in FSRA's Proposed 2022-2025 Annual Business, FSRA has committed to developing a transparency strategy for rates and underwriting.
The strategy aims to empower consumers to make more informed decisions by enhancing transparency and providing resources to enhance the consumer’s understanding of auto insurance.
FSRA will consult the public on the specifics of this strategy as work advances.
Q: Back to the auto insurance sector, those of us have have experienced serious permanent injury from an auto collision are interested in how FSRA is changing or intends to change Insurance company conduct that assumes fraudulent behaviour, denies claims and challenges medical evidence provided by already strictly regulated medical professionals.
A: As a conduct regulator, FSRA can ensure that insurers follow the law, regulations and guidance. FSRA does not address complaints related to compensation or outcomes of specific claims. Rather, FSRA’s supervision of insurers is focused on processes and procedures put in place by those insurers. If you have a complaint about the conduct of an insurer please review FSRA’s complaint process.
Q: The Current Auto Insurance benefits complaint process leaves little to no recourse available for service providers as it is focused on consumer protection. However, service providers are more appropriately placed to inform market trends and conduct on behalf of consumers as they have data over several claims. What vehicle or conduit will be able to capture and act on this information?
A: FSRA is committed to an open, transparent and collaborative approach with stakeholders, and in 2019 established the Health Service Provider Stakeholder Advisory Committee (HSP SAC). The HSP SAC represents the sector and engages with FSRA on its priorities and budget, and other matters as it relates to the sector. FSRA is also in the process of establishing an Auto Product Technical Advisory Committee (TAC), that will proactively identify and examine problems in the auto insurance system. If you have a complaint about the conduct of an insurer please review FSRA’s complaint process.
Q: For Credit Unions how much importance or weight does FSRA attribute to Board Members training and what kind of impact does the training have on the insurance premiums??
A: Under FSRA’s Sound Business and Financial Practices Rule, credit union Board members are required to have appropriate skills, education, experience and commitment to enable them to discharge their duties and responsibilities effectively, having regard to the nature, size, complexity, operations and risk profile of the credit union. This requirement is outcomes-focussed and does not set out specific training requirements, as the type of training necessary to achieve the required outcomes will differ from credit union to credit union. Credit union deposit insurance premiums are based on the overall risk profile of the individual institution, which includes an assessment of the strength of its corporate governance including the quality and performance of Board oversight.
Q: Are there reports available to demonstrate the FSRA's ability to handle the financial risk to consumers should their be failures of any Credit Union's...that are consolidating larger now?
A: FSRA monitors credit unions continuously and conducts examinations and assessments in accordance with the Credit Unions and Caisses Populaires Act and applicable supervisory frameworks. This is done in support of our mandate to promote the safety and soundness of the credit union system in order to protect members/ consumers and their deposits. These reports and results are confidential supervisory information and not made public. FSRA also aggregates individual credit union information to assess the stability of the sector, as well as monitor sector trends and health on a regular basis.
Q: Re: CU Sector - Is it true that FSRA is not allowing credit unions to use external consultants to assist in preparation of Recovery Plans? If so, please explain the rationale. If not, could you speak about FSRA's expectations around the use of external consultants. Thank you.
A: FSRA has never stated that use of consultants is not allowed for recovery planning .The use of consultants is a decision made by each individual credit union. FSRA expects each credit union to build a credible recovery plan in adherence with FSRA’s requirements and with appropriate understanding and accountability by the credit union's Board and Senor Management.
Q: I am an advisor. I did 7 investment transfers for clients in union ever using their option to transfer their pensions. 5 of the transfers have recently been completed. 4 are still outstanding. It has been more than 120 days since the request. My clients feel they are stalling. What options do I have to expedite the transfer?
A: The advisor should ask their client (i.e., plan member) to follow-up with the pension plan administrator directly. If the issue is not resolved directly with the pension plan administrator, write to FSRA for assistance.
Q: Totally agree! Investment Advisors need to have higher educational standards in order to set up barriers to entry & reduce the risk of devastating loss to investors.
A: Fulfilling the commitment set out in the Financial Professionals Title Protection Act, 2019 (FPTPA), FSRA will set minimum standards for credentialing bodies and their credentialing programs to ensure that only qualified individuals can use the Financial Planner (FP) and Financial Advisor (FA) titles. This will provide consumers and investors with added confidence when dealing with FP/FA title users who will be required to meet a minimum education standard.
Q: Do we have a timeframe for when entities will start applying to be CBs, how long that will take, and when the rules around title protection will start to be enforced?
A: FSRA can begin to accept formal applications from prospective credentialing bodies (CBs) after the Financial Professionals Title Protection Act, 2019 (FPTPA) is proclaimed into force. FSRA will endeavour to approve applications as soon as practicable upon submission.
Once the framework is operationalized, FSRA will have the authority under the FPTPA to take enforcement action against individuals who use the FP or FA titles without an approved credential, subject to transition provisions.
Q: Fully support for the rules on advisor title. Consumers really need the regulators to raise the bar on those advisors holding themselves as a financial advisor.
A: Fulfilling the commitment set out in the Financial Professionals Title Protection Act, 2019 (FPTPA), FSRA will set minimum standards for credentialing bodies and their credentialing programs to ensure that only qualified individuals can use the Financial Planner (FP) and Financial Advisor (FA) titles. This will provide consumers and investors with added confidence when dealing with FP/FA title users who will be required to meet a minimum education standard.
Q: The public doesn't distinguish between Financial Planner & Financial Advisor. FSRA will be challenged to educate the public when they don't view a distinction between these two. Furthermore some argue that there is a difference between Advisor and Adviser. How is FSRA going to navigate through this?
A: The Financial Professionals Title Protection Act, 2019 (FPTPA) does not define the Financial Planner (FP) and Financial Advisor (FA) titles. However, FSRA is proposing different sets of minimum educational standards for the two titles. The intent is to establish a benchmark in relation to the technical knowledge, professional skills and competencies expected for FP and FA title users.
The title protection framework includes a requirement for the FP education programs to demonstrate sufficient content to provide a comprehensive understanding of all technical knowledge areas, including estate planning, tax planning, retirement planning, finance management, insurance risk management, and investment planning.
The framework also includes a requirement for FA curriculums to provide an understanding of common investment products and how those products should be considered with respect to other areas of financial planning/advice. FSRA is developing a consumer education campaign to support the implementation of the framework and enhance consumer awareness of the use of the FP/FA titles.
Q: IIROC and MFDA already have guidance on the proper usage of titles for financial advisors and planners. How is this in the public's best interest to have even more regulation?
A: FSRA designed the title protection framework to leverage existing regulatory frameworks for granting existing designations and licences to avoid duplicative or overlapping regulatory requirements on individual credential holders.
Q: How are chargebacks handled when an advisor moves to a new dealer within the timeframe?
A: This will vary and is a matter of contract between the insurer, managing general agent and the agent.
Q: When the Advisor Titles submission is approved, will FSRA then post clear parameters on how advisors should hold out to consumers? (ie. what titles are appropriate for use)?
A: The Financial Professionals Title Protection Act, 2019 introduces title protection in Ontario relating to the use of the Financial Planner (FP) and Financial Advisor (FA) titles. This includes abbreviations, equivalents in another language, and titles that “could reasonably be confused with” the FP or FA titles. Appendix 1 of the Financial Professionals Title Protection (FPTP) Supervision Guidance provides illustrative examples of titles that could be similar to FP or FA.
FSRA will review concerns or complaints brought forward about the use of any titles without an approved credential on a case-by-case basis. To ensure continued consumer protection, FSRA will monitor the market for any changes in title use brought about by implementing the title protection framework and communicate additional information to the industry as needed.
Q: I believe there should only be one credentialing body. Other professionals only have one credentialing body - i.e. Doctors; Lawyers; Accountant; yet those responsible for investing Canadians' hard earned savings can get their credentials from different associations. The lazy will just pick the entity where it is easiest to obtain their licensing.
A: FSRA carefully considered the approval criteria outlined in the proposed Financial Professionals Title Protection Rule (FPTP Rule) to ensure that approved credentialing bodies (CBs) maintain effective oversight of their credentialing programs so that only individuals meeting minimum standards are able to obtain and maintain a credential. FSRA has taken a principles-based approach to drafting the proposed FPTP Rule to minimize prescriptive requirements, where appropriate, and provide for flexibility in achieving compliance.
This approach is intended to accommodate the complex and diverse existing landscape of Financial Planners (FPs) and Financial Advisors (FAs), their employers and their designation or licence granting bodies, without introducing unduly burdensome barriers for new entrants. It also aligns with existing marketplace expectations by fostering competition and course variety. FSRA will assess the oversight practices and/or professional standards of each applicant CB on a case-by-case basis to ensure that they meet FSRA’s minimum standard for approval.
Q: Hi I'm an IIROC licenced advisor and have a CFP designation. I have always been frustrated around the "financial planner" "financial advisor" label. In summary, what are exactly the rules proposed on who can and who can't call them selves what and who can't . Thank you.
A: The Financial Professionals Title Protection Act, 2019 (FPTPA) introduces title protection in Ontario relating to the use of the Financial Planner (FP) and Financial Advisor (FA) titles. Once implemented, the framework will require individuals using the FP or FA titles to hold an approved credential from a FSRA-approved credentialing body (CB).
Subject to the transition provisions in the proposed Financial Professionals Title Protection Rule (FPTP Rule), individuals who do not hold an approved credential from a FSRA-approved CB will not be permitted to use the FP and FA titles. Once approved, FSRA will post a list of approved CBs and credentials on its website.
Q: For Financial Advisors and Financial Planners, what additional costs and burden will there before for individuals and for firm?
A: As a self-funded independent regulator, FSRA must fully recover its costs for regulating its sectors and delivering on its priorities. To establish the Financial Planner (FP) / Financial Advisor (FA) title protection framework, FSRA published its proposed fee structure for public consultation. Individual title users are not required to pay a fee to FSRA. The proposed fee structure requires credentialing bodies (CBs) to pay fees directly to FSRA, allowing CBs to exercise discretion in relation to how they recoup costs to fund participation in the framework. FSRA believes this approach also allows CBs to leverage existing administrative and operational processes to pay relevant fees to FSRA, minimizing additional cost and burden.
Q: Mark mentioned securities oversight of financial planners and advisors. What's to prevent a planner or advisor taking the accreditation and setting up a fee for service practice with no regulator oversight?
A: The Financial Professionals Title Protection Act, 2019 (FPTPA) regulates title use. It does not directly regulate the conduct of credential holders. FSRA requirements with respect to title use will work alongside existing regulatory frameworks that govern activities undertaken by Financial Planner (FP) / Financial Advisor (FA) title users. For example, approved credentialing bodies (CBs) will be required to oversee the conduct of the individuals to whom they have issued a credential(s), and ensure credentialed individuals comply with a code of ethics and professional standards.
As part of the approval process, FSRA will also require CBs to have processes and procedures in place to assess the suitability of a prospective credential holder, should disciplinary or enforcement action be taken by another approved CB or regulatory body, to ensure that the individual is appropriately qualified to obtain an approved credential.
Q: Regarding Chinese Canadian advertising in social media, there are a lot of non compliance financial advisor issue, what are you doing to supervise the medias?
A: The Financial Professionals Title Protection Act, 2019 (FPTPA) regulates title use. It does not give FSRA authority to oversee the conduct of individual credential holders. Once implemented, the Financial Professionals Title Protection Framework (FPTPF) will give FSRA the authority to investigate complaints relating to individuals who use the Financial Planner (FP) / Financial Advisor (FA) titles without an approved credential.
Complaint handling in relation to title users who hold an approved credential is the responsibility of the approved credentialing body (CB). FSRA’s supervisory approach will include complaints-based monitoring. FSRA will accept consumer and industry complaints about individuals who use the FP/FA titles without an approved credential. FSRA will review and investigate complaints in a timely manner and take appropriate action, if warranted.
Q: What are your concerns in life insurance other than Seg funds?
A: Please refer to FSRA's proposed 2022-2023 Statement of Priorities for further details on areas of focus, in particular section 6 on Life and Health Insurance.
Q: Why is FSRA unwilling to be transparent with respect to life settlements and loans; working with those who want to comply with best practices.
A: Section 115 of the Insurance Act prohibits any person, other than an insurer or its duly authorized agent, from selling, trading, transferring, assigning or pledging a life insurance policy, also known as the business of life settlements.
Q: What steps has FSRA taken to protect both public and single private investor in the private mortgage space?
A: FSRA is committed to consumer protection across its regulated sectors.
In 2021, FSRA completed a review of mortgage brokerages engaged in private lending to better understand how obligations under the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA) and its regulations were being met in these transactions. FSRA is reviewing its findings, which are outlined in the February 2022 Mortgage Brokering newsletter.
FSRA continues to focus on mortgage brokerages' obligation to disclose material risks and assess suitability of the investment for investors, and on mortgage administrators' obligation to provide updated disclosure of risks to investors after the point of sale.
For example, we put out guidance in spring 2020 to emphasize the importance of administrators advising investors on a timely basis when they become aware of circumstances that would significantly impact the performance of a mortgage.
Q: Does FSRA work with other regulators as it relates to the mortgage space?
A: FSRA actively promotes regulatory harmonization in the mortgage brokering sector as a member of the Mortgage Broker Regulators’ Council of Canada (MBRCC). FSRA recently incorporated the MBRCC’s Code of Conduct in its regulatory framework and adopted the MBRCC standards for the accreditation of licensing courses. See FSRA Guidance MB0042APP and MB0045APP. FSRA also works with the Investment Industry Regulatory Organization of Canada, the Mutual Fund Dealers Association of Canada and the Ontario Securities Association. FSRA is continuously working enhance and expand collaboration with regulatory bodies . For example, in September 2021, FSRA announced that it entered into a Memorandum of Understanding (MOU) with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). The MOU establishes the administrative framework for sharing information to enable FSRA and FINTRAC to meet their respective compliance and regulatory mandates. This MOU will facilitate the enforcement of laws, rules or regulatory requirements related to each organization, including compliance and enforcement activities, examinations or inspections that could lead to penalties or sanctions.
Q: The CE 2022 for Mortgage Agent is Mandatory by 31 Mar 2022. Is this going to be done every year and why we are charged a Fee for it over and above the License renewal charges.
A: Mortgage agents must complete a FSRA-approved continuing education course by March 31 every two years, in a year ending with an even number. Education providers set the fees for the courses, which are offered on a commercial basis.
Q: Does FSRA consult with stakeholders in the mortgage space and how often is this done?
A: FSRA is committed to an open, transparent and collaborative approach that involves stakeholders and ensures broad input and perspectives to inform its direction.
FSRA has a Mortgage Brokering Stakeholder Advisory Committee that serves as a consultation body to the FSRA Board on FSRA’s priorities and budget, and other matters the Board deems appropriate.
FSRA has also established a Mortgage Brokering Technical Advisory Committee to provide advice, feedback and recommendations to FSRA management on operational and policy matters.
In addition, FSRA engages with stakeholders and FSRA’s Consumer Advisory Panel on a regular basis to ensure stakeholders' perspectives inform important projects and the development of guidance.
Q: As a Mortgage Investment Trust, which Dept is available to get in touch for further compliance regulation clarifications?
A: Carrying on mortgage lending activities is regulated under section 4 of the MBLAA, and is an activity for which a mortgage brokerage licence is required unless an exemption applies.
Questions related to regulated activities can be sent to [email protected] for review and response, as applicable.
Q: Understand that the CE 2022 is Mandatory and needs to be full filled by Mortgage Agents by31 Mar 2022.Is this going to be applied every year & why do we have to pay a fee for this over and above the License renewal fees?
A: Mortgage agents must complete a FSRA-approved continuing education course by March 31 every two years, in a year ending with an even number. Education providers set the fees for the courses, which are offered on a commercial basis.
Q: In 2021, Paul Taylor, president of Mortgage Professional Canada wrote a letter to the government advocating for banks to have access to verify a client's tax documentation in order to reduce the fraud in the industry. Is any type of movement on reducing fraud?
A: FSRA recently concluded public consultation on guidance for detecting and preventing mortgage fraud. When FSRA receives credible information that shows evidence of potential fraud, FSRA conducts a comprehensive review of the information and takes actions that are within our powers and authorities under MBLAA.
Q: What about the few very large, some would say, shadow banks, that are regulated the same as 2 person mortgage brokerage but manage over $100 Billion each?
A: FSRA is committed to consumer protection across its regulated sectors.
In 2021, FSRA completed a review of mortgage brokerages engaged in private lending to better understand how obligations under the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA) and its regulations were being met in these transactions. FSRA is reviewing its findings, which are outlined in the February 2022 Mortgage Brokering newsletter.
FSRA continues to focus on mortgage brokerages' obligation to disclose material risks and assess suitability of the investment for investors, and on mortgage administrators' obligation to provide updated disclosure of risks to investors after the point of sale.
For example, we put out guidance in spring 2020 to emphasize the importance of administrators advising investors on a timely basis when they become aware of circumstances that would significantly impact the performance of a mortgage.
Q: In the area of property casualty insurance, as a insurance broker i would like to know what is the relationship between FSRA and RIBO? As an insurance broker am I know governed by 2 government entities?
A: FSRA is responsible for ensuring brokers' compliance with the Insurance Act, regulations and rules. This includes compliance with the Unfair or Deceptive Acts or Practices regulation (Ontario Regulation 7/00) and FSRA's Unfair or Deceptive Acts or Practices Rule.
RIBO is responsible for ensuring that brokers are complying with the Registered Insurance Brokers Act and its regulations.
Q: As an P&C Insurer falling under a foreign insurer and registered with CCIR, FSCO, etc. are we required to do anything to secure our license under FSRA?
A: If the insurer is granted an Ontario Insurer’s Licence with FSRA, the insurer will remain licensed until it submits an application to cancel the licence, or until FSRA takes enforcement action that results in the licence being suspended or revoked.
The insurer is required to file annual information with FSRA (please see our website for detail: Annual Returns & Instructions).
The insurer is also required to pay annual assessment fees (please see our website regarding annual assessment fees at: FSRA 2021 2022 Assessment Fees).
Other licensing information can be found on FSRA's website at: How to obtain or amend an insurance company licence in Ontario.
Q: Hello, I have a question for Mark that goes back to the conversation regarding UDAP and the auto industry. When you spoke, you mentioned the P&C industry but did not specify how will UDAP will help consumers in the property insurance industry, specifically issues that during claims. More specifically, during the appraisal process. Are there plans to improve governance and market practice over public, independent, and insurer adjusters? umpires? Thank you very much.
A: The new UDAP Rule, once it is effective, will improve the identification, deterrence and sanctioning of misconduct to better protect consumers, including conduct that relate to abusive claims practices in the property insurance sector. The particular section in the new Rule related to claims handling has been drafted in an outcomes focused manner to deter any unreasonable or unfair resolution or delay in the adjudication, adjustment or settlement of any claim.
The UDAP regulation – as well as the new UDAP Rule, once effective – applies to everyone engaged in the business of insurance, including adjusters.
Q: What is the FSRA's role in regulating the reasonableness of the rate used by public-sector pension plans to value the pension liability? My understanding is that public-sector funds can use a rate based on characteristic returns of their asset mix. Private-sector plans must use a high-quality debt rate.
A: The public sector pension plans registered with FSRA are subject to PBA and as such, we assess the reasonableness of their funding assumptions just like other plans based on the funding regime that these plans are subject to. We have regular touch points with the large public sector plans to discuss general trends and specific issues and we will be operationalizing these touch points with these plans going forward. We also publish annual DB funding report to bring insights to the sector regarding the range of actuarial assumptions used by pension plans and plan types. Any outliers can be quickly identified.
Q: FSRA recently released its innovation goals for the financial services sector. New pension related products have been popping up recently, to what extent is FSRA looking to encourage innovation in the retirement security space?
A: While FSRA’s Innovation Framework does not apply to the pension sector, FSRA remains committed to supporting innovation in the pension sector that is in line with FSRA”s objects, which in the pension sector are to promote the good administration of pension plans and to protect and safeguard the pension benefits and rights of plan beneficiaries.
Examples of FSRA’s support of innovation in the pension sector include the following:
- FSRA has improved its internal processes to support pension plans interested in consolidation by establishing a dedicated team which has eliminated transaction backlogs and are addressing issues on a risk assessment / outcomes basis
- our principles-based approach to regulation, allows us to make better use of our interpretive and discretionary powers to focus our regulation where it matters most so that our limited resources are directed to the areas of greatest need
- through various Technical Advisory Committees FSRA is listening to the pension sector with respect to how plans can be more effective in helping members reach their retirement goal. One result of this is the recently released guidance on Automatic Features in Defined Contribution Pension Plans. FSRA will also be doing work around leading practices in member engagement
- as part of FSRA’s digital transformation process, we have improved our Pension Services Portal and automated some prescribed filings and transactions. Including the development of smart forms. These improvements have impacted positively processing times and reporting procedures helping small and medium-size pension plans
- we continue to encourage industry participants to consider best practices and new ways of doing things
Additionally, while FSRA’s authority is limited to registered pension plans, we are aware of other products in the retirement space that have pension-like characteristics. We continue to monitor developments in the broader retirement income product space to understand their impact on registered plans.
Q: In the US, there has been pressure (mostly due to lawsuits from plan members) on pensions to move to indexed or passive management. Is this something Canadian regulators are concerned with?
A: As a regulator, FSRA does not have a view or preference for plans with respect to the use active or passive management (the latter also sometimes referred to as “indexing”). Rather FSRA expects plan administrator’s decisions with respect to plan investments to reflect the required standard of care under the PBA and at common law. This would include understanding the relevant costs of any investment strategy and including those costs in the assessment of the strategy.
Q: Can you talk about how FSRA intends to measure the success of active monitoring in the single employer pension plans space?
A: The Supervisory Approach for Single Employer Defined Benefit Pension Plans (SEPPs) registered in Ontario is designed to improve outcomes for SEPP beneficiaries where there may be a concern with respect to the security of the pension benefits promised. The approach has been in place since March 2020 and FSRA is continually assessing the most effective methods to measure its impact.
Q: What is your prediction on the role of IMCO, do you foresee smaller provincial plans like OPSEU Pension and similar plans with the same size to join OPB and join IMCO?
A: As the provincial regulator of pension plans in Ontario, we cannot speculate on what new business a specific service provider might get in the future.
Q: Why not have advisor chargebacks rather than full DSC ban? Advisor absorbs responsibility.
A: On February 10, 2022, the Canadian Council of Insurance Regulators and the Canadian Insurance Services Regulatory Organizations released a statement on their position on the use of Deferred Sales Charges (DSCs) in segregated fund contract sales, and their intention to consult on other upfront commissions in individual variable insurance contracts later this year. The consultation on upfront commissions is expected to include the advisor chargeback model.
Q: It would be interesting to note how many advisors give up their securities license but retain their life license to sell segs.
A: FSRA does not track the number of advisors who give up their securities licence but retain their life licence to sell segregated funds. However, FSRA does require licensees to disclose other licences on their application. Please note that FSRA is working with insurance and securities regulators across Canada to develop harmonized total cost reporting disclosure requirements for segregated fund contracts. FSRA is also working with insurance regulators across Canada to finalize guidance on segregated funds, which will seek to harmonize segregated fund regulatory expectations with mutual fund requirements to the extent possible. On February 10, 2022, the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) released a statement on their position on the use of Deferred Sales Charges (DSCs) in segregated fund contract sales. CCIR and CISRO are of the view that there is a high risk of poor consumer outcomes associated with DSCs in segregated fund sales, and that this form of sales charge is not consistent with treating customers fairly. Further, insurance regulators urge insurers to refrain from new DSC sales in segregated fund contracts, in line with the June 1, 2022 ban in securities, and expect new DSC sales to cease by June 1, 2023.
Q: Hello, and thanks for your opening ... I'm not quite sure if FSRA can elaborate and comment on the current inflation in the housing market and housing affordability that is really concerning Ontarians ... how would FSRA protect public interest and protect their finances when there was no control over housing market ... we don't feel there are/were regulations to protect public from increasing struggles in life affordability in most basic needs which is housing ... we see more homeless on streets and mission places/housing charities are overwhelmed.
A: Economic inflation does not fall within FSRA's jurisdiction. FSRA's mandate is to promote high standards of business conduct for individuals licensed in the mortgage brokering sector in Ontario.
Q: Where does the financial inflations taking us? Why Bank of Canada is considering higher interest rates and they know the reality about Canadians' struggles during COVID financial impacts on them and their businesses.
A: Economic inflation does not fall within FSRA's jurisdiction. FSRA's mandate is to promote high standards of business conduct for individuals licensed in the mortgage brokering sector in Ontario.
Q: Going back to segregated funds, there're a lot of advisors going after clients over 60 for leveraging investment loan then investing in segregated funds and providing misleading on those segregated funds guarantee. Any thoughts on banning age 60 or over senior on segregated funds leveraging loan?
A: FSRA maintains FSCO Bulletin No. G-05/14, “Borrowing to Purchase Life Insurance Products – Risks and Suitability”, as active guidance for the insurance industry. On FSRA’s website, the Bulletin’s guidance number is PC0016ORG. This guidance sets out FSRA's expectations for agents where a customer is borrowing to invest in or purchase a life insurance product.
Q: Which Organization is responsible to market and promote the CLU designation? Why is CFP the only one marketed?
A: FSRA is not responsible for the marketing of certifications or designations in the financial services marketplace. The CLU and CFP designations are promoted by Advocis and FP Canada, respectively. Please contact those organizations for more information.
Q: I've seen a number of clients move out of securities / mutual funds to segregated funds because there are less regulation and because they are able to sell DSCs to their clients.
A: FSRA is working with insurance and securities regulators across Canada to develop harmonized total cost reporting disclosure requirements for segregated fund contracts. FSRA is also working with insurance regulators across Canada to finalize guidance on segregated funds, which will seek to harmonize segregated fund regulatory expectations with mutual fund requirements to the extent possible.
On February 10, 2022, the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) released a statement on their position on the use of Deferred Sales Charges (DSCs) in segregated fund contract sales. CCIR and CISRO are of the view that there is a high risk of poor consumer outcomes associated with DSCs in segregated fund sales, and that this form of sales charge is not consistent with treating customers fairly. Further, insurance regulators urge insurers to refrain from new DSC sales in segregated fund contracts, in line with the June 1, 2022 ban in securities, and expect new DSC sales to cease by June 1, 2023.
Q: How transparent will the CB application process be?
A: The Financial Professionals Title Protection Rule (FPTP Rule) requires entities to submit an application to FSRA to receive approval for credentialing body (CB) status under the financial professionals title protection framework. FSRA is committed to ensuring that each prospective CB meets the approval criteria outlined in the FPTP Rule and accompanying Application Guidance. FSRA will post the list of approved CBs and credentials on its website shortly after the framework is operationalized. The application form for approval as a CB and Financial Planner (FP) / Financial Advisor (FA) credentials is available on FSRA’s website.
Q: Hello. I registered for my MF license exam. I planned to take my exam in a few months. How this changes will effect me?
A: The Financial Professionals Title Protection Act, 2019 (FPTPA) introduces title protection in Ontario relating to the use of the Financial Planner (FP) and Financial Advisor (FA) titles. The proposed framework will not introduce a new licensing requirement for individuals. However, once the framework is implemented, individuals who wish to use the FP and FA titles in Ontario will be required to have an approved credential from an approved credentialing body (CB). The proposed financial professionals title protection framework will not affect individuals who choose not to use the FP and FA titles. FSRA will post a list of approved CBs and credentials on its website shortly after the framework is operationalized.
Q: There isn't a lot of reference to Deposit Brokers, an active industry providing an essential choice and competitive GIC interest rates for consumers. Any comments?
A: Unfortunately, we cannot provide an answer as the question is beyond the scope of FSRA.
Q: As an advisor on the front line, I routinely am coming across clients who are unsophisticated eligible investors who are lending money on individual mortgages and the investor is taking on a large concentration for individual loans (over 50% in many cases). I am still unclear as to how this is being addressed as these are individual mortgages being negotiated by brokers and not syndications. What type of acceptable concentrations for investors and what standard of sophistication of the investor is being required.
A: Under the Ontario Regulation 188/08 of the Mortgage Brokerages, Lenders and Administrators Act, 2006, the mortgage brokerage should ensure that they appropriately collect, review, and assess their clients’ financial status and goals to offer them the most suitable investment opportunity. These steps should be well documented. Similarly, the Regulation requires appropriate, clear and fulsome disclosures of materials risks, conflicts of interest, etc., to ensure that the client is presented with the necessary information to make an informed decision.
Q: As a reinsurer we were exempt under FSCO Insurance Companies Act to not have to report re: Complaints is this still the case. Is there certain filings, etc. required as a reinsurer? etc. required. Also, as a reinsurer I was advised by FSCO that everything was merged over to FSRA but we are now receiving various emails etc. re: required filings i.e. Annual
A: Ontario’s Insurance Act does not exempt reinsurers from reporting complaints, and filing requirements relating to insurers are not categorized by reinsurer or non-reinsurer. Please refer to our website for the filing requirements.
Q: As a reinsurer are we required to contact FSRA if we were recognized as a reinsurer with FSCO?
A: Ontario insurers’ licence information can be verified on our public registry. If your licence information does not specify a licence condition as “limited to the business of reinsurance”, you can submit a licence amendment application to add that licence condition to your current licence. However, if your primary regulator is not FSRA, you are required to obtain approval of the licence amendment from your home jurisdiction’s regulator. Please refer to our website for FSRA’s requirements regarding insurance companies’ licence amendment requirements and documents: How to obtain or amend an insurance company licence in Ontario.
Q: A consumer asks why are the sales of insurance by banks in Ontario, which the Supreme Court of Canada unanimously ruled to be insurance not banking, NOT overseen by FSRA for consumer protection?
A: FSRA has oversight of all sales of insurance in Ontario, including sales by banks and Ontario credit unions. However, other regulators may also be interested in how banks are offering insurance.
Q: Will there be a FSRA event that will specifically focus on the Insurer/Reinsurer and its responsibilities with FSRA?
A: FSRA organizes several events throughout the year beyond just the Exchange Event. We will consider this as one of our topics going forward.
Q: Is there any oversight on the consumer experience? Everyone including myself have seen rate increased rates on insurance and in some cases quite substantially.
A: Rate regulation laws and FSRA’s supervisory framework for oversight of rate changes vary by insurance sector. FSRA may identify rate concerns through a variety of means including consumer complaints, reviewing insurers' filings and monitoring market trends. FSRA’s priorities include both supervisory and consumer education approaches that support the fair treatment of consumers.
Q: Please comment on increasing Form 1 rates to market value.
- Current rates connected to date of loss and disconnected from PSW market hourly rate.
- Guidelines provide rate from $9.00 to $21.11 per hour. You can see that the rates are not even in compliance with Ontario minimum wage rate.
- Ontario Government pays to LHIN(s) for PSW services $35/hr and up.
- Current rates prevent clients to access PSW services.
- Current rates abuse health care workers who are in the front line continue to provide service during Covid.
- Based on recent case Malitskiy v. Unica Insurance Inc., 2021 ONSC 4603 some insurance companies (Economical, Aviva) pay only Form 1 rate therefore denying their clients access to services.
A: The Attendant Care Hourly Rate Guideline (ACHG) provides a method to calculate the first party insurance coverage for attendant care as required by subsection 19(2)(a) of the Statutory Accident Benefits Schedule (SABS). All versions of the Attendant Care Hourly Rate Guideline use the same method of calculating the insurance benefit. The hours of care needed is multiplied by a specified dollar amount. The resulting total (subject to maximums) determines the monthly amount of attendant care benefit payable. The ACHRG does not set a wage for personal support workers.
The recent ruling in the Malitskiy decision interpreted the FSCO Superintendent Guideline No. 03/10 issued in 2010. The decision did not interpret later versions of the Attendant Care Hourly Rate Guideline (i.e. 2018 Guideline wasn’t applicable to the matter in front of the court).
In its ruling the court explained the policy rationale for first party insurance coverage a partial or interim compensation. Changing the policy intent to rebalance tort rights and first party SABS insurance coverage would require legislative changes.
Q: Do you have a mechanism that will reflect whether the small business financial service sector is growing or declining against other players in the market? Without a healthy market place, innovation, creativity and choice will be severely hampered. Not to mention considerable harm to consumers. Please comment.
A: No we don't have such mechanisms in place currently. We will be exploring metric and tracking mechanisms as we recognize they are important to measure our impact.
Q: Will FSRA also investigate Insurers cancelling contracts with Brokers because the Brokers are quoting and writing policies for clients that the Insurers don't want?
A: In November 2021, FSRA issued the “Take-All-Comers” Guidance to restate the legal requirements and obligations regarding the TAC rule. The Guidance reiterates that auto insurance providers are required by law to provide all Ontario consumers with access to timely auto insurance quotes and the lowest rates available to them.
Insurers, agents and brokers have legal obligations to:
- provide consumers the lowest rate available
- offer all eligible consumers a quote or a renewal
- accept all auto insurance business from consumers that meet insurers’ approved rules
FSRA will supervise against this guidance and will be requiring many insurers to review their practices to ensure compliance with the law.
Q: Could the UBI be used for taxis?
A: FSRA is prepared to work with insurance companies to provide innovative auto insurance products to Ontario’s drivers. Insurance companies could introduce UBI programs for commercial vehicles (such as taxis), however, there have not been any proposals that have been submitted to FSRA for approval thus far.
Q: Auto insurers made a billion dollars in profits however each individual bank makes a billion a quarter. Why are bank fees not being mandated to be reduced?
A: Unfortunately we cannot answer this question as it is beyond the scope of FSRA.
Q: Can one agent hold life, mortgage and auto insurance licences?
A: Yes, one individual can hold a life insurance, mortgage and general insurance agent licence.
A general insurance agent licence permits the licensee to conduct agent activities in all property and casualty insurance products, including auto. The applicant must meet the applicable licence requirements and appropriately disclose the other licence(s) on their FSRA licence application and to sponsors/contracted companies.
There is no restriction against mortgage agents holding additional licences and registrations to sell other financial products. When applying for a mortgage agent licence, applicants need to inform FSRA if they hold other licences with FSRA or other regulators.
Q: To what extent is FSRA be looking to develop guidance (similar to other regulators) to enhance operational resilience of the industries it regulates to severe disruptions that might impact critical services consumers rely on?
A: FSRA continuously monitors the activities of peer regulators, especially as it relates to addressing new and emerging risks, including operational resilience. FSRA recognizes the importance of policies and processes to effectively mitigate and manage operational risks and ensure the resilience of the entities it regulates. In its draft Statement of Priorities posted for consultation in October 2021, FSRA committed to issuing high-priority guidance and rules in the credit union sector, including relating t operational risk management. FSRA will continue to assess this risk across all its sectors, and respond as necessary.
Q: It would be helpful to get your thoughts on concept of a single firm alignment in the MGA channel. Thank so much, really enjoying the conversation.
A: FSRA is consulting with its Technical Advisory Committee on Insurer Oversight of Managing General Agencies on frameworks and supervisory approaches for MGAs. The committee includes representatives of the life and health insurance industry. Information about the committee's membership and terms of reference can be accessed on FSRA's website at Technical Advisory Committee on Insurer Oversight of Managing General Agencies.
Q: For the Take-All-Comers Rule, is FSRA looking for feedback from brokers/agents?
A: In Spring 2020, FSRA undertook a public consultation seeking input from consumers and regulated entities regarding Take-All-Comers. Several stakeholders including brokers, agents, and consumers provided feedback during the consultation period. For more information on the consultation, and to see a list of the comments, questions, and submissions received, please visit: Auto Insurance take all comers requirements consultation summary
Following the public consultation, FSRA launched a thematic review of the Take-All-Comers framework to further explore issues with the way customers are treated; the Registered Insurance Brokers of Ontario (RIBO) is supporting the work by undertaking their own review. As part of the work, FSRA is reviewing distribution channels in the auto insurance sector to understand the unique concerns related to each channel.
Q: We have been hearing about this PFED for MEPP for years. What is FSRA's plan for this?
A: The Ministry of Finance is responsible for the introduction and setting of funding framework for the MEPPs. FSRA will provide its assistance to the Ministry of Finance when the Ministry is ready for such introduction.
Q: Is there any consideration to require Private lenders be registered with FSRA?
A: FSRA continues to work with the Ministry of Finance on the implementation of the recommendations from the 2019 report on the review of the Mortgage Brokerages, Lenders and Administrators Act, 2006.
Regulation and supervision can be enhanced with an improved understanding of private mortage lenders' participation in Ontario's housing market. To support effective evidence-based regulatory and policy decision making, FSRA is currently exploring and analyzing data sources, including available market intelligence data, to determine the best information that would assist FSRA and other stakeholders in understanding and monitoring the private mortgage lending market.
Q: When will FSRA enforce on marketing policies such as Agents, Brokers marketing their private brand or company name and not their Brokerage?
A: As part of its oversight of the mortgage brokering sector, FSRA reviews licensees' Public Relation Materials (PRM) for compliance with the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA) and its regulations. FSRA’s expectations of brokers and agents related to advertising under a private brand name or team name that is different from the name of their licensed mortgage brokerage has been shared on our website. Where FSRA finds evidence of non-compliance with PRM provisions of the MBLAA and its regulations, FSRA takes appropriate regulatory action that is proportionate to the contravention(s). The regulatory steps and actions taken commonly require immediate update of the PRM, and all others using the same name, to bring it to compliance by removing the unlicensed names and replacing it with the authorized brokerage name and ensuring the PRM content is not misleading to the consumer. This information is recorded on the licensee's file and is considered in future suitability assessments.
In addition, FSRA proactively reviews potential non-compliant PRM and unlicensed activities when completing environmental scans and in the course of regular oversight activities.
Q: Has FSRA considered implementing Saskatchewan-type rules and principles for life insurance agents?
A: FSRA does not have a document equivalent to the Saskatchewan Life Insurance Council's Agent Code of Conduct. However, FSRA is a member of the Canadian Insurance Services Regulatory Organizations (CISRO), and has been actively involved in developing the CISRO Principles of Conduct, which will apply to all insurance intermediaries across Canada. These Principles reflect common regulatory standards for insurance intermediaries and outline professional behaviors and conduct expectations for the fair treatment of customers.
Q: FSRA has the authority to assess insurers for health care costs to make sure that the province fully recovers the cost of care for people injured in motor vehicle accidents. The current annual health levy on insurers is $142M – which the Auditor General has claimed is inadequate to ensure that insurers are paying their fair share of the costs of health care relating to accident victims. Is FSRA contemplating a review of the levy?
A: FSRA does not have this authority. Please see s. 14.1 of the Insurance Act and O. Reg 401/96: Assessment of Health System Costs. Inquiries about the assessment of health system costs should be directed to the Ministry of Finance.
Q: FSRA, as a financial industry watch-dog, (correct me if I am wrong!) how ethically and meaningfully FSRA is questioning big financial institutions (particularly big five banks) about their wrong-doings?! Being active in the industry independently, Iast year I attended a seminar on Ethics arranged by one of these institutions, when I asked the presenter as to why the bank is not very ethical when someone approach to get a mortgage loan and the customer is being forced/insisted to open all the accounts (savings, GIC, RRSP, RESP TFSA) including signing up for mortgage & property insurance etc. If customer is not willing, then he will be charged higher mortgage rate even when customer has a solid credit history and even pre-approved by the same bank!
A: Conduct of federally regulated financial institutions, including banks is regulated by the Financial Consumer Agency of Canada. When FSRA receives credible information of misconduct or potential breach we will refer to the relevant regulatory agencies.
Q: What are FSRA's plans to providing consumer education regarding FSRA's priorities, including better awareness re: all the stakeholders in the insurance distribution channel (advisors, insurers, MGAs, other intermediaries, etc.)?
A: FSRA’s framework for consumer education is designed to help consumers understand the financial products and services it regulates. FSRA is building action plans to promote consumer education and knowledge about its regulated sectors, informed by consumer stakeholder feedback.
Consumers can learn about FSRA’s priorities and its work related to ensuring fair treatment of consumers in all insurance distribution channels through its published reports and consultations, including:
- proposed Statement of Priorities and Annual Business Plan
- announcements -- e.g., Insurer Oversight Obligations and Reports, including the Insurer-Managing General Agencies Relationship report
- guidance that promotes the principles that support fair customer treatment throughout the lifecycle of insurance contracts, and that clarifies expectations for intermediaries and insurer distribution strategies
Links to documents are below:
- Framework for consumer education
- FSRA’s August 2021 online survey
- FSRA's 2022-2023 Proposed Statement of Priorities
- FSRA's 2020-2023 Annual Business Plan
- Insurer Oversight Obligations
- Insurer-Managing General Agencies Relationship
- Guidance - Treating Insurance Customers Fairly
Q: How does FSRA balance a "take all comers" expectation with other regulatory obligations on insurers to manage the risks it is taking. Will FSRA be spelling out its expectations in more detail in this regard?
A: Auto insurance is compulsory in order to operate a vehicle in Ontario and FSRA is taking steps to ensure that all consumers can get the best product at the best price available when they purchase or renew their auto insurance policy. FSRA recently issued “Take-All-Comers” (TAC) guidance to the industry to restate the legal requirements and obligations regarding the TAC rule and to help prevent activities that preclude or frustrate consumers’ efforts to purchase or renew their auto insurance. Here is the link to the Guidance for further information: Take-All-Comers Guidance.
FSRA is also currently conducting a thematic review of the TAC requirements to explore issues with the way customers are treated. The review is expected to be completed in 2022.
Q: Mark, Can you comment on if FSRA is looking into Insurance industry structural issues that may be counter weight to the Take-All-Comers rule? For example, the insurer of last resort, the Facility Associations’ Board members all report to the board members of the Industry association, Insurance Bureau of Canada (IBC), who principally represent only the Insurers?
A: In Spring 2020, FSRA undertook a public consultation seeking input from consumers and regulated entities regarding Take-All-Comers (TAC), to better understand risks of consumer harm as a result of non-compliance with the requirement.
FSRA is also currently conducting a thematic review of the TAC Rule to explore issues with the way customers are treated. In addition to considering the feedback received from stakeholders during the public consultation, FSRA will also be looking into insurance industry structural issues in undertaking the thematic review. The review is expected to be completed in 2022.
Q: When will there be clear guidance regarding FTC and seg fund oversight, defining the roles and responsibilities of both insurance carriers and intermediaries (MGAs) in this regard?
A: FSRA is working with insurance and securities regulators across Canada to develop harmonized total cost reporting disclosure requirements for segregated fund contracts. FSRA is also working with insurance regulators across Canada to finalize guidance on segregated funds, which will seek to harmonize segregated fund regulatory expectations with mutual fund requirements to the extent possible. CCIR/CISRO will release the draft guidance for public comment. We encourage all interested stakeholders to participate in the consultation process when it has been released.
As segregated funds are insurance products, insurers and intermediaries are expected to comply with the respective roles set out in the Conduct of Insurance Business and Fair Treatment of Customers guidance, adopted jointly by CCIR and CISRO.
Q: Is there thinking in the direction of cap guidelines moving from a guideline based process to a rules based requirement and leveling the playing field with all providers in this employer sponsored group marketplace?
A: This is a government policy question and should be directed to the Ministry of Finance.
Q: In regards to the P&C industry, there are an increasing number of public property claim advocates popping up, as property claim handling on the insurer side, continues to be a process of frustration and unsatisfactory fulfilment of the indemnity promise. There are tactics being employed meant to dissuade pursuit of holistic indemnity and meant to preserve the bottom line for insurers and their shareholders to the detriment of the consuming public. There is a ground swell of these experiences and of advocates rallying together to enable a more equitable claims process including fair. consistent, and prompt dispute resolution mechanisms that focus on resolving property claim disputes. The public is becoming more aware of Alternative Disuptere Resoluiton forums other than traditional courts which take time and money that the intent of insurance could never support. When will FSRA start substantitive steps towards managing and enabling equity and equilibrium in the property claims process.
A: If a consumer disagrees with an insurance company's position on a claim, they can access dispute resolution mechanisms starting with the insurance company's complaint officer. If the consumer is dissatisfied with the final position of the company complaint officer, they can seek redress from the General Insurance OmbudService, an independent ombudservice for property and casualty insurance. Consumers can also file a complaint with FSRA. These mechanisms are detailed in FSRA's How to Resolve an Insurance Complaint.
Q: Can you elaborate on CFR requirement and what you are looking for in terms of documents that one should have on file?
A: For details related to the Client Focused Reforms in the Securities Industry, FSRA suggests contacting the Ontario Securities Commission for further information.
For insurance, FSRA is working with insurance and securities regulators across Canada to develop harmonized total cost reporting disclosure requirements for segregated fund contracts. FSRA is also working with insurance regulators across Canada to finalize guidance on segregated funds, which will seek to harmonize segregated fund regulatory expectations with mutual fund requirements to the extent possible. CCIR/CISRO will release the draft guidance for public comment. We encourage all interested stakeholders to participate in the consultation process when it has been released. As segregated funds are insurance products, insurers and intermediaries are expected to comply with the Conduct of Insurance Business and Fair Treatment of Customers guidance, adopted jointly by CCIR and CISRO, including expectations related to documentation.
Q: Innovation, very exciting. Will FSRA be setting calls to advise it's institutions about what's happening in terms of innovation? i. share the knowledge on specific innovation
A: FSRA recognizes the importance of spreading awareness around emerging innovation trends in FSRA’s regulated sectors, both in Ontario and around the world. We welcome information-sharing initiatives by market participants, start-up clusters, incubators and accelerators, and innovation practitioners.
There are currently no immediate plans for FSRA to organize such knowledge-sharing events, but the Innovation Office is looking into developing a public education and ‘knowledge hub’ capacity as we scale.
Q: Sorry if I missed this, but how would you define 'responsible innovation'?
A: FSRA recognizes that the interests of a market participant may not always align with the interests of the public when market participants plan on introducing an innovative product or practice. This may be especially true in the case of under-represented or marginalized groups that may be disproportionately affected by the proposed innovation.
FSRA’s Innovation Framework introduced the ‘test and learn’ elaborative approach and the notion of ‘responsible innovation’ in order to reconcile the desire to support innovation in Ontario’s financial services markets with FSRA’s responsibility to protect consumers from potential negative impacts that innovation may bring to Ontarians without proper guardrails.
FSRA balances these considerations by working collaboratively with stakeholders ranging from innovators to consumer advocacy groups, examining the innovation and innovator proposes to FSRA and ensuring the risks and the benefits are reasonably and proportionately distributed with adaptive regulatory responses applied along the way.
Q: Many FinTech start-ups are discouraged by both Provincial and Federal Regulators and getting assistance
A: The different jurisdictions and authorities afforded to the provinces and the federal government can indeed pose challenges and cause friction for fintech start-ups who often lack the resources and expertise to navigate these challenges and friction points.
Recognizing this, FSRA has been proactively and pre-emptively working with innovation hubs and fintech clusters like MARS Discovery District and Fintech Cadence to help support fintech start-ups as they assess their regulatory obligations and potential opportunities in Ontario. These efforts have been fruitful in helping start-ups develop best practices for working with the different levels of governments and getting the support they may need.
Q: Do you think it would help to create a sandbox regulation environment were the process can be mimic introducing new drugs where the regulator will allow FINTECH some space to operate, test, monitor and then apply regulation per needs?
A: FSRA’s Test and Learn Environment (TLE) was established for market participants in FSRA-regulated sectors to work with FSRA in a collaborative manner to 1) examine a proposed innovative product, service, or business model, 2) assess the intrinsic risks and validate claimed benefits to consumers flowing from the innovation, and 3) test the innovation by allowing otherwise non-permitted business activities to be carried out in a controlled environment with adaptive, proportionate, and relevant regulatory responses applied and adjusted based on market reactions.
Q: Does FSRA see opportunities to promote its vision of regulations by engaging with FinTechs as a customer?
A: Environment (TLE) Guidance – speaks to FSRA’s commitment to levelling the playing field for both incumbents and emerging market entrants.
However, FSRA’s jurisdiction does not inherently extend to fintechs unless they 1) conduct business activities that fall within the domains as defined in relevant legislations administered by FSRA, or 2) voluntarily accept FSRA’s oversight over specific matters through a Status TLE.
For more information on the Status TLE, please refer to the Approach Guidance on TLEs.
Q: How important will relationships between FSRA Innovation Team with various levels of governments, be when developing TARGETED innovation and regulation, as Organic innovation and regulation cannot sustain pace with financial market disruption and trends of decentralized finance?
A: While there is considerable excitement around emerging forms of decentralized finance, we should caution against the notion that decentralized finance inherently requires an overhaul of FSRA’s approach to regulation.
We do not see our relationship with different levels of government as a determining factor for FSRA to regulate innovative products, services, or business models properly, nor for financial services innovators to innovate in Ontario. However, we have developed and will continue to develop strong working relationships with our federal and provincial partners in order to ensure that FSRA’s regulatory approaches are aligned with other pertinent governmental initiatives – for instance, the Open Banking System being developed by Finance Canada – and allow Ontario’s financial services sectors to thrive and lead both nationally and globally.
Challenging the status quo and advocating for innovation is a mandate for FSRA’s Innovation Office. We would caution against accepting the dichotomy that sees regulation as a hindrance to technological advancement in the financial services sectors. The Innovation Office firmly believes that responsible innovation as defined and directed in our Innovation Framework will facilitate and augment innovation, including with regard to decentralized finance.
Q: Could you provide an example of a recent Fintech product new to finance?
A: Regional Innovation Centres (RICs) are invaluable resources for appraising yourself of the latest developments in Ontario’s fintech ecosystem. For more information on Ontario’s RICs, please refer to Regional Innovation Centre locations
Their mandate is to help Ontario’s entrepreneurs and innovators succeed in international markets by helping them work through the challenges of developing their ideas to make them marketable and attract talent, capital and customers. Programming and services are offered to clients who are typically in early-stage or growing innovation and technology companies with the potential to expand and succeed on a global scale.
Regional Innovation Centres provide access points to programs and services including:
- Expert advice and mentorship
- Training and workshops
- Market intelligence
- Connections to resources, funding and partners
Q: FinTech should be supported by Government - we are currently being held down
A: FSRA recognizes the importance of fintech innovation to the future of Ontario’s financial services sectors. The Innovation Office remains committed to supporting Ontario firms as they attempt to tackle and conquer the problems and opportunities of the future. FSRA is also committed to ensuring a level playing field for incumbents and emerging entrants.
For more information on how we intend to pursue this goal, we invite you to read our new Innovation Framework.
Q: Halifax has become a bit of a hotbed for fintech startups in the past few years. Are you actively working in the Atlantic Canadian space?
A: FSRA is an active member in all the national regulatory coordination and harmonization forums and associations pertaining to financial services regulated by FSRA in Ontario.
We applaud Nova Scotia’s emerging fintech ecosystem and look forward to exploring potential opportunities for collaboration and information-sharing with our counterparts in Atlantic Canada, as well as further deepening the already strong connections between our two fintech communities.
Q: How about security? As much as fintech is good but the bad side is hacking, phishing, etc. How can you address that?
A: FSRA acknowledges the concern over cyber security. However, we would stress that cyber security threats are not an issue specific to fintechs or start-ups. They are universal to all market participants with online presence and cloud infrastructure utilization.
FSRA’s jurisdiction does not naturally extend to data and personal information protection domains. Nonetheless, FSRA consistently promotes both general cyber security awareness and relevant regulator-approved or industry-adopted best practices to all market participants subject to FSRA’s oversight.
Q: A consumer comments : given Canada is behind and a framework is needed it seems the Prudent Portfolio Approach (PBR) in federal and provincial laws for financial institutions would be a suitable regulatory sandbox for FinTechs.
A: Thank you for your comment. We will take it into consideration as we conduct future scoping exercises for FSRA’s TLEs.
Q: What is FINTECK stand for?
A: PWC's definition of fintech includes (1) technology companies which provide services to the financial services industry, and/ or (2) technology companies which create, distribute, and administer financial products themselves. Our definition is not different than a definiton used by the Industry
Q: Can FSRA be engaged to help understand regulation and will FSRA take a stance or position if a new product and solution is adhering to? Specifically referring to UDAP regs.
A: To get a better understanding of what FSRA does and the sectors that we regulate, you can visit our website at www.fsrao.ca
Q: What is being done to make it attractive for Data Centres to be located in Canada as I understand that is important to this sector
A: As the provincial regulator, economic development is not part of our day-to-day responsibilities. However, we have established an Innovation Office which will work with individuals and companies across Ontario's financial services sector to help enable the latest advancements and attract investment to the province.
Q: How were/are foreign workers underserved by credit unions?
A: Ontario’s credit union and caisses populaire sector serves the financial needs of over 1.7 million people across the province from all walks of life. For more specific information you should contact the Canadian Credit Union Association.
Q: How many stakeholder consultations are planned in 2022 for the mortgage brokerage space?
A: FSRA is committed to an open, transparent and collaborative approach that involves stakeholders and ensures broad input and perspectives to inform its direction. FSRA has a Mortgage Brokering Stakeholder Advisory Committee that serves as a consultation body to the FSRA Board on FSRA’s priorities and budget, and other matters the Board deems appropriate.
FSRA has also established a Mortgage Brokering Technical Advisory Committee that meets 5 times annually to provide advice, feedback and recommendations to FSRA management on operational and policy matters.
In addition, FSRA engages with stakeholders and FSRA’s Consumer Advisory Panel on an ad hoc basis to ensure that stakeholders' perspectives inform important projects and the development of guidance (e.g. new proposed licensing classes).
Q: Lack of formal accreditation is an embarrassment to qualified Investment Advisors.
A: As per the Financial Professionals Title Protection Act, 2019 (FPTPA), FSRA will set minimum standards for credentialing bodies and their credentialing programs to ensure that only qualified individuals can use the Financial Planner (FP) and Financial Advisor (FA) titles. This will provide consumers and investors with added confidence when dealing with FP/FA title users who will be required to meet a minimum education standard.
Q: How does FSRA's new regulatory role compare with the former role as (FSCO) given a heavily regulated financial services industry in Canada?
A: The Financial Services Regulatory Authority of Ontario (FSRA) is an independent regulatory agency created to improve consumer and pension plan beneficiary protections in Ontario.
FSRA was established to replace the Financial Services Commission of Ontario (FSCO) and the Deposit Insurance Corporation of Ontario (DICO). The agency is flexible, self-funded and designed to respond rapidly to an evolving commercial and consumer environment. In this capacity, FSRA:
- promotes high standards of business conduct
- fosters a sustainable, competitive financial services sector
- respond to market changes quickly
- promote good administration of insurance and pension plans
- encourages innovation
Q: What happened to PMB 219 - will the government reintroduce it?
A: Bill 219, the Life Settlements and Loans Act, 2020, a private member’s bill, was introduced in October 2020. Bill 219 proposed amendments to the Insurance Act that would permit trafficking or trading in life insurance policies. The bill did not progress beyond second reading. Further questions about legislation or private member's bills should be directed to the government.
Q: How do we contact the Minister of Finance with our concerns regarding Pension Benefits Act Modernization. Please advise
A: The CAP Guideline is a document of the Joint Forum of Financial Market Regulators. As a cross-jurisdictional document, the Guideline aims at encouraging the coordination and harmonization of regulatory approaches. One of the recommendations of the Technical Advisory Committee on DC Pension Plans established by FSRA and OSFI, is to encourage an understanding of the common governance responsibilities of sponsors/administrators of all types of CAP plans.
Q: I recommend gathering input from Investment Advisors who have actual professional credentials - we see a lot that clients might otherwise be unaware of.
A: Since 2019, FSRA has engaged with a variety of stakeholders, including consumer/investor advocates, industry/trade associations, professional/designation bodies, insurers and individual title users. Feedback obtained through this engagement informed the design of the title protection framework.
Q: Does a principals based approach increase liability to the insurers in interpretation vs a prescriptive approach?
A: When applying a PBR, FSRA will place greater reliance on a regulated entity’s senior management and board of directors to achieve the desired outcomes articulated by FSRA. The regulated entity or individual will be responsible for demonstrating how its identified approach is effective in achieving adherence to the principles articulated and the desired outcomes. Senior management and the board of directors of the regulated entity should communicate transparently and in a timely manner the policies, processes and practices, which have been adopted and implemented to demonstrate how the regulated entity is achieving the desired outcomes and also show how it is validating that the desire outcomes are being achieved. FSRA’s assessment of adherence will entail whether the regulated entity has taken reasonable and good faith efforts to meet and be aligned with the desired outcome(s). Well-controlled and governed, and effectively managed regulated entities that engage positively and openly with FSRA should ultimately realize real benefits from FSRA’s PBR and outcomes-focused approach. For example, these benefits may be demonstrated by showing that the regulated entity’s own management and controls are functioning effectively to validate that the desired outcomes are being achieved. This can result in less intensive supervision or a less intensive risk mitigation program. However, this is predicated on the senior management and boards of regulated entities fully engaging in achieving the desired regulatory outcomes identified by FSRA and working with FSRA in a constructive and transparent manner to ensure that these outcomes are being achieved. In conclusion, liability of a regulated entity (and by impication, its insurer) doesnt increase with a PBR approach but ultimately requires the regulated entity to take a more proactive approach to ensure compliance.
Q: Under principles-based regulation, to what level should the regulator take a position on whether or not the regulated entity work with external expert consultants to fulfill regulatory requirements? I would think that the regulator would focus on the outcome/deliverable rather than the method/resources the entity uses to achieve the outcome.
A: FSRA will not generally take a position on whether or a regulated entity work with an external expert to fulfill regulatory requirements. There may be exceptions to this with regard to specific risks, where FSRA specific assurances or expertise is requested. FSRA may also leverage industry best practices when assessing the regulated entity or individual’s chosen approach and there may be a benefit to a regualted entity in understanding those practices and that canbe done through an external engagement. However, such industry practices should not be interpreted or implemented as a compliance “checklist.” Rather, best practices will be used to provide regulated entities with valuable insights regarding the identified approaches used by industry peers and provide a baseline from which to identify practices that are best suited to their own organization
Q: What ‘blind spots’ does a PBR system pose to highly rules based regulated financial services sector, that may challenge the safeguards and consumer protections that are already in place? Is there a risk of trying to balance minimum standards vs. best practice creating issues around accountability under a PBR regime?
A: FSRA believes it is more efficient and effective to regulate using a PBR approach rather than a regulatory approach that focuses on whether prescriptive requirements are complied with and/or satisfied. As such, the use of a PBR and outcome-focused approach to regulation and supervision will continue to form a foundational component of FSRA’s regulatory strategy moving forward.
However, it is important to note that this does not mean that FSRA will be a purely principles-based regulatorin its regulatory and supervisory approach. In certain areas, FSRA will need to continue to rely on detailed rules and prescriptive requirements, sometimes referred to as “bright-line” tests, to ensure adequate consumer and pension beneficiary protection. In some cases, the use of principles to identify the outcomes that FSRA is seeking to achieve will need to be underpinned by prescriptive rules or requirements , but, to the extent possible, those rules will be expressed or interpreted through guidance in an outcome-focused manner. Thus, PBR doesn't create "blind-spots" but simply allows the regulator greater flexibility in its approach and doesn't meant existing safeguards which exist in "rules" are no longer applied.
Q: Is PBR in innovation anything other than do no harm
A: The short answer is yes. Innovation is facilitated by PBR in several ways. PBR enables a regulator to:
- respond more quickly to technological changes, consumer and beneficiary needs, and disruptions in the financial services landscape
- more effectively focus on desired regulatory outcomes and objectives to be achieved
- reduce regulatory burden through a more flexible regulatory approach, which allows regulated entities to determine how to best achieve adherence with outcomes based on their size, complexity, and risk profile
However, ultimately any innovation would need to be assessed through FSRA's statutory objects and that means ensuring that consumers and pension plan beneficiaries are not harmed.
Q: How does PBR regime balance market conduct supervision vs Prudential's one?
A: PBR is a regulatory and supervisory approach used by leading financial services regulators around the world, both with market conduct and/or prudential mandates. FSRA has a diverse regulatory mandate, which includes prudential and market conduct oversight responsibilities. Our statutory objectives articulate several areas of responsibility for FSRA including, but not limited to:
- promoting high standards of business conduct
- fostering strong, sustainable, competitive and innovative financial services sectors
- responding to changes in the financial services landscape on a timely basis where possible
- promoting good administration of pension plans
FSRA considers all aspects of a relevant regulatory issue, as well as exercises appropriate supervisory judgment when evaluating the policies, processes and practices established by a regulated entity to achieve adherence with principles as reflected in identified outcomes. This includes consideration for the sector in which the regulated entity operates, and whether FSRA's mandate with respect to that entity is conduct or prudential in nature. Each FSRA core regulatory function may develop and implement a supervisory methodology which reflects the unique regulatory issues as well as the size, complexity, and risk profile of the sector it regulates.
Q: To be clear: We would like to know if we are suggesting a self regulatory (industry actors-like benchers) principle based approach and doing away with gov (except for punitive regulations) or are you suggesting more of a hybrid approach and whether we are consulting industry stakeholders on what route are we taking and how. Just wanted to clarify my question.
A: When applying a PBR and outcomes- focused approach, FSRA will place greater reliance on a regulated entity’s senior management and board of directors to achieve the desired outcomes articulated by FSRA. The regulated entity or individual will be responsible for demonstrating to FSRA how its identified approach is effective in achieving adherence to the principles articulated. Senior management and the board of directors of the regulated entity should communicate transparently and in a timely manner the policies, processes and practices, which have been adopted and implemented to demonstrate how the regulated entity is achieving the desired outcomes and also show how it is validating that the desire outcomes are being achieved. FSRA’s assessment of adherence will entail whether the regulated entity has taken reasonable and good faith efforts to meet and be aligned with the desired outcome(s). Well-controlled and governed, and effectively managed regulated entities that engage positively and openly with FSRA should ultimately realize real benefits from FSRA’s PBR and outcomes-focused approach. For example, these benefits may be demonstrated by showing that the regulated entity’s own management and controls are functioning effectively to validate that the desired outcomes are being achieved. This can result in less intensive supervision or a less intensive risk mitigation program. However, this is predicated on the senior management and boards of regulated entities fully engaging in achieving the desired regulatory outcomes identified by FSRA and working with FSRA in a constructive and transparent manner to ensure that these outcomes are being achieved.
Q: With the rise in mental health awareness, can PBR be used to help with ratings applied to life insured persons with mental health conditions, such as anxiety and depression, that do not display suicidal or self harm tendencies?
A: A key principle in Life and Health Insurance is the Fair Treatment of Customers. The principle includes product design and the expectation for insurers to assess the risks resulting from the product by considering changes associated with the environment or stemming from the Insurer’s policies that could harm Customers. Please see FSRA's Fair Treatment of Customers Guidance.
Q: What enforcement activities will PBR be available to FSRA to protect consumers from Auto Insurers attempting to skirt rules, guidance, guidelines?
A: The enforcement activities don’t change with a PBR approach (delicensing, administrative monetary penalties, provincial offences etc.) but how the regulator utilizes these tools will be more deliberate. Where the non-compliance is inadvertent or isolated, the enforcement approach will be measured according to the situation and FSRA will exercise judgment to determine the appropriate response. In some cases, this may result in immediate and swift escalation to enforcement proceedings while in other cases, FSRA may raise the contravention and work with the regulated entity to remediate. The important point is that the application of the principle should be related to the specific outcome being sought.
Q: Layman's question: are we trying to build something like Law society of upper Canada/ health care colleges and transition away from being directly regulated by Govt. of Ontario, just want to be clear on my train of thoughts. I am wondering if that is more of the route you are suggesting or it is more of a hybrid idea.
A: Principles-based regulation is used by leading financial services regulators globally but can also be utilized by self-regulatory organizations. While it is less prescriptive in nature, it does not eliminate the role of a regulator. When applying a PBR and outcomes- focused approach, FSRA will place greater reliance on a regulated entity’s senior management and board of directors to achieve the desired outcomes articulated by FSRA. The regulated entity or individual will be responsible for demonstrating to FSRA how its identified approach is effective in achieving adherence to the principles articulated and the desired outcomes. Senior management and the board of directors of the regulated entity should communicate transparently and in a timely manner the policies, processes and practices, which have been adopted and implemented to demonstrate how the regulated entity is achieving the desired outcomes and also show how it is validating that the desire outcomes are being achieved. FSRA’s assessment of adherence will entail whether the regulated entity has taken reasonable and good faith efforts to meet and be aligned with the desired outcome(s). Well-controlled and governed, and effectively managed regulated entities that engage positively and openly with FSRA should ultimately realize real benefits from FSRA’s PBR and outcomes-focused approach. For example, these benefits may be demonstrated by showing that the regulated entity’s own management and controls are functioning effectively to validate that the desired outcomes are being achieved. This can result in less intensive supervision or a less intensive risk mitigation program. However, this is predicated on the senior management and boards of regulated entities fully engaging in achieving the desired regulatory outcomes identified by FSRA and working with FSRA in a constructive and transparent manner to ensure that these outcomes are being achieved.
Q: Once there is some jurisprudential interpretation of broad principles in legislation, will that help provide clarity?
A: The court doesn’t interpret principles but to the extent that those principles are reflected in FSRA's statutory objects, the court can consider how those statutory objects apply to the interpretation of a sector statute. In other words, where statutory provision is vague ambiguous or capable of open texture, the court can use those statutory objects to consider an interpretation which is consistent with the desired outcome.
Q: What differentiates successful from less successful principles? Any advice for regulators?
A: Clearly articulated outcomes that the regulator desires achieve will assist regulated entities in determining how to interpret and apply principles, as well as assess whether they adhering to the regulator's expectations. The interpretation of principles by a regulated entity and the supervision of them requires the exercise of judgment by the regulated and the regulator. As such, principles-based regulation requires open, transparent and timely communication between the regulator and the entities it regulates to ensure a common understanding of principles and, ultimately, that the desired outcomes are being achieved.
Q: Is there a reason FSRA is only now consulting on a complaints handling policy. Its counter parts such as the AMF recently consulted on regulation
A: FSRA recognizes complaints resolution is an important element of protecting the rights and interests of consumers, members, and pension plan beneficiaries. There are fundamental differences between the two jurisdictions, including history and legal framework. FSRA has been in existence since June 2019 and has prioritized certain issues and projects since launch and during its start-up period. Part of FSRA’s mandate since the organization’s creation was to introduce principles-based regulation, which moves us away from detailed, prescriptive rules and relies more on high level, broadly stated rules or principles to set standards by which sectors must conduct business.
Our focus is on protecting consumers in the financial services sectors based on the five principles in the Guiding Policy Framework on Complaints Resolution – accessibility, fairness, timeliness, transparency, and effectiveness – as important dimensions along which to assess the adequacy of a complaints resolution process.
Q: A consumer asks if integrity, fairness and honesty cannot be regulated why do we need detailed specific rules facilitating loopholes, regulatory arbitrage, checklist mentality, etc.
A: A principles-based regulatory approach relies on the use of principles to articulate desired outcomes, rather than prescriptive requirements or compliance checklists. As such, this approach limits the ability of regulated entities to find 'regulatory loopholes' and requires it to demonstrate how desired outcomes (e.g., fair treatment of consumers) is ultimately being achieve.