The Financial Services Regulatory Authority of Ontario (FSRA) is an independent regulatory agency. It was established in June 2019 to enhance public confidence in non-securities financial services and pensions in Ontario.

The Financial Services Regulatory Authority of Ontario (FSRA or “the Authority”) is pleased to provide its FY2021-2024 Annual Business Plan. It outlines FSRA’s priorities, strategic direction, financial overview and supporting activities.

FSRA is an independent regulatory agency, created to improve consumer and pension plan beneficiary protections in Ontario. The Authority was launched in June 2019 to replace the Financial Services Commission of Ontario (FSCO) and the Deposit Insurance Corporation of Ontario (DICO).

FSRA protects Ontario consumers, which includes the public, credit union members pension plan beneficiaries, investors and other stakeholders. It does so by providing prudential and/or conduct regulation and supervision of:

• property and casualty (P&C) insurance (including auto insurance rates);
• life and health insurance;
• credit unions and caisses populaires;
• loan and trust companies;
• mortgage brokers;
• health services providers (related to auto insurance);
• pension plans; and
• financial planners and advisors (proposed).

The Annual Business Plan focuses FSRA’s activities on achieving regulatory efficiency (including burden reduction) and effectiveness, while protecting the interests of consumers.

Each of the priorities focus on improving supervision capability, enhancing/implementing regulatory framework components, protecting consumers and/or gaining a better understanding of consumer financial service needs.

The priorities of the credit union, life and health insurance, and mortgage brokering sectors focus on conduct and/or prudential regulation. These are intended to improve sector stability and maintain public trust.

The P&C/auto insurance sector priorities aim to enhance consumer choice, increase transparency, promote innovation, and foster just and reasonable rates and integrity, competition and stability, in the auto insurance marketplace.

Pension oversight will evolve its predictive analysis and capabilities with respect to the Pension Benefit Guarantee Fund (PBGF)-eligible pension plans. The goal is to improve outcomes for pension plan members.

The title protection framework for financial planners and financial advisors (FP/FA) will promote confidence and professionalism in the sector and reduce confusion for investors and consumers. This will happen by establishing minimum standards and leveraging existing licence and designation regimes.

FSRA will also continue to promote a national dialogue on a harmonized approach to regulatory issues in the areas it regulates. To this end, FSRA helps lead this work as a participating member in several forums.

In all sectors, modernizing systems, processes and infrastructure is intended to increase regulatory efficiency and effectiveness. As FSRA evolves, activities and oversight are shifting from the traditional, primarily prescriptive regulation, to a principles-based approach. Financial services and pensions are changing rapidly. There are opportunities to enable innovation and facilitate new entrants to the market.

Ongoing research will identify market and consumer vulnerabilities in the marketplace, helping FSRA to develop new initiatives that support our mandate and vision. FSRA will continue to build its engagement with consumers.

FSRA’s FY2021-22 Board-approved budget is $103.9 million. This represents a $2.1 million increase over FY2020-21 and includes investments in regulatory enhancements and increased conduct supervision, regulatory effectiveness, digital transformation and facilities. These investments are partially funded by internal cost efficiencies.

FSRA’s total sector revenues will increase by $0.7 million over the FY 2020-21 budget. Fee assessments in variable fee sectors will increase by 1.0 per cent. These increases reflect the credit back to the sectors of $3.9 million in excess revenues over costs from FY2019-20.

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The Financial Services Regulatory Authority of Ontario Act, 2016 (FSRA Act) establishes FSRA’s role in regulating non-securities financial services and pensions in Ontario. It sets out powers to administer and enforce the FSRA Act and sector statutes and outlines FSRA’s basic governance and accountability structure.

FSRA’s overarching objects, as defined in the FSRA Act, are to:

• regulate and generally supervise the regulated sectors;
• contribute to public confidence in the regulated sectors;
• monitor and evaluate developments and trends in the regulated sectors;
• cooperate and collaborate with other regulators, where appropriate;
• promote public education and knowledge about the regulated sectors;
• promote transparency and disclosure of information by the regulated sectors;
• deter deceptive or fraudulent conduct, practices and activities by the regulated sectors; and
• carry out such other objects as may be prescribed.

FSRA’s objects with respect to consumer-oriented financial services sectors (e.g., auto insurance, insurance conduct, credit union, mortgage brokering) are to:

• promote high standards of business conduct;
• protect the rights and interests of consumers; and
• foster strong, sustainable, competitive and innovative financial services sectors.

For the pension sector, FSRA’s additional objects are to:

• promote good administration of pension plans; and
• protect and safeguard the pension benefits and rights of pension plan beneficiaries

For credit unions and caisses populaires, additional objects are to:

• provide insurance against the loss of part or all of deposits with credit unions and caisses populaires;
• promote and otherwise contribute to the stability of the credit union and caisses populaires sector in Ontario, with due regard to the need to allow credit unions and caisses populaires to compete effectively, while taking reasonable risks; and
• pursue the objects set out as defined in the FSRA Act for the benefit of persons having deposits with credit unions and caisses populaires and in such manner as will minimize the exposure of the Deposit Insurance Reserve Fund (DIRF) to loss.

FSRA has powers and duties with respect to offering statements under the Co-operative Corporations Act (CCA). These include reviewing and issuing a receipt for offering statements that comply with the requirements under the CCA.

In addition, FSRA will administer and enforce the Financial Professionals Title Protection Act, 2019 (FPTPA) when it is proclaimed.

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FSRA has been established as a self- funded Crown corporation with the Board appointed by the Lieutenant Governor in Council on the recommendation of the Minister of Finance (“the Minister”). The Board is accountable to the Minister and, through the Minister, to the Ontario Legislature.

The Memorandum of Understanding (MOU) establishes the accountability relationship between the Minister and FSRA (see https://www.fsrao.ca/about-fsra/governance).

In addition to the FSRA Act, the MOU helps to describe the Minister’s relationship to the Board and the Chair of the Board. It clarifies roles and responsibilities of the Minister, Chair, the Board, Deputy Minister and the Chief Executive Officer (CEO), in areas such as administration, communications, operations and others.

The MOU should be read together with the FSRA Act and the governing regulated-sector statutes (e.g., Insurance Act, 1990; Pensions Benefits Act, 1990; Mortgage Brokerages, Lenders and Administrators Act, 2006; Credit Unions and Caisses Populaires Act, 1994; etc.).

Board of Directors

The FSRA Act provides that the Board is to include three to eleven directors. The Minister makes appointments in accordance with the Agencies and Appointments Directive (AAD), the MOU and the procedures of the Public Appointments Secretariat of the Government of Ontario. One director is designated as Chair by the Lieutenant Governor in Council on the recommendation of the Minister.

The Board has a dual role. It is responsible for the high-level stewardship of the organization, including oversight of FSRA management. It may also propose rules to the Minister in respect of any matter over which an Act gives FSRA rule- making authority.

Corporate Oversight

The directors oversee the management of the financial and other affairs of FSRA, which includes oversight of:

• strategic planning;
• resource allocation;
• risk management;
• financial reporting
• policies and procedures; and
• effectiveness of internal controls and management information systems.

The Board approves FSRA’s Annual Business Plan, including its annual regulatory priorities, and oversees its implementation by FSRA management. Under the FSRA Act, the Board appoints a CEO. The CEO is responsible for the management and administration of the Authority and exercises the powers and duties conferred or assigned to him/her (directly or through delegates) under the FSRA Act, and the additional regulated sector statutes that FSRA administers as part of its mandate.

Rulemaking Authority

The FSRA Act and sector statutes provide FSRA with rule-making authority in express areas for regulating and supervising non-securities financial services and pensions in Ontario. The Board has the responsibility to approve rules that, if approved by the Minister, have the force of law.

FSRA Board of Directors^[1]

Bryan Davies (Chair)
Kathryn Bouey
Blair Cowper-Smith
Joanne De Laurentiis
Joseph Iannicelli
Dexter John
Stewart Lyons
Brigid Murphy
Lawrence E. Ritchie
Brent Zorgdrager

Board Sub-Committees

Audit and Finance Committee
Deposit Insurance Reserve Fund
Advisory Committee
Governance Committee
Human Resources Committee
Pension Benefits Guarantee Fund
Advisory Committee
Rules and Policy Committee
Technology Transformation Committee

Organization Structure

FSRA’s executive leadership team has extensive industry experience and regulatory expertise (Appendix A). These executives are responsible for supporting innovation in the regulated sectors, driving continuous improvements across FSRA and championing a culture that is:

• forward-looking, with the expertise to monitor, understand and address changes in markets, sectors and consumer wants and needs;
• empowered and decisive, to act quickly in a fast-paced environment;
• principles-based and flexible, to appropriately respond to the dynamic nature of the financial services and pensions sectors; and
• transparent and relationship- based, to ensure accountability and responsiveness.

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FSRA operates in a dynamic market. In the current pandemic environment, which has been challenging for all stakeholders, FSRA has focused on providing necessary relief and protection to consumers, regulated entities, and other stakeholders in regulated sectors – all while continuing to deliver financial safety, fairness and choice.

Key trends in regulated sectors and financial services regulation include, but are not limited to, the following:

• COVID-19’s impacts on operational and strategic plans.
• Modernization and technological advancements, which continue to drive increased expectations from the consumer. These factors determine the need to update and often replace outdated internal systems and to launch inclusive products and solutions that meet consumer requirements.
• Global and domestic fintech innovation and technological advancements. These enable new and existing players and new delivery models that can offer more to the consumer.
• An ongoing imperative to drive down costs to the sectors, while freeing regulated sector participants from burdensome and often unnecessary regulatory activities.
• Diversity and inclusion in the workplace, which is increasingly acknowledged as a critical element of talent management, engaging employees and enhancing their experience. Understanding the impact of climate and cyber risks on the non-securities financial services and pension sectors.
• An enhanced approach to protecting the public interest, focused on the consumer. This has been, and continues to be, at the core of all FSRA activities.

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The World Health Organization declared the COVID-19 outbreak as a pandemic on March 11, 2020. While recovery efforts continue, the world is still operating in a pandemic and no one has a set time frame for recovery.

FSRA is working with all sector stakeholders to manage the unknown and is continuing to drive FSRA’s stated priorities. Recent experience demonstrates FSRA’s ability to adapt to this volatile environment and to continue to deliver on established plans. Still, future COVID-19-related challenges may impede the progress of FSRA priorities across all regulated sectors. As a result of COVID-19, FSRA has noted and, where possible, addressed the following sector-specific trends:

Pension plan sponsors expressed operational challenges, to which FSRA and the government provided relief from certain filing deadlines. The government also provided employers with the option to defer contributions to certain defined benefit (DB) pension plans. This relief balanced employers’ liquidity needs with protection of members’ benefits.

Plan funding levels were affected by a drop in global equity market indices in March 2020. However, capital markets subsequently rallied, resulting in the median projected solvency ratio increasing to 98 per cent on December 31, 2020, up from 94 per cent at the end of September and 90 per cent in June.

In response, FSRA refreshed its guidance on Limitations on Commuted Value Transfers and Annuity Purchases for DB pension plans. FSRA recognizes that administrators and other plan fiduciaries are responsible for prudently managing risks in their pension plans, ensuring the long-term financial sustainability of those plans,; and making decisions by considering the interests of plan beneficiaries. As a prudential regulator (solvency- focused), FSRA assesses pension plan risks. For single-employer pension plans (SEPPs), FSRA also assesses the sustainability of such plans in relation to the financial stability of the plan sponsor and the current operating environment. This is a prudent and necessary step towards ensuring the long-term viability of Ontario’s retirement ecosystem, including the PBGF.

Economic impacts on credit unions have also been closely monitored from a prudential perspective. This monitoring included the adverse cash flow experience or changes in liquidity associated with the permitted deferral of certain loan payments for up to six months. It also included the adverse impacts on financial performance resulting from a reduction in interest rates, which is anticipated to persist over the coming years. The health of these organizations affects the products and service guarantees of the consumers who are also affected as members and depositors.

The hard market in P&C insurance continued and was exacerbated by COVID-19, with the impact being most acute in certain sectors and product lines, such as commercial liability.

With fewer drivers on roads due to COVID-19 emergency measures, FSRA issued guidance aimed at ensuring consumers are treated fairly. Insurers reported that consumers have been eligible to receive almost $1 billion in relief in 2020 through a variety of channels, including rebates and reductions in premiums.

FSRA continues to monitor whether the promised relief is delivered and evaluate whether insurers’ rates remain just and reasonable.

COVID-19 has accelerated industry progress in digitizing the distribution of insurance products. There is also increased interest in usage-based auto insurance models due to decreased mobility.

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While challenges persist, the nature of the evolving non-securities financial services and pension sectors continues to drive positive outcomes.

Technological innovation and market pressures are:

• changing consumer expectations;
• driving the introduction of new products;
• prompting mergers among participants; and
• changing operating expenses for new non-traditional entrants.

This has introduced new business models to the sectors and improved existing ones.

Using technology to interface with clients provides new opportunities to close information gaps. FSRA will continue to monitor these technological developments to ensure that financial institutions are meeting expectations regarding business conduct and fair treatment of customers.

The mortgage and real estate sectors have been using innovative methods to help complete real estate transactions during this time. Credit unions are also actively seeking opportunities to innovate and implement new technologies. These technologies are being used to complete tasks, such as digital transfer of documentation and virtual home appraisals, which are traditionally done in person. The goals are to enhance the service experience for members, increase the level of product offerings, decrease costs and ultimately grow businesses.

Cybersecurity breaches continue to affect the financial services and pensions sectors. This has highlighted the need for financial regulators and regulated entities to have appropriate measures to maintain the privacy and security of their information and the information of persons who deal with regulated entities. These measures are particularly important as consumers and insurers demonstrate a greater acceptance for virtual healthcare.

FSRA’s newly formed Innovation Office was created to support an "open-for- business" approach across FSRA, and to focus on identifying and supporting opportunities to foster innovation and business transformation. The Innovation Office will strive for a nimble and flexible regulatory landscape that protects the public interest but does not hold back innovators, limit consumer choice or the economic benefits of industry competition and innovation.

The Innovation Office is working with stakeholders in the innovation ecosystem to analyze changes in underlying technologies, market practices and consumer preferences. The Innovation Office is also working to foster controlled innovation testing environments and to encourage "responsible innovation" that puts consumers at the forefront.

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Well-functioning financial services and pension markets promote long-term financial stability, growth, efficiency and innovation. Appropriate consumer protections build public confidence and trust.

In such markets, consumers:

• have access to the products, services and information they need to make the best decisions for themselves;
• are treated equitably;
• are not exposed to deceptive or unfair practices; and
• have their needs considered, including those of vulnerable consumers.

FSRA continues to see rapid changes in how non-securities financial services and pension plans are being offered and delivered. These changes increase the need for regulators to quickly understand the emerging trends, consumer needs, potential vulnerabilities and pathways for resolution and to protect the public interest by using the most effective tools and powers.

While there are ongoing consumer expectations for increased choice and value for money, needs vary across the range of financial services and pension sectors. Consumers will also have different needs due to personal circumstances, their financial capability, the product or service they are obtaining, or the intermediary they are using.

FSRA is committed to using consumer research and engagement to support regulatory efficiency and effectiveness. This year, FSRA established a new Consumer Office. It undertakes research, sets the strategy for consumer engagement, and provides secretariat support to the FSRA Consumer Advisory Panel (CAP).

Together, the CAP and the Consumer Office are key to improving opportunities for consumer voices to shape FSRA’s work.

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The increased availability of data and analysis tools has allowed for closer monitoring of the impact of economic conditions on sectors and their consumers. Such economic intelligence empowers prudential and conduct oversight. It also provides the opportunity to react to emerging situations and prepare appropriate responses.

The complexity of insurance distribution has increased with overlapping organizations supporting multiple brands and channels, including through digital platforms. Many insurers have set up a wide range of multi-channel distribution systems to improve customer interaction and experience. To further its mandate of providing effective industry oversight, FSRA is working to achieve a more comprehensive understanding of current distribution channels.

FSRA is aware of a long-term consolidation trend in P&C insurance in Canada and routinely monitors market dynamics across the industry and in Ontario.

Within the mortgage sector, there has been an increase in the use of non-bank financial intermediaries (NBFIs) such as Mortgage Investment Corporations and private lenders, as these lenders do not need to meet Canada Mortgage and Housing Corporation and Office of the Superintendent of Financial Institutions (OSFI) mortgage underwriting guidelines.

NBFI use may continue to increase if consumers find it difficult to make mortgage payments once temporary, pandemic-related government programs end (such as the Canada Recovery Benefit and mortgage deferral programs) and if regulated financial institutions continue to tighten their underwriting criteria. There are concerns that borrowers and investors are not being informed fully about the risks and features of private mortgages.

These disclosure are necessary to ensure products are suitable for borrowers and investors and to address potential conflicts of interest.

Regulation of the sale of certain retail- oriented non-qualified syndicated mortgage investments is being transferred to the Ontario Securities Commission. This transfer may lead to changes in how mortgage-based investments are structured and sold.

Overall, the economic and environmental impacts on the non- securities financial services and pension sectors have been significant. They will continue to be a challenge for the foreseeable future. FSRA will continue to monitor the situation and seek to drive positive results for all stakeholders.

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FSRA’s strategic goal is to be an empowered principles-based and outcome-focused regulator. It will need to excel in four key areas to be successful:

Outcome- and Risk-Focused: Principles-based, outcome- and risk-focused supervision, decisions, guidance and rule-making, to be more effective and efficient.

Organizational Advancement: Transform the organization’s culture, technology and internal processes.

Invest in Talent: Recruit, develop and retain expert and skilled talent.

Efficient and Effective: Operate with consumer and stakeholder interests, and FSRA’s statutory objects in mind.

Figure 1: FSRA’s Strategic Framework

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[1] List of FSRA directors as at January 2021.

Next Section: Overview of Sectors & Statement of Priorities >