Consultation Summary Report

Stakeholders expressed support for FSRA’s efforts to standardize, simplify, and consolidate inherited FSCO guidance, including:

• comments that the Guidance provides clarity and is valuable as a training tool
• positive comments relating to reduced costs associated with regulatory compliance through the consolidation of four related pieces of FSCO guidance into a single guidance document
• stakeholders noted that reduced costs encourage increased participation in the marketplace, ultimately benefiting consumers through enhanced competition and choice 
• support for FSRA’s willingness to engage stakeholders in policy development

FSRA welcomes the positive feedback and comments regarding the increased clarity provided by the Guidance as well as the reduction in compliance burden that benefits consumers.

FSRA looks forward to continuing collaboration with stakeholders through advisory committees, public consultations and other forums.

One stakeholder expressed support for FSRA’s transition to principles-based regulation, by minimizing reporting requirements through a risk-based approach. The stakeholder noted that monitoring compliance by requiring details of completed courses at the point of renewal, while not routinely requesting CE certificates, is an example of this risk-based approach.

One stakeholder agreed with the need for reporting requirements that support oversight of E&O coverage and CE completion. The stakeholder noted that E&O protects both clients and agents. The stakeholder also noted that CE requirements are essential to providing accurate, competent and up-to-date advice.

Maintaining E&O insurance and completing CE are legal requirements under the Act and its regulations.

As noted in the Guidance, reporting requirements are proportionate to the level needed to ensure full compliance with applicable legal requirements while minimizing routine reporting.

One stakeholder expressed a concern that CE credit courses offered by industry are commonly related to sales promotion rather than objective product comparisons or compliance. The stakeholder also suggested that FSRA review the contents of CE courses.

Another stakeholder expressed concern that agents face uncertainty about course eligibility and that the risk of enforcement actions may be severe. The stakeholder noted that because only a small percentage of agents are audited, agents may be completing ineligible courses for a lengthy period of time.

The stakeholder offered the following recommendations in the event that FSRA is considering a change to the accreditation of courses and/or providers:

• examine international standards or elements for best practices
• avoid creating barriers that will narrow topics or exclude smaller or newer providers

FSRA currently reviews CE course content through periodic audits, thematic reviews, or other supervisory examinations, and additional review upon renewal for agents selected based on past compliance gaps.

The requirement for life agents to report course details at renewal will provide FSRA with additional information about completed courses.

The Guidance and CE information on FSRA’s website are expected to reduce uncertainty about which topics are eligible for CE credit.

FSRA takes a progressive approach to enforcement. The type of action taken is based on the evidence available and the circumstances.

FSRA is not currently considering accreditation of courses and/or providers for life agent CE credits.

One stakeholder expressed concern about the terminology used to identify topics that are ineligible for CE credits, noting that the draft language risks inadvertently excluding topics related to CCIR/CISRO fair treatment of consumers guidance¹ (for example, training of needs-based sales processes, fact finds and provision of advice).

The same stakeholder also noted that the technical components of how products function would assist advisors in identifying how a product may correspond with a particular client’s needs. As such, the stakeholder recommended that eligibility requirements be aimed at excluding training that is related to increasing sales and leads generation.

FSRA agrees that the reference in the draft language to “improving production/sales techniques” can be improved. As such, the section in the Guidance will be amended to state:

Education related to increasing sales and leads generation does not meet the CE requirement.

One stakeholder suggested that enforcement actions relating to meeting CE requirements be posted on the public registry.

The requirement for life agents to report details of courses completed at each renewal will assist FSRA in monitoring non-compliance with CE requirements. As noted in the Guidance, FSRA publishes information about its enforcement actions resulting from an agent’s non-compliance with CE obligations.

A stakeholder noted that although a notice is posted on the public registry when an agent’s E&O insurance information is not current, consumers may be unaware of the public registry.

Stakeholder recommendations regarding consumer awareness may be considered as part of the work on the proposed Fiscal Year 2022-2023 priorities,² to strengthen customer focus and modernize systems and processes, that aim to:

• identify opportunities to respond to the needs of and risk to consumers in vulnerable positions
• improve information sharing through systems modernization

A stakeholder noted that the CE section on FSRA’s website provides clear information to help agents determine which courses are eligible for CE credit and recommends adding the number of years agents should retain proof of CE to the website.

The Guidance indicates that FSRA may require agents to provide evidence of course completion for the current and immediately preceding licensing periods.

FSRA will add information to its website regarding the number of years agents should retain proof of CE.

A stakeholder questioned whether FSRA would immediately suspend an agent’s licence when an agent has not provided up-to-date E&O information to FSRA.

As stated in the Guidance, agents must report the expiry date of their E&O insurance to FSRA. In some cases, while an agent may not have updated the licensing system, the coverage may still be in force.

If FSRA identifies that an agent does not have E&O insurance coverage, then further remedial actions may be undertaken by FSRA.

A stakeholder asked whether E&O insurance carriers are required to inform FSRA when an agent’s coverage has been terminated/non-renewed, and if so, how this is enforced.

E&O insurance carriers are not currently required to inform FSRA when a life agent’s E&O coverage has been terminated.

The responsibility to ensure E&O insurance is in force lies with the agent, along with oversight by their sponsoring/contracting insurers.

A stakeholder recommended that FSRA consider technological solutions that would centralize how reportable data is collected and shared with other regulators, noting that this could strengthen fair treatment of consumer policies through harmonization, and depending on shareability, make it difficult for an agent to avoid more stringent oversight by moving between regimes.

FSRA may consider stakeholder recommendations regarding technological solutions for collection and sharing of reportable data, as part of its proposed Fiscal Year 2022-2023 priority³ to improve information sharing through systems modernization.

One stakeholder sought to clarify whether E&O coverage requirements can be met through a single corporate policy with a shared limit among multiple covered agents.

The requirement for each agent to have E&O coverage is unchanged. Coverage can be provided through an agency policy where there is a shared limit among agents covered by a single policy. The policy must include the legal name of the corporation and list the legal name of each individual agent.

The Guidance will be amended to clarify the requirements.

One stakeholder requested that the Guidance mirror the following language in O. Reg. 347/04: “the insurer shall establish and maintain a system reasonably designed to ensure each agent complies with the Act, the regulations and the agent’s licence”. The stakeholder noted that insurers seek flexibility to fulfill the aforementioned requirement using systems and processes relevant to unique internal structures, systems, and processes.

Several stakeholders stated that effective laws and enforcement are needed to counterbalance the inherent influence of profits and incentives on insurers and agents. The stakeholders’ concerns include ensuring:

• product suitability
• insurer staff understand products, especially following mergers
• accountability through record-keeping requirements

The “Legislative Requirement” in the Insurer’s Compliance System section of the Guidance will be amended to further align with the applicable language in O. Reg. 347/04:

• “Insurers that authorize agents to act on their behalf must establish and maintain a compliance system that is reasonably designed to ensure each agent complies with the Act, the regulations and the requirements of the agent’s licence.”

A stakeholder proposed that FSRA permit a 30-day timeframe for agents to notify FSRA of changes to the insurers with whom they have a contract, which would align with requirements in Quebec.

The stakeholder noted that harmonized requirements are more efficient and that the 5-day requirement proposed in the Guidance poses a challenge for agencies who operate nationally.

The Guidance will be amended to provide a 30-day timeframe for agents to notify FSRA of changes to the insurers with whom they have a contract.

One stakeholder noted that information about the insurers with whom an agent is contracted, combined with FSRA’s proposed Guidance regarding communication of enforcement action, would:

• allow FSRA to notify insurers of issues
• support screening, monitoring of advisor suitability
• reduce advisors’ ability to avoid sanctions by moving between insurance companies

As stated in the Guidance, FSRA’s interpretation is as follows:

“If FSRA determines that an agent is not meeting its legal obligations, FSRA may contact the agent’s contracted insurers to alert them to the agent’s non-compliance.”

FSRA is reviewing feedback from its consultation on draft Guidance for Proposed transparent communication of FSRA enforcement actions, which describes when and how FSRA publishes information, including news releases, about its enforcement actions.

A stakeholder recommended cross referencing the Guidance with CCIR/CISRO Guidance re FTC/Conduct of Business.

FSRA has confirmed in Approach Guidance that it will use Guidance: Conduct of Insurance Business and Fair Treatment of Customers, adopted jointly by the CCIR and CISRO, on September 27, 2018, to supervise the conduct of insurers, and other entities FSRA regulates under the Act, with respect to the fair treatment of customers.

The Guidance will be amended to cross-reference the above-mentioned document to ensure that customers can continue to expect that insurance licensees act ethically and in good faith, in accordance with the CCIR/CISRO Guidance.

A number of stakeholders expressed concerns that educational and compliance requirements related to insurance sales are not sufficient as:

• increasingly complex products and financial strategies (investment/tax deferral) necessitate stronger entry and CE requirements
• educational and compliance requirements for insurance investment products (e.g., segregated funds) lag significantly behind those for mutual funds and securities
• agents may move to segregated fund sales in order to avoid more stringent Mutual Fund Dealers Association of Canada (MFDA) requirements
• uninformed advice may harm consumers through unsuitable products and inadequate tax planning

To ensure consumers are better informed and treated fairly regarding segregated funds, FSRA’s proposed Fiscal Year 2022-2023 priorities⁴ include the following key deliverables:

• finalizing guidance on segregated fund sales and administration
• developing disclosure requirements for segregated fund contracts

FSRA is collaborating with insurance and investment industry regulators across Canada as it develops segregated fund guidance and disclosure requirements. Maintaining requirements for similar products in a harmonized manner will help consumers compare products and make informed financial decisions.

Several stakeholders expressed concerns that there is inadequate due diligence in the oversight of agents that has been delegated by insurers to third parties such as MGAs.

A stakeholder noted that MGAs have an overview of an advisor’s market conduct as it relates to sales for all of the insurers whose products they sell, and recommended that intermediaries including agents, MGAs and National Accounts should also maintain compliance systems reflecting their own distribution activities.

Several stakeholders questioned whether FSRA exercised sufficient oversight over insurers and the adequacy of enforcement.

Stakeholders expressed concerns that serious enforcement actions for agents, such as lifetime licence revocation are rare and that agents could evade accountability by changing insurer or MGAs, compounded by limited sharing of information among insurers, MGAs and FSRA.

Consistent with the CCIR/CISRO Conduct of Business and Fair Treatment of Customers Guidance, insurers and intermediaries are required to treat customers fairly, through the lifecycle of the insurance product, beginning with product design and running until all obligations under a contract are fulfilled.

In 2021, FSRA conducted a review of life insurers’ compliance frameworks for supervising Managing General Agencies (“MGAs”).

FSRA’s proposed priorities for the 2022-2023 Fiscal Year include:

• publishing for consultation a proposed framework and supervisory approach for MGAs
• in consultation with industry, build supervision capacity in insurance distribution under FSRA’s supervisory framework for Life & Health Insurance, including Agent supervision

As stated in the Guidance:

• insurers may be required to demonstrate to FSRA that adequate and effective controls are in place to ensure compliance with the Act and O. Reg. 347/04.
• insurers retain responsibility for the compliance of agents acting on their behalf. Whether or not oversight has been delegated to third parties, FSRA’s authority applies, and insurers must be able to fulfill their duty to ensure an agent’s ongoing suitability to maintain a licence.

FSRA assesses insurers’ agent oversight controls through a number of methodologies including onsite examinations and compliance reviews.

A number of stakeholders expressed concerns that there are shortfalls relating to the mandatory E&O insurance requirements:

• several stakeholders noted that consumers may not have recourse through E&O coverage for claims made after an agent’s E&O policy is terminated. One stakeholder noted that claimants and their legal representative may not understand the potential continued liability of insurers for action of agents acting on their behalf
• several stakeholders noted that the regulatory E&O coverage minimum of $1 million is too low, noting that it has not kept up with inflation and does not address the growing use of life insurance as an investment product
• one stakeholder expressed concern that provisions related to extended coverage for fraud are not effective, and that there has been no legislative or regulatory action to address this gap

E&O insurance criteria are out of scope for this Guidance.

A stakeholder noted that consumers may be unaware of complaint processes and other protections available to them.

Stakeholder recommendations regarding consumer awareness may be considered as part of the work on the proposed Fiscal Year 2022-2023 priorities,⁵ to strengthen customer focus and modernize systems and processes, that aim to:

• enhance public knowledge and navigability of the complaints resolution system
• identify opportunities to respond to the needs of and risk to consumers in positions of vulnerability
• improve information sharing through systems modernization

Several stakeholders expressed concern regarding the adverse impact of compensation structures on insurance consumers. For example, when there is a transfer of representatives, the front-end loading of compensation means that there may be a charge-back to a new advisor if a client accesses funds prior to the expiry of the fee schedule.

To support the fair treatment of customers, FSRA’s proposed priorities for the 2022-2023 Fiscal Year include communicating expectations for insurers and intermediaries in assessing and managing customer risks that could result from incentives paid for product sales and servicing. A key deliverable is to publish, for consultation, guidance on Fair Treatment of Customers -Incentives, working with insurance regulators across Canada.

FSRA’s proposed priorities also include communicating regulatory expectations with respect to the sale and administration of segregated fund contracts by finalizing guidance on segregated fund recommendations, working with insurance regulators across Canada.