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IFB 2017 Toronto Fall Summit

In case you missed it: news and insight on compliance exams, signature falsification, and the proposed ban on embedded commissions from the Independent Financial Brokers of Canada Toronto Summit in Mississauga, Ont., Nov. 7-8.  Photo copyright: kasto/123RF.

From the Regulators

The regulator will begin sending out questionnaires to some advisors who are deemed to be higher risk to determine if they need a more in-depth compliance review

By Megan Harman |

 

The Financial Services Commission of Ontario (FSCO) is launching a new process for its compliance examinations of insurance advisors this autumn, according to Heather Driver, director of licensing at FSCO, who spoke at the Independent Financial Brokers of Canada's fall summit in Mississauga, Ont. on Wednesday.

In particular, FSCO will soon be adding a new layer to its examination process, Driver said. Specifically, the regulator will begin conducting "desk reviews" — questionnaires that aim to help the regulator determine which advisors require a more in-depth compliance review — prior to conducting onsite exams.

"What we're trying to do by having these layers of examinations and reviews is to try and end up focusing on who are the higher-risk people that we should be taking a look at as opposed to something that's just random, where you might get the best performing agents," Driver said. "We're looking for contraventions when we do things like this. So, being able to identify risk factors is important."

The desk reviews will be conducted with a "couple hundred" advisors in Ontario, who will be selected based on certain criteria that identifies them as having a higher risk of non-compliance, Driver said. Based on the results of those questionnaires, some of those advisors will be chosen to participate in a full on-site examination.

Advisors who receive an email or letter regarding the desk review are required to complete the questionnaire and submit it to FSCO by email within 15 business days. Those who fail to complete the questionnaire could face disciplinary action.

The questionnaire covers details such as advisors' industry experience; the volume of business they conduct; the types of products they sell; and any business that they conduct in the mortgage industry, including referrals.

FSCO has observed a growing proportion of advisors who are doing business in both insurance and mortgages, Driver said: "This is becoming a bit of a trend, where people are starting to get involved in both businesses, either through referrals or by being dual-licensed."

Advisors will also be required to submit supporting documentation with their questionnaire, including proof of their errors and omissions (E&O) insurance and continuing education (CE) credits.

In situations in which the results of the desk reviews reveal regulatory infractions, advisors could face disciplinary action, Driver said.

Advisors who are selected for an onsite examination could find that the exam process is different than it was in the past, she added, as it will be more tailored to the individual agent based on the results of his or her desk review.

"It might be more focused on what some of the risk areas are that might have been identified in the desk review," Driver said.

Driver highlighted five areas in which FSCO commonly observes compliance failures:

  1. Individuals selling insurance without an insurance licence.
  2. False information on agent application forms and license renewal forms.
  3. Failure to meet CE requirements.
  4. Failure to have a valid E&O insurance policy
  5. Failure to disclose conflicts of interest or potential conflicts of interest to clients
     

These regulatory infractions can lead to administrative monetary penalties of up to $15,000, along with licence suspensions and other penalties.

With respect to CE requirements, Driver noted that FSCO has caught some advisors buying fake CE certificates. She warned advisors that they would face consequences for engaging in that type of fraud.

"That's going to be a world of pain when it's uncovered later," she said.

Advisor compliance with E&O insurance requirements, meanwhile, has recently improved, Driver said. That's partly due to new rules requiring agents to regularly update their E&O insurance information in FSCO's online licensing portal and new tools enabling insurance companies to supervise agents' compliance in this area more closely.

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