Insurance advisors should prepare to face more rules and greater enforcement as Ontario is poised to get a new regulator and as insurance regulators across the country strive to keep up with rapidly evolving regulations in the broader financial services sector, according to a panel discussion at the annual Advocis Regulatory Affairs Symposium in Toronto on Monday.
The speakers pointed to Ontario Finance Minister Charles Sousa's announcement on Monday that the provincial government will introduce legislation to establish a new financial services regulatory authority (FSRA) as one indication of the changes coming to insurance regulations. Anatol Monid, executive director, licensing and market conduct division with the Financial Services Commission of Ontario (FSCO), acknowledged the looming changes, which will merge FSCO with the Deposit Insurance Corp. of Ontario (DICO) to create a single regulatory agency.
"The [FSCO] mandate review was part of the subject of the minister's fall economic statement today," Monid said, "and essentially, he confirmed what he said on Nov. 8, which was that he will be introducing legislation to set the parameters of the new financial services regulator who will strengthen and modernize and be more customer-focused in its activities."
The proposed new regulator was the result of a review that found limitations with the existing regulatory framework in Ontario, said Lawrence Ritchie, partner at Osler, Hoskin & Harcourt LLP, former vice chairman of the Ontario Securities Commission (OSC) and a member of the expert panel that recommended the creation of the FSRA.
"The structures, the processes and the governments that we now have in place are not able to do the things that we need them to do to," Ritchie said. "The people who are in the system have done a great job, but they have limitations in terms of the mandates and the powers that they have to exercise those functions."
A lack of effective enforcement was one key problem leading to the recommended changes, according to Ritchie: "The credibility of the regulatory regime is undermined by the perception that FSCO is either unable or unwilling to take on effective enforcement."
Effective regulation and enforcement is critical in order for the insurance industry to earn and maintain the trust of consumers, said Jim Virtue, president and CEO of PPI Solutions Inc.
"There is really no effective industry-wide disciplinary process," he said. "I think we need that if we're going to be considered a profession."
The creation a self-regulatory organization (SRO) for financial advisors, something the Financial Advisors Association of Canada (Advocis) has advocated, could be an effective way of improving regulation and enforcement in the industry while also ensuring advisors have a voice in how they're regulated, Virtue added.
"We need to have proficiency standards, continuing education requirements, we need to have a code of professional conduct … a registry of advisors, and a true set of governance, discipline and enforcement," he said. "If we want to be treated like a profession, it's time we start acting like one."
The panellists also discussed the rapid pace of regulatory change occurring on the securities side of the business and the implications this has for the life insurance industry. Eventually, they said, insurance advisors should expect to face many of the same, or similar, regulatory changes taking place in the securities industry, including the new disclosure regime under the second phase of the client relationship model.
"Consumers should have a similar experience about disclosure and understanding their products, when both products look the same," Monid said.
In addition, the recommendations Ontario's expert committee on financial planning made could ultimately be applicable to advisors on both the investment and insurance sides of the business, Monid said.
"It's FSCO's hope that any regulations or recommendations that come out of this are ones that cross all of the financial services. We don't want one [area of] financial services to have a higher standard than the other," he said. "So, that conversation is coming to the insurance marketplace — and it's coming relatively quickly."
As regulators consider applying new rules to the insurance industry, it's crucial that they keep in mind the unique considerations of the insurance industry, including the distinctive compensation model, Virtue said.
"We need to remember that insurance advisors are different from investment advisors," Virtue said, "and they do need to be treated differently."
Photo copyright: stnazkul/123RF