Thousands of life and health insurance advisors who practise in Ontario may soon also need to be licensed as managing general agents (MGAs), but most of them are likely unaware of the new requirements that may be headed their way.
The Financial Services Regulatory Authority of Ontario (FSRA) published a revised proposal introducing a licensing regime for life and health insurance MGAs on Oct. 20 for a 30-day comment period. While the rule is aimed at adding oversight of MGAs, it defines MGAs broadly. Any entities involved in the recruiting, screening, training or oversight of life and health insurance agents will be required to apply for a licence, even if they are already licensed as an agent or corporate agent.
The broad definition of MGAs, which was not apparent in the original proposal published by FSRA in January, has taken the industry by surprise.
“A significant portion of the financial advisory community is only now discovering that they may be treated as MGAs for the first time, despite already being fully licensed as agents or corporate agencies under the existing regulatory framework,” said Advocis in a joint comment with the Conference for Advanced Life Underwriting (CALU) dated Nov. 17, two days ahead of the comment period deadline. In their submission, the associations asked FSRA to extend the consultation and work with stakeholders to rejig the rule.
The updated rule outlines three categories of MGAs. It’s the Tier 3 definition that stood out for Andrew Fink, president of MGA Hub Financial. That tier likely captures individual incorporated agents who have a licensed assistant, are growing their practice or bringing in a successor.
“This Tier 3 MGA categorization jumped off the page in its lack of clarity and how wide reaching it [is],” he said. “I think it will be an item that can really inhibit the success of the overall exercise because of how much of a lift it’s going to require to onboard, thousands — potentially tens of thousands — [of entities].”
The rule relies on MGAs to self-identify, and while Fink said HUB hasn’t had any inquiries from advisors it works with asking for help understanding whether that applies to them, that’s because “they have no idea this is coming.”
Tiered MGA concept
According to Ontario’s Insurance Act and the rule, any entity that recruits, screens or trains agents or prospective agents; enters into written agreements with agents who sell life and health or accident and sickness insurance; recommends agents to insurers; or transmits insurance policies or applications between insurers and agents is performing a regulated activity and therefore needs a licence.
The revised rule introduces three tiers of MGAs, each with distinct obligations.
Tier 1 entities are those that are typically considered MGAs. They have direct relationships with insurers, who can delegate responsibilities for agent oversight, monitoring, recruitment, screening and training to them. Tier 1 MGAs will be required to have a documented compliance system designed to ensure their own compliance with the rule and insurance law, adequate monitoring of Tier 2 and 3 MGAs they contract with and of agents they oversee.
Tier 2 MGAs do not have direct relationships with insurers, but instead are contracted with other MGAs.
Tier 3 MGAs are any entities that perform regulated activities but are not captured in the definition of Tier 1 or 2.
All tiers must have a designated compliance representative, although the responsibilities vary according to tier. They must also submit an annual information return to FSRA.
Advisors who have licensed staff and small partnerships are likely to fall under Tier 3, says Advocis CEO Kelly Gorman. However, it’s up to advisors to self-identify, which isn’t easy considering the principles-based nature of the rule.
“The hard part is figuring out, how do the details impact you?” she said. “A lot of it could be how your contracts are structured, etc.”
On a more basic level, the scope of the rule is “way too broad,” capturing independent, individual advisors who are “not true MGAs” Gorman said.
“An MGA rule should deal with MGAs and that’s where I think we need to get together as an industry, figure out the gaps that this was trying to solve for, come together to figure out how best do we do that.”
In an email, Nancy Allen, executive director of the Independent Financial Brokers of Canada (IFB) said the draft rule is broad enough to “unintentionally capture small corporate agencies and incorporated advisors as ‘MGAs’ simply because they supervise or mentor a small team of advisors,” she wrote.
“This would force many ordinary advisory practices to obtain an MGA licence, build MGA-style compliance systems and carry extra costs — without a corresponding benefit to consumers, since these practices are already regulated as agents and insurers remain responsible for advisor oversight.”
Allen said the IFB is asking FSRA to clarify, through the final rule and guidance, that such small corporate life agencies, who have a limited number of downline advisors, are not MGAs “unless they are actually performing distribution-level functions on behalf of insurers.”
FSRA’s view
However, in response to emailed questions, FSRA confirmed that, “There will be agencies and individual agents who will likely require an MGA licence to continue performing some of the activities they currently engage in.”
Additionally, “Whether a person or entity needs an MGA licence depends on the activities it performs, not on its size or legal form,” FSRA wrote. “If a person or entity, including an incorporated advisor firm or small partnership, performs one or more of these activities under agreement to another entity, then it would need to be licensed as an MGA. If it does not perform these activities, it would not be captured by the MGA licensing framework.”
The regulator, which has a mandate to protect consumers, referred to its own supervisory reviews, which over the past few years have uncovered “troubling practices and trends in the life and health insurance distribution channel that have harmed consumers.”
It added: “The proposed MGA rule is intended to strengthen oversight and further protect consumers by addressing inadequate agent screening, training and monitoring. This will help ensure agents are properly supervised across the sector so that Ontarians receive fair treatment and suitable advice.”
‘Tough spot’
FSRA is hamstrung by the 2024 amendments to Ontario’s insurance law that were passed in order to create a separate licensing category for life and health MGAs, said Fink, explaining that the regulator is following the definition of MGAs as set out in the legislation.
“I think [FSRA] is in a really tough spot because their job is to deliver a regime that is going to really improve outcomes for Ontarians, but they’re bound by the legislation. So these tiers, I believe, is how FSRA is finding ways … to make sure the legislation is respected and we can get as close to what a good outcome for distribution might look like.”
Fink said he’d rather see FSRA pause and push the June 1, 2026 date out to better define MGA in the legislation.
Allen noted that IFB is asking for a “fix” to the Insurance Act “so that the law itself clearly differentiates between true MGAs and small corporate agencies,” he said. It “has asked FSRA to spell out its own oversight role in the new MGA licensing framework.”
Ontario is not the first province to introduce MGA licensing, but Sean McGurran, counsel at Torys LLP’s insurance and reinsurance practice, said FSRA’s revised proposal “certainly goes beyond what may have been expected based on what we’ve seen in New Brunswick and Saskatchewan.” The provinces introduced licensing in 2023 and 2020, respectively.
“It’s a very ambitious rule in some respects,” McGurran said, a “reflection of a very broad mandate that was given to FSRA in terms of life and health MGA licensing.”
While he said no one takes issue with the overall intention of the rule, there’s “concern around potential unintended effects from this rule and the potential impact on a lot of distributors who didn’t expect to be caught by it.”
Fees and timelines
The comment period closed Nov. 19. FSRA has not yet posted comments on the revised proposal or answers to a Q&A document it promised to publish following a Nov. 5 informational webinar it held.
However, it confirmed in an email that it received 300 comments during the latest 30-day consultation. It is reviewing those comments.
The updated proposal suggests a 24-month transition period, starting on June 1, 2026, assuming the minister approves the rule, before many of the requirements in the revised rule take effect.
Life and health MGAs would have to apply for a licence by Nov. 30, 2027, six months before the end of the transition period.
FSRA’s running a separate consultation on proposed fee rule amendments that closes Dec. 19. The regulator has proposed an initial licensing fee for all MGA tiers of $1,000, as well as licence renewal fees to be paid every two years and to be proportionate to the MGA’s size. Additional details will follow, once FSRA gathers enough information to determine an appropriate fee structure.
What’s good for Ontario
Dave Faulkner, a financial planner at FP Advisors in St. Albert, Alta., and a fintech entrepreneur, has been following FSRA’s proposal even though he’s not licensed in Ontario. He said the rule would raise costs for advisors as well as consumers.
“What Ontario does, every other province is going to obviously follow, and it doesn’t even matter because all the Tier 1 MGAs are all licensed in Ontario and every other province,” Faulkner said. “So if they have to do it for one province, they’re going to do it for all.”
While he said the rule would not eliminate problematic practices that FSRA has found in some multi-level marketing MGAs, he thinks it will help.
“Here’s what I like,” Faulkner said. “The insurance companies that are willing to licence MGAs that are selling product over proper advice, they can no longer say, ‘Well, we’re just the supplier. It’s not our responsibility what the MGA’s agents do.’ And the MGA can’t say, ‘all of our agents are independent contractors.’ It eliminates that passing the buck down.”
Scott Chambers, who recently founded Chambers Compliance Advisory Group after 18 years with Sun Life, says advisors should make sure they’re up to date on training, CE credits and courses — and they can provide evidence. “Everything has to be evidence-based. … So there has to be a lot more rigour around documentation.”
Their contracts may also change.
“They can continue to expect non-standard reviews because their MGAs and multiple insurers are doing the assessments, not one regulatory body,” Chambers said.
They should also “be in full communication with their MGA to know what their new program [will look] like and how it impacts them and make sure that they’re meeting that standard, whatever that standard is.”
He added that advisors must also proactively raise their own standards and “build their own defensible compliance program.” Even if they have a “light touch” MGA, Chambers said “FSRA is not going to be light. FSRA has expectations.”
The advisors that partner with MGAs are not employees, Fink noted, but MGAs do have influence on them following best practices — and that will increase with the revised rule, which clearly outlines MGAs’ responsibilities for overseeing and monitoring agents.
“It takes the ambiguity out. We can point to legislation. We can point to our licensing requirements as the catalyst for why this is a non-negotiable requirement for our planners,” Fink said.
Establishing “ongoing oversight and audit from a regulator will help raise the bar in the industry — full stop.”
McGurran said some agents could see multiple layers of oversight under the new framework.
“You could have MGAs with contracts with multiple insurers, and then there could be several MGAs in between the MGA and the individual agent at the end, so it depends. … There could be a lot of overlapping layers.”