FCA proposes reforms for U.K. asset-management industry

The Canadian Life and Health Insurance Association Inc. (CLHIA) is recommending a variety of fundamental changes to the life insurance industry’s regulatory framework to improve advisor oversight.

Specifically, CLHIA calls for regulators to establish a licensing regime for distribution firms and to make these firms formally responsible for certain aspects of insurance advisor oversight in a policy paper published recently entitled Improving Advisor Oversight: Helping Consumers to be Sure They’re Secure.

The association suggests in the paper that the existing regulatory framework for life insurance distribution is outdated: “Insurers’ distribution models have evolved over the years to include a variety of channels. However, our existing regulatory structure for distribution, and the accompanying oversight obligations, most closely reflects a period when most insurers sold their products through a traditional career sales force.”

Under the existing regulatory framework, insurers are ultimately responsible for advisor oversight. In recent years, however, the industry has tweaked its guidelines to clarify that distribution firms such as managing general agencies also have a role to play in advisor oversight.

“In some cases, distribution firms may be in the best position to provide fulsome oversight of an advisor’s activities,” the CLHIA paper says.

In particular, CLHIA notes that as insurance companies are only able to monitor the business that an advisor places with that particular company, they may not be able to detect certain types of advisor misconduct, such as churning.

“We believe that formalizing such oversight responsibilities for distribution firms through a regulatory licensing regime would help to address any potential gaps in the structure,” the paper says.

Although insurers would still maintain oversight responsibilities under CLHIA’s proposed changes, establishing a licensing regime would improve accountability, the paper says.

Under CLHIA’s proposed new model, advisors would be required to designate a primary distribution firm as well as identify all firms with which that they place business. The primary distribution firm would assume oversight responsibility for that advisor. That would include conducting a certain number of random on-site practice reviews each year and gathering relevant information from each advisor’s other distribution firms in order to get a full picture of each advisor’s practice

Other recommendations made in the CLHIA paper include the adoption of an industry-wide platform for monitoring advisor compliance with statutory licensing requirements and the establishment of a record of insurer disciplinary decisions about advisors, which all insurers would be able to access.

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