(August 3 – 09:55 ET) – Federal and provincial regulators are looking into the design flaw and risks associated with a segregated fund at Transamerica Life Canada.
Both the Office of the Superintendent of Financial Institutions in Ottawa and the Financial Services Commission on Ontario say they planning an investigation, leaving some observers wondering if seg funds have fallen into a regulatory black hole.
The Toronto-based insurer, one of the largest seg fund companies in Canada, said earlier this week that it fired three people and put another 17 on suspension for a scheme that saw policyholders lose an estimated $4 million to $6 million. A total of 56 employees, many of them clerical workers, were said to be involved in the scheme.
Transamerica says it will make good on policyholders’ money and has fixed the design flaw.
OSFI was informed of the problem by Transamerica on Monday and is now looking into the issue. “We are definitely interested in this,” says Jacques Babin, communications manager at OSFI in Ottawa. “We are assessing the risk to companies as a whole and to policyholders, then we will see [what will happen.]”
However, Babin says OSFI has no authority to levy fines in this type of matter. OSFI is more interested, he says, in looking at the larger picture and implications of the design flaw than in one particular incident.
According to a story in today’s Globe and Mail, FSCO also plans to review every segregated fund manager in Ontario to assess their internal controls and personal investing procedures.
George Foegele, chairman, president and CEO of Transamerica, says that problems with the NN Information Technology Fund began last November when the fund was relaunched as RRSP-eligible.
Apparently, says Foegele, the fund invests in ING International Technology Fund, which is managed by ING Investment Management Inc. in Luxembourg. The Luxembourg fund invests more than 80% of its holdings in New York-based Nasdaq.
Foegele says when the fund was set up in Canada, NN Information Technology Fund was priced based on the Luxembourg price. That meant that when the Luxembourg market closed for the day — and before North American markets opened — the value of the ING Information Technology Fund was already known.
-IE Staff