The Investment Dealers Association of Canada says it will not permit brokerage firms to diversify into insurance by directly employing licensed insurance agents.

In a member regulation notice (MR0278) released today, the IDA said it considered whether to permit its firms to directly engage in insurance distribution by its employees (licensed insurance agents), where permitted by provincial legislation and insurance regulators.

However, the association said it is has identified the following concerns:

  • firms are unable to eliminate potential civil and other liabilities arising from the sale of insurance products;
  • there is no provision for quantifying and providing capital for those risks; and
  • the IDA has no jurisdiction over the insurance business, so it is precluded from providing effective regulation.

    IDA member regulation staff have taken the position that it will not recommend any firm’s application to District Council to diversify business activities involving the distribution of insurance products by employing licensed insurance agents.

    The accepted industry practice is to permit the diversification of non-securities related activities, such as the distribution of insurance products, by incorporating a separate legal entity subsidiary or affiliate to employ licensed agents.

    This corporate structure serves to allow firms to diversify their business interests and shield the member’s legal entity from responsibility of liability arising in its subsidiaries or affiliates and thereby protecting the IDA membership and the Canadian Investor Protection Fund from loss.

    http://www.ida.ca/Files/Regulation/MR_Notice/MR0278_en.pdf