FSCO finds life insurance agents failing to meet their regulatory responsibilities

“With respect to compliance with the rules, the two areas that are still a concern for us relate to conflicts of interest and failure to disclose in writing the names of the insurers that the agent represents,” Scovino said.

Specifically, FSCO found that 21% of the 214 insurance agents who were examined last year were not complying with their regulatory requirement to disclose to clients, in writing, any conflicts of interest or potential conflicts of interest associated with a transaction or recommendation.

In addition, 24% of agents were failing to disclose in writing the names of the insurance companies that they represent, as they’re required to do under the Insurance Act.

“Ideally, we’re looking for 100% compliance. Realistically, our target is 98% compliance,” Scovino said. “So, that’s an area where we are going to continue to focus.”

Although the primary focus of FSCO’s examinations in 2015-16 was to assess regulatory compliance, Scovino said that the regulator will focus more heavily on enforcement in the year ahead.

“This year, we are serious about taking action,” said Scovino. “So, where there is non-compliance, what you’re going to see is that we will be looking to take enforcement actions.”

FSCO’s enforcement activity is already up significantly this year. In the first half of 2016, the regulator imposed 68 administrative monetary penalties (AMPs) compared to 67 AMPs in all of 2015. The monetary value of AMPs levied in the first half of 2016 totalled more than $450,000 vs $150,000 in all of 2015.

“Money tends to talk; it has an impact,” said Heather Driver, director of licensing at FSCO. “We are getting more assertive in how we issue those AMPs.”

In addition to the regulatory compliance deficiencies identified in the latest examinations, FSCO found room for improvement in insurance agents’ adoption of certain industry best practices.

For example, the regulator assessed the extent to which agents conduct a needs analysis as part of the insurance sales process, provide clients with a letter of engagement, and keep records of client meetings and conversations.

The examinations found that 19% of agents weren’t consistently documenting their discussions with clients, which is a key concern, according to Scovino.

“It’s not only a good practice to protect you,” she said, “but for us, it’s a way to demonstrate that you are complying with the best practices.”

In addition, FSCO found that 29% of agents weren’t consistently conducting and documenting a needs analysis with clients. “There’s room for improvement there,” Scovino said.

Although FSCO doesn’t have the authority to impose sanctions with respect to these best practices, Scovino said that if the regulator continues to find insufficient implementation of these practices, it may recommend the establishment of formal requirements in this area.

“We are looking to see better uptake on best practices,” she said. “Our view is that if gaps continue to exist, that’s where we come in, in our role in communication with the Ministry of Finance and make recommendations about turning those best practices into law.”

The reviews also identified gaps in agents’ compliance with other legislation not governed by FSCO, including requirements related to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and the Personal Information Protection and Electronic Documents Act (PIPEDA).

Specifically, the examinations found that 20% of agents did not have the policies and procedures in place required under FINTRAC and 17% did not have the policies and procedures in place required under PIPEDA.

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