A larger, stronger insurance regulator

In addition to the implications for insurance advisors, the changes would affect the oversight of various other financial services providers, such as mortgage brokers and pension plans.

The expert committee tasked with reviewing the mandates of the Financial Services Commission of Ontario (FSCO), the Financial Services Tribunal and the Deposit Insurance Corp. of Ontario (DICO), released its preliminary position paper in early November. The committee proposes an overhaul of the province’s existing regulatory structure, including merging FSCO and DICO to create a new, larger regulatory body called the Financial Services Regulatory Authority (FSRA).

“There’s a recognition that what’s there is broken,” says Harold Geller, associate lawyer with law firm McBride Bond Christian LLP in Ottawa. “And there’s a recognition that you can’t simply do a patch job and keep running along; bigger issues must be addressed.”

The position paper, based on recent consultations, suggests changes are necessary to protect the integrity of Ontario’s financial services marketplace amid rapid changes to the sector’s structure, technology and consumer expectations.

The paper proposes a regulator that would have a new structure, new rule-making powers and a mandate focused on consumer protection. This regulator would be operationally distinct from the government – in contrast with FSCO, which, the committee says, is “limited by the constraints of the Ontario Public Service.”

The vast scope of the changes proposed are not surprising to many in the insurance industry, given the long list of deficiencies that Ontario’s auditor general identified in a review of FSCO last year.

However, the proposals seem unnecessarily drastic to Richard Gilbert, president of Mississauga, Ont.-based Megacorp Insurance Agencies Inc.: “They’re starting all over again; they’re reinventing the wheel. I wouldn’t go setting up another operation, another bureaucracy.”

Still, insurance industry associations such as the Independent Financial Brokers of Canada (IFB) in Mississauga, Ont., are optimistic that the proposed body could be more effective than FSCO. Says Susan Allemang, head of regulatory and policy affairs with the IFB: “FSCO doesn’t seem to have the proper tools. What’s clear is that it needs a different kind of structure and needs to be able to fulfil its mandate more efficiently and more effectively.”

Granting the proposed FSRA rule-making authority would be a key change from the current system, Allemang says: “Hopefully, that will make it a more proactive regulator that can be more flexible and nimble in terms of reacting to the financial services sector.”

The committee specifies that new rules would need to be drafted with “significant public input and dialogue,” which would bring much more transparency to the existing rule-making process, Geller says.

“There will be, in my view, better rule-making,” he says. “I also see the opportunity for the agents to be involved in the development of rules and standards. That is a very encouraging thing.”

In addition to the insurance industry, the FSRA would regulate many areas that FSCO currently oversees, including loan and trust companies, mortgage brokers and pension plans. The committee also recommends that the FSRA oversee other relevant financial services sector players, such as payday lenders and debt and credit counsellors, which currently are governed by Ontario’s Ministry of Government and Consumer Services.

The committee suggests that the FSRA oversee any financial services sector self-regulatory organizations (SROs) in Ontario that are not overseen by another statutory body. That would create the framework necessary to accommodate the establishment of an SRO for financial advisors, which the Toronto-based Financial Advisors Association of Canada (a.k.a. Advocis) has proposed, says Greg Pollock, president and CEO of Advocis.

“We do see, under the market conduct pillar [of the FSRA], an opportunity to pursue a model similar to the one we’ve been espousing – [that is], the establishment of a profession for financial advisors in the province,” Pollock says.

Pollock expects the Ontario government’s review of the regulation of financial advice, currently underway, to explore such possibilities. “That [review] is going to be a significant part of this overall story,” he says, “[in] how financial advisors and financial planners are integrated into the FSRA.”

The committee also recommends that the FSRA work more closely with securities regulators. That could be helpful for advisors who hold multiple licences, Allemang says: “It’s difficult for advisors who are dual-licensed when regulatory policy is significantly different. There needs to be more co-ordination and collaboration with other regulators.”

Greater co-ordination with securities regulators could ultimately lead to stricter rules compared with the relatively looser regulatory regime facing insurance agents.

Stronger enforcement is likely to be another result, Geller says: “The agents that cause the problems in the industry are likely to find a tougher go.”

Having adequate oversight and enforcement in place is important, Pollock says, to ensure the public has confidence in the industry: “Even if you have a small number of individuals out there who are not meeting the appropriate standards, it creates a black mark for the rest of the industry. That’s what we want to avoid.”

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