NATIONAL & INTERNATIONALREGULATORY DEVELOPMENTSIMPACTING ADVISORS

TakeawayCanadian regulatorsare held tointernationalstandards

Lesson from HSBC

GC “It’s not unlawful - can do”

CCO “Cannot do - goes againstthe spirit of the law”

$1.9 billion fine

Advisor

SettingStandards

AdoptingStandards

EnforcingStandards

FollowingStandards

Identification of “High-risk” Jurisdictions

2008

Evaluationof Canada

----deficiencies

identified

Deficienciesaddressedby Canada

Canadaremoved

fromregular

follow-upprocesson Feb

2014

Nextevaluationof Canada2015

Corporate GovernanceRegulation

Financial/CapitalRegulation

Business Conduct

Regulation(Advisors)

You

FSCO

CCIR

IAIS

G20

Business ConductGalaxy

1- Administer theInsurance Act

2- Enhance publicconfidence in theregulated sectors

FSCO’sMandate

CCIR’s Strategic Plan

Ensure that the Canadian regulatory system meets all internationally agreed upon standards

U.S. Insurance Regulators

NAIC WorksToward UniformGlobal RegulatoryStandards

April 3, 2009 News Release

IAIS

• Over 200 jurisdictions in some 140 countries

• Mission: Promote effective and globally consistent regulation/supervision of the insurance industry

• Responsible for developing supervisory principles, standards and guidance for the regulators

Advocis and IFB of Canada

WFII, the single voice ofinsurance intermediaries

in internationalpublic affairs

80% ofworldtrade

2/3 ofworldpopulation

“Far more needs to be done to protect consumers against unfair, deceptive and abusive practices. We are committed to implement enhanced standards globally and consistently in a way that ensures a level playing field and avoids regulatory arbitrage.” G20 Leaders Declaration 2009 Pittsburgh Summit

Most extensive sets of comparativeinformation ever collected in the field

2009 – 2010Market Conduct

Survey of35 countries

Complex financial products

Complex decisions

Complex contracts and terms

Massive market power imbalance

Imperfect business conduct regulation

Deficient consumer redress mechanisms

Lax business conduct supervision

The Findings1

2

3

4

5

6

7

All financial consumers shouldbe treated honestly and fairly

at all stages of their relationshipwith providers of financial services

FTC

26 InsuranceCore Principles

Internationally Agreed ICPsICP 1 Objectives, Powers and Responsibilities of the Supervisor

ICP 2 Supervisor

ICP 3 Information Exchange and Confidentiality

ICP 4 Licensing

ICP 5 Suitability of Persons

ICP 6 Changes in Control and Portfolio Transfers

ICP 7 Corporate Governance

ICP 8 Risk Management and Internal Controls

ICP 9 Supervisory Review and Reporting

ICP 10 Preventive and Corrective Measures

ICP 11 Enforcement

ICP 12 Winding-up and Exit from the Market

ICP 13 Reinsurance and Other Forms of Risk Transfer

ICP 14 Valuation

ICP 15 Investment

ICP 16 Enterprise Risk Management for Solvency Purposes

ICP 17 Capital Adequacy

ICP 18 IntermediariesICP 19 Conduct of BusinessICP 20 Public Disclosure

ICP 21 Countering Fraud in Insurance ICP 22 Anti-Money Laundering and Combating the Financing of Terrorism

ICP 23 Group-wide Supervision

ICP 24 Macro-prudential Surveillance and Insurance Supervision

ICP 25 Supervisory Cooperation and Coordination

ICP 26 Cross-border Cooperation and Coordination on Crisis Management

FTC

AdvisorApplication

• The regulator sets requirements for the conduct of business to ensure customers are treated fairly.

Principle19

• The regulator requires advisors to establish and implement policies and procedures (codes) on the FTC that are an integral part of their business culture.

Standard

19.2

Conduct of Business

Oth

er F

TC O

utco

mes

Expe

cted

from

Adv

isor

sActing with care when dealing with customers

Providing customers with clear information, beforeduring and after the point of sale (disclosure)

Reducing the risk of sales which are not appropriate tocustomers’ needs (product suitability)

Ensuring that the advice giving is of a sound quality

Managing conflicts of interest properly

Handling customer complaints in a fair manner

Avoiding unfair or deceptive acts and practices

Protecting personal information on customers

What is yourmost valuable

asset?

How do youprotect it?

TCF

Reputation

Building

Best strategy

FTCRisk-based Regulation

ProductSuitability

Risk-based Regulation

causin

g harm to

tangible expression of

Risk Outcome

Managing risks to achieve outcomes

FSCO is conducting a review to understand and assess the process that advisors use at the point of sale in making suitable product recommendations.

Product SuitabilityLife Insurance Agent

Questionnaire

Industry reference document

The Approach: Serving the client through needs-based sales practices

Proactive identification of issues:

Sound knowledge of the risks which may impede desired marketplace outcomes increases the probability that solutions can be found before potential risks become major problems.

• Compliance Risk• Governance Risk• Culture Risk

International Standard 19.6

The regulator (FSCO) requires advisors to ensure that, where customers receive advice before concluding an insurance contract, such advice is appropriate, taking into account the disclosed needs of the customer.

Principle 6 - Responsible Business Conduct

Advisors should assess the related financial capabilities, situation and needs of their customers before agreeing to provide them with a product, advice or service.

New Consumer Code [to be binding]

Responsibility to Consumers:

Acting in the best interests of the consumer could include evaluating and assessing the needs of the consumer, including their financial situation and attitude to risk, and using that information to ensure that appropriate products and services are presented and discussed.

Conflicts of

Interest

2013 Insurance Banana Skins Survey

No.1 risk for the

insurance regulators

Managing Conflicts of InterestCCIR

Principles

• Priority of the customer’s interest• Disclosure of conflict or potential conflict• Product suitability

How to

• Means left to the industry (flexibility)• CAILBA, Advocis, IFB of Canada and CLHIA

developed Uniform Disclosure Protocol

ComplianceReview

• 2007-2008 CCIR/CISRO surveyed application • Survey Result: No regulation necessary

International Standard 19.7

The regulator requires advisors to ensure that any potential conflicts of interest are properly managed.

High-level Principle #6

When conflicts of interest cannot be avoided, advisors should ensure proper disclosure, have in place internal mechanisms to manage such conflicts, or decline to provide the product, advice or service.

Advisors are required to have and adhere to policies and procedures (codes) on the FTC that are an integral part of their business culture. [International Standard 19.2]

Advisors in British Columbia, Alberta, Saskatchewan, Manitoba and Quebecare subject to a binding code of conduct tangibly expressing FTC outcomes.

Identification of “High-risk” Advisors

Yes

Yes

No

• Culture

• Strategic business plan

• Protocols or approaches

• TCF core values

We customersSubstance(Governance)

Form(Compliance)

February 3, 2014

Constrained by limited resources, FSCO has adopted both a reactive and industry-wide targeted approach to supervising large numbers of insurance advisors.

The provincial authorities should continue to harmonize their COB regimes, while ensuring adequate supervisory resources for effective COB supervision. FSCO should be equipped with adequate resources and financial capacity to deal with the size and diversity of the Ontario marketplace.

Increasing the Effectiveness of SupervisionConsultative Document, November 18, 2013Guidance for regulators on Risk Culture

This paper identifies the foundational elements that contribute to the promotion of a sound risk culture. It aims to assist regulators in identifying those core practices and attitudes that may be indicators of risk culture.

J-P Bernier