National & International Regulatory Developments impacting advisors

1. National & International Regulatory Developments impacting advisors

2. Takeaway Canadian regulators are held to international standards

3. GC “It’s not unlawful - can do” • CCO “Cannot do - goes against • the spirit of the law” $1.9 billion fine Lesson from HSBC

4. Advisor Setting Standards Adopting Standards Enforcing Standards Following Standards Identification of “High-risk” Jurisdictions Next evaluation of Canada 2015 Canada removed from regular follow-up process on Feb 2014 Deficiencies addressed by Canada 2008 Evaluation of Canada ---- deficiencies identified

6. Financial/Capital Regulation Corporate Governance Regulation Business Conduct Regulation (Advisors)

7. Business Conduct • Galaxy G20 IAIS CCIR FSCO You

8. FSCO’s Mandate 1- Administer the Insurance Act 2- Enhance public confidence in the regulated sectors

9. CCIR’s Strategic Plan Ensure that the Canadian regulatory system meets all internationally agreed upon standards

10. U.S. Insurance Regulators NAIC Works Toward Uniform Global Regulatory Standards April 3, 2009 News Release

11. 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

12. WFII, the single voice of insurance intermediaries in international public affairs Advocis and IFB of Canada

13. 80% of world trade 2/3 of world population “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

14. 2009 – 2010 Market Conduct Survey of 35 countries Most extensive sets of comparative information ever collected in the field

15. The Findings 1 2 3 4 5 6 7

16. All financial consumers should be treated honestly and fairly at all stages of their relationship with providers of financial services

17. FTC

18. 26 Insurance Core Principles

19. Advisor Application FTC

20. Conduct of Business

21. Acting with care when dealing with customers Providing customers with clear information, before during and after the point of sale (disclosure) Reducing the risk of sales which are not appropriate to customers’ needs (product suitability) Other FTC Outcomes Expected from Advisors 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

22. How do you protect it? What is your most valuable asset?

23. Best strategy Reputation Building T C F

24. Risk-based Regulation FTC

25. Product Suitability tangible expression of causing harm to Risk Outcome Risk-based Regulation Managing risks to achieve outcomes

26. Product Suitability Life Insurance Agent Questionnaire FSCO is conducting a review to understand and assess the process that advisors use at the point of sale in making suitable product recommendations. Industry reference document The Approach: Serving the client through needs-based sales practices

27. 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

28. 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.

29. 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.

30. 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.

31. Conflicts of Interest

32. Business Conduct No.1 risk for the insurance regulators 2013 Insurance Banana Skins Survey

33. Managing Conflicts of Interest

34. International Standard 19.7 The regulator requires advisors to ensure that any potential conflicts of interest are properly managed.

35. 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.

37. 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] Identification of “High-risk” Advisors • Advisorsin British Columbia, Alberta, Saskatchewan, Manitoba and Quebec • are subject to a binding code of conduct tangibly expressing FTC outcomes.

38. Yes Yes No

39. We customers Substance (Governance) Form (Compliance)

40. 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.

41. Increasing the Effectiveness of Supervision Consultative Document, November 18, 2013 Guidance 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.

42. J-P Bernier