2017 COMPLIANCE MEETING

1. 2017 COMPLIANCE MEETING Heather Driver May 16, 2017 Windsor BridgeForce Financial Group

2. Agenda Government Reviews Related to Financial Services FSCO’s Statement of Priorities FSCO’s Licensing and Market Conduct Activities Global Regulatory Cooperation FSCO Enforcement Action FSCO - BridgeForce Financial Group

3. The financial services sector is critical to Ontario’s economic prosperity. In 2015, it accounted for 390,000 jobs across the province, generating almost 10 per cent of Ontario’s GDP. The sector helps finance new investment and economic activity across other sectors of Ontario’s economy. Government Reviews related to Financial Services FSCO - BridgeForce Financial Group

4. Financial Services Regulatory Authority • Enabling legislation for the FSRA was passed in December 2016. • A Secretariat has been established at MOF to oversee the transition; the Government expects to appoint FSRA Board members this spring. • The Government will continue to consult with stakeholders and review recommendations from the expert advisory panel that recommended the creation of FSRA. • FSCO continues to operate as usual pending further instruction from the Government. FSCO - BridgeForce Financial Group

5. Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives • The Expert Committee was mandated to provide advice and recommendations to the Ontario government regarding whether and to what extent financial planning and the giving of financial advice should be regulated in Ontario and the appropriate scope of such regulation. FSCO - BridgeForce Financial Group

6. Spring Budget Announcement on Regulation of Financial Planning • The Government is considering the Expert Committee’s recommendations in the context of other initiatives in Ontario’s financial services regulatory system. • It intends to work with its regulatory partners to close the gaps in regulatory oversight and specified proficiency requirements for Financial Planners. • This will include working with regulators to restrict the use of titles related to financial planning and responding to the report’s recommendation to develop a central registry of persons providing financial planning and advisory services. • The Government also fully supports the report’s recommendation to actively encourage financial literacy in Ontario. • The Government welcomes the report’s support for a universal statutory best interest duty to improve consumer protection. FSCO - BridgeForce Financial Group

7. FSCO's legislative mandate is to provide regulatory services that protect the public interest and enhance public confidence in the sectors it regulates. FSCO’s Statement of Priorities FSCO - BridgeForce Financial Group

8. 2017/2018 Statement of Priorities • Treating consumers fairly means putting the interests of consumers and beneficiaries first. It means taking the time to understand their needs and putting in the extra effort to make sure they understand the risks and their responsibilities. • FSCO expects this concept be at the core of the business and governance practices of all regulated entities. • This year, FSCO will place a strong emphasis on industry compliance with laws and regulations specifically relating to disclosure of risk and responsibility for consumers. • FSCO also recognizes the need to empower consumers and pension plan beneficiaries so they have the information they need to make decisions about their financial futures.  • FSCO has expanded its capacity to develop public education campaigns aimed at increasing financial literacy and helping Ontarians detect, reject and report fraud. FSCO - BridgeForce Financial Group

9. 2017/2018 Statement of Priorities • FSCO recognizes the need to balance moving quickly enough to support product and service innovation, with taking the time to ensure consumer interests are protected and legislative and regulatory requirements are met. • We have established a Fintech working group to work with industry in understanding, identifying and mitigating risks to consumer that might arise from new technologies. • We also continue to monitor that regulated entities have policies and procedures in place to address cyber security issues. FSCO - BridgeForce Financial Group

10. Regulating the conduct of financial institutions and intermediaries’ towards their clients – with whom they provide financial products and services. In the life insurance sector- FSCO oversees about 70 life insurance companies and 44,000 life insurance agents who sell life and health insurance products and services to Ontario consumers. Licensing and Market Conduct Activities FSCO - BridgeForce Financial Group

11. Life Licence Qualification Program (LLQP) • Updated and harmonized LLQP was adopted by all Canadian provinces and territories as of January 1, 2016 • LLQP continues to meet qualifications for a licence (O. Reg. 347/04, s. 4): course + examination • Four exam modules each 75 minutes in length, 20-30 questions per module • List of acceptable courses posted on FSCO’s website • Ontario’s examination administrator is Durham College • Ongoing update and review of the examination to ensure it remains valid. FSCO - BridgeForce Financial Group

12. New Requirement to Name Insurer(s) • Effective December 1, 2016, all licensed agents in Ontario must use FSCO’s Licensing Link to report the name of every Ontario licensed life insurer the agent represents, has a contract with and/or on whose behalf the agent sells insurance products. • This will: • provide FSCO with more market intelligence; • make it easier for insurers to fulfill their oversight obligations with agents; and • help ensure agents maintain their E&O insurance. FSCO - BridgeForce Financial Group

13. Keeping FSCO’s Agent Errors and Omissions (E&O) Insurance Records Up-to-date STATUTORY OBLIGATION • Effective June 2015, annual updating of E&O policy number and insurer • Failure to respond can result in enforcement action (fine, suspension, revocation) • Failure to update FSCO’s E&O records will lead to a public notice on FSCO’s website FSCO - BridgeForce Financial Group

14. On-line Licence Renewal Reminders • Full on-line renewal reminders • Keep your contact information and email addresses current with FSCO • STATUTORY OBLIGATION (O. Reg. 347/04, s. 5.1) • Failure to do so can lead to enforcement action (fine, suspension, revocation) FSCO - BridgeForce Financial Group

15. Life Insurance Agent Compliance Examinations • Assess Adherence to Product Suitability Industry Best Practices • Compliance with the Insurance Act and other relevant legislation • Errors & Omissions Insurance and Continuing Education requirements • Statutory written disclosures • FINTRAC (AML/CTF) and Privacy Protection Laws • One Day Offsite Examinations • Fact Finding Questions • Sampling of policyholder files to validate responses to questions • Individual Findings Report within 30 days FSCO - BridgeForce Financial Group

16. Life Insurance Agent Compliance Examinations • In 2015/2016 and 2016/2017, FSCO conducted approximately 200 life insurance agent examinations in each year • In 2016/2017, the risk selection process of life agents was enhanced over the prior year by applying specific risk criteria applicable to the industry to risk rate the population of licensed agents. High and medium risk rated agents were selected for an on-site examination. • 200 on-site examinations  61 recommendations for regulatory action • 22 follow-up desk reviews  5 recommendations for regulatory action • In 2016/2017, FSCO saw an increase in the number of recommendations made for regulatory action over the previous year due to the change in the agent selection process. As a result, the compliance rate for the 2016/2017 examinations decreased in comparison to 2015/2016. FSCO - BridgeForce Financial Group

17. Life Insurance Agent Compliance Examinations Findings FSCO - BridgeForce Financial Group

18. Life Insurance Agent Best Practice Examinations Findings FSCO - BridgeForce Financial Group

19. Life Insurance Agent Compliance Examinations- Regulatory Action FSCO - BridgeForce Financial Group

20. Insurer’s Compliance System Regulation 347/04 Agent Section 12.(1) Every insurer that authorizes one or more agents to act on behalf of the insurer shall establish and maintain a system that is reasonably designed to ensure that each agent complies with the Act, the regulations and the agent’s licence.  (2) The system referred to in subsection (1) must screen each agent for suitability to carry on business as an agent.  (3) An insurer shall report to the Superintendent if it has reasonable grounds to believe that an agent who acts on behalf of the insurer is not suitable to carry on business as an agent. • Sponsoring Insurer – first two years or contractual relationship • Primary Insurer – will be the FSCO’s compliance contact non-sponsored agents FSCO - BridgeForce Financial Group

21. FSCO Examinations of Insurers’ Compliance System • In 2016/2017 FSCO conducted two examination of life insurance companies, the findings of these examinations are still under review • The examinations focused on the policies, practices, controls and reporting in place for the insurer to meet its oversight obligations over agents • FSCO expects to target more insurer examinations in 2017/2018 to assess their agent oversight systems as well as assess the fair treatment of consumers across the organization. FSCO - BridgeForce Financial Group

22. FSCO is committed to fostering cooperation, promoting communication and information exchange and facilitating enhanced coordination to improve its use of regulatory resources, and better protect consumers. Global Regulatory Cooperation FSCO - BridgeForce Financial Group

23. FSCO works with other Regulators • Achieving harmonization across jurisdictions and sectors. • E.g., as part of CCIR, FSCO has been working since 1999 with securities regulators on aligning securities and insurance regulation to protect consumers: • Jointly developed Point of Sale (POS) disclosure documents and delivery process for both mutual funds and segregated funds (implemented for segregated funds before mutual funds). • Revised industry guidelines for IVICs to ensure equivalent consumer protection for both types of fund. • 2015-present – leading CCIR Segregated Funds Working Group to identify and address differences in regulation arising from implementation of the Client Relationship Model 2 (CRM2) in the securities industry. FSCO - BridgeForce Financial Group

24. Conventional Segregated Funds and Mutual Funds Features FSCO - BridgeForce Financial Group

25. Information Exchange and Cooperation • E.g., Canadian Council of Insurance Regulators (CCIR) Memorandum of Understanding for cooperative market conduct supervision. • Sets out protocols for regulators to effectively work together and forms basis of a national market conduct supervisory framework. • February 2017 - launched the harmonized annual statement on market conduct • Consistent, national source of data • Identify trends and risks across Canada • Deadline to file was May 1, 2017 • Cooperative Supervisory Activities • Conduct cooperative and coordinated supervisory activities each year • 2016 CCIR conducted two thematic reviews and two insurer specific reviews FSCO - BridgeForce Financial Group

26. Enforcement activities may result in suspension, termination, or revocation of an entity’s licence or registration. Enforcement activities usually involve a collaborative effort across different areas within FSCO, particularly in cases where FSCO decides to prosecute. FSCO Enforcement Action FSCO - BridgeForce Financial Group

27. Enforcement Action Since November 2016, FSCO has: • Ordered four Administrative Monetary Penalties for agents (average amount $4,300) • Ordered the revocation of four agents’ life insurance licences • Ordered suspensions on two agents’ life insurance licences • Denied six agents’ applications for life insurance licensing FSCO - BridgeForce Financial Group

28. Key Enforcement Decisions • Financial Services Tribunal (FST) case law with respect to Life Insurance Agents: • “Life insurance agents have voluntarily chosen to participate in a business that requires a licence and involves regulation. They agree to subject themselves to a regulatory regime.” (2015 ONFST 18 Molenda) • Confirmed that agents must respond to inquiries made on behalf of the Superintendent of Financial Services on a timely basis • “It is not open to the agent or any licensed insurance agent, to plead ignorance of the clear terms of the Insurance Act (Act) and the Regulations made pursuant to the Act. Not knowing the requirements of the governing legislation is simply no excuse.” • FST concluded that an AMP was only inappropriate in situations that are “unique and difficult circumstances”. These are considered exceptional circumstances and are not expected to be a common occurrence • Penalties assessed at the FST reflect an amount that combines the individual’s wrongful gain (specific deterrence) plus an amount to promote general deterrence FSCO - BridgeForce Financial Group

29. Time for questions FSCO - BridgeForce Financial Group