Banned by the MFDA, but still authorized to sell insuranceBy Andrew Rickard | October 31 2016 07:00AM
The Insurance and Investment Journal has discovered that some advisors who have been suspended by the Mutual Fund Dealers Association (MFDA) are still authorised to sell life insurance products in Ontario.
In 2014, Ontario’s Auditor General Bonnie Lysyk expressed concerns over the way the Financial Services Commission of Ontario (FSCO) kept watch over the province’s life insurance agents, describing the regulator’s monitoring system as “weak”. She cited one case in which the MFDA had fined an advisor $40,000 for selling unapproved securities to his clients and permanently banned him from the business, but it took FSCO another 19 months after the fact to begin its own investigation, and it still failed to gather enough evidence to deny a renewal.
Response to the Auditor General
We asked FSCO what it had done in the last two years to address the auditor general’s concerns. The regulator says it “welcomed the Auditor General’s observations” and since then has conducted a “full review and update” of its licensing systems, which include a number of changes to better monitor Errors and Omissions (E&O) policy information.
FSCO also points out that it has conducted 214 life insurance agent examinations which focused on the high-risk area of product suitability. “The compliance rate, as of March 31, 2016, was over 95%,” says FSCO.
What about the way FSCO interacts with other regulators? When an advisor is suspended or banned by the MFDA, for example, what sort of response does that trigger at Ontario’s insurance regulator?
“FSCO actively monitors disciplinary action taken by other regulators or jurisdictions as part of determining the suitability of new applicants and existing licensees. This activity can be triggered through different channels, including a complaint made by an employer or member of the public, or by disclosure provided on FSCO’s licence application forms,” came the reply from FSCO spokesperson Malon Edwards. “It may also be triggered by a notification from another regulator, particularly those that FSCO has a Memorandum of Understanding in place with to exchange enforcement information, such as the Mutual Fund Dealers Association (MFDA) or the Investment Industry Regulatory Organization of Canada (IIROC).”
Three Published Cases
We went over some of the disciplinary proceedings that The Insurance and Investment Journal has covered recently and compiled a list of cases in which the MFDA had both fined and prohibited an advisor from doing business for a year or longer. Running these names through FSCO’s agent database, we found three instances in which someone under suspension still holds an active life insurance licence. FSCO says insurance advisors are required to undergo a suitability review as part of the renewal applications, but in one case FSCO’s database reveals that the regulator renewed the advisor’s licence after the MFDA had published its ruling.
It is worth noting that none of these cases were difficult to find online. Besides the stories The Insurance and Investment Journal published about these miscreant advisors, all of the decisions were posted on the MFDA web site and the decisions also turn up when the person’s name is entered into the Canadian Securities Administrators’ National Registration Database.
No authority to issue reciprocal orders
If FSCO has a memorandum of understanding with the MFDA and monitors its disciplinary actions, how is it that advisors who have been banned for misconduct in the fund industry remain licensed to offer insurance to the public? We submitted the three cases we had uncovered to FSCO, and asked them to comment. To maintain the integrity of its investigations, FSCO says it will neither confirm nor deny the existence of any complaint or investigation, nor does it comment on any specific ongoing matters.
“FSCO is not in a position to automatically take action against someone who has been disciplined by another regulator or jurisdiction. This is because FSCO does not have authority to issue reciprocal orders based on the actions of other regulators or jurisdictions,” reads the reply from FSCO. “Every licensee is entitled to due process under the relevant legislation and FSCO has a duty to assess the merits and circumstances of each case.”
In general, when FSCO is made aware that a licensee has been disciplined by another regulator or jurisdiction, it says it conducts a review that may involve contact with the licensee as well as other parties who might have information relevant to the situation. As part of this review, FSCO says it examines the evidence and assesses whether there is a risk that behaviour exhibited in one sector of the financial services industry would be likely to occur again in another sector.
“If so, FSCO then takes action to manage the risk of any potential for harm to consumers and public. This regulatory action can take many forms, ranging from such things as conditions being added to a licence to the revocation of a FSCO licence,” says the regulator.