After the Canadian Council of Insurance Regulators (CCIR) and the Canadian Securities Administrators (CSA) developed and adopted enhanced cost disclosure reporting requirements for investment funds and performance reporting guidance for segregated funds (both were adopted in April 2023), the Financial Services Regulatory Authority of Ontario is proposing a rule that would make the guidance legally binding.
“CCIR expects each of its member jurisdictions to adopt the insurance guidance within its local jurisdiction. In accordance with the CCIR’s expectation, the proposed rule would adopt the insurance guidance into Ontario’s regulatory framework in a legally binding manner,” the rule notice states.
Embedded costs and fees
The proposed rule requires insurers to provide customers with annual statements that include performance information, alongside information about embedded costs and fees paid by insurance customers owning individual segregated fund contracts.
“Insurers are required to provide annual statements right now. The FSRA rule will increase the information insurers would be required to provide on the annual statements such as informing customers of the total cost of investing, including ongoing embedded fees such as management expenses and trading expenses,” the regulator adds in a statement about the proposed rule and consultation period. The rule also requires insurers to advise customers of their rights to guarantees and how certain actions might affect those guarantees. Ultimately, they say the measures will allow customers to compare the cost of owning segregated funds with the cost of owning other investments.
Greater transparency needed
“Ontarians need greater transparency to make informed decisions,” says FSRA’s executive vice president, market conduct, Huston Loke. “This rule, if approved, will provide individual segregated fund customers with essential information to help them determine if these investments are right for them and to ensure they understand what fees they are being charged.”
Stakeholders may comment on the proposed rule until July 26, 2024.