Seg funds will be subject to disclosure framework similar to mutual funds

par The IJ Staff | December 13 2017 03:00PM


The Canadian Council of Insurance Regulators (CCIR) published a position paper Dec. 13 on segregated funds which outlines the regulators' heightened expectations regarding cost disclosure.

The regulators underline that with the implementation of CRM2 rules, mutual funds are subject to different disclosure rules than seg funds. “With the expectations outlined in the CCIR position paper being introduced, consumers can now expect a more consistent experience when purchasing segregated funds and mutual funds,” stated the regulators in an announcement.

Consistent risk classifications

Beyond the disclosure of distribution costs, regulatory expectations also include “aligning the requirements for the delivery of updated Fund Facts, establishing consistent risk classifications used for the funds and promoting an equivalent standard of care for those dealing in segregated funds and those dealing in mutual funds.” The position paper also recommends that insurance regulators consider harmonizing or adopting the Know-Your-Product due diligence requirements that currently apply to mutual funds.

In the announcement, regulators said the new expectations for segregated fund disclosure “come at a time of increasing demands and requirements for a greater degree of transparency in the financial services industry.”

The new disclosure requirements will require disclosure of costs related to the contract's insurance features as well as the distribution and administration costs of the segregated fund.

Times are changing

"Times are changing and so are consumer needs. Consumers want to understand and be able to compare the products that are available to them. But, they also want to know what it is going to cost," Patrick Déry, Chair of the CCIR said. "The new disclosure framework will ensure that consumers are informed of not only the performance of their segregated funds, but also all of the details of what it costs."

Furthermore, the position paper outlines other measures aimed at improving consumer protection. “These include an expectation that needs-based sales practices should be adopted with copies of the rationale for sales advice being provided to consumers and a requirement to disclose incentives related to travel and accommodations.”

In early 2018, the CCIR also intends to publish a prototype disclosure document for segregated funds. The prototype will provide an example of what compliance with the new disclosure requirements will look like.

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