The Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) have published a consultation paper for comment, related to upfront compensation paid in the sale and servicing of segregated funds and individual variable insurance contracts (IVICs).

The paper follows a February 2022 announcement encouraging companies to cease using deferred sales charges (DSC) in new sales, in line with the June 1, 2022 ban of new DSC sales in the mutual fund industry. They add that companies should expect a complete cessation of such sales in segregated funds by June 1, 2023.

“CCIR and CISRO are of the view that there is a high risk of poor consumer outcomes associated with DSCs in segregated fund sales and this form of sales charge is not consistent with treating customers fairly,” the regulators write. 

They say the purpose of the consultation paper is to fully understand compensation arrangements in segregated fund and IVIC sales and what other compensation changes might be needed. It also seeks to help regulators understand the impact a complete ban of upfront commissions might have on customers, intermediaries and insurers, and asks what a reasonable period of time might be for the industry to adapt to changes.

“Insurance regulators are committed to improving outcomes for segregated fund customers and are contemplating what other changes may be needed in upfront commissions for segregated funds. As segregated fund contracts and mutual funds are investment products with similar characteristics, insurance regulators are concerned about keeping the regulatory regimes for these products as harmonized as practical and appropriate, to avoid regulatory arbitrage in the sale of these products and to provide similar investor protection for both products,” they write in the consultation document. 

The 60-day consultation period ends November 7, 2022.