Assuming Ontario’s Minister of Finance approves a new Total Cost Reporting Rule recently submitted by the Financial Services Regulatory Authority of Ontario (FSRA), insurers will be required to start sending out enhanced annual statements to their segregated fund clients in 2027, for the year ending on December 31, 2026. In response to stakeholder feedback, however, the rule includes new exceptions for insurers.
Event changes (tax registration status changes, ownership structure changes and dealer changes), legacy systems and missing historical data are the three exceptions listed. Insurers using them are required to meet a number of other conditions in place of providing the enhanced reporting.
“FSRA recognizes that there are certain historical contracts where the insurer does not have the necessary data. The exception in the Total Cost Reporting Rule is intended to address this challenge,” the regulator writes in its summary of feedback received during the consultation phase of the rule’s development.
In one stakeholder’s example, it was estimated that it would cost $1.4-million to update systems for 1,157 accounts for just one product which has been closed to new business since 2010. “An insurer is not required to provide the owner with an annual statement containing information from Schedule A to the extent that this information cannot be reasonably provided by the insurer’s system, without it being upgraded,” FSRA’s summary of feedback states. “In order to report in this manner, insurers must satisfy all the conditions set out in the exception.”
The rule also stipulates how to calculate fund expenses, trading expense ratios, management expense ratios and indicates that statements must clearly provide contact information for the insurer and for the agent who sold the product, or contact information for another agent with sufficient knowledge and expertise to provide advice. Under the new rule, insurers must also take reasonable steps on an annual basis to encourage clients to make contact with their agents, explaining the importance of maintaining up-to-date information.
The rule was developed to align with securities industry rules requiring product manufacturers to provide the same total cost and performance information to their clients. If approved, the rule will require segregated fund manufacturers to provide customers with enhanced annual statements clearly disclosing total costs and investment performance. The statements must be delivered within four months of the end of each fiscal year end.
