In the coming year, insurance regulators are going to be taking a closer look at whether client focused reforms (CFRs) being implemented in the securities industry, should be applied to segregated funds, as well.
“The distribution models are very different, with no insurance equivalent to the mutual fund dealer model. We need to take that into consideration.” - Ali Ghiassi
Experts on regulation gathered for the virtual 2020 Advocis Regulatory Affairs Symposium say seg fund customers should benefit from equivalent protections, but add that mapping securities industry CFRs onto insurance product manufacturing and distribution, is not without challenges.
“The distribution models are very different, with no insurance equivalent to the mutual fund dealer model. We need to take that into consideration. The CFRs have placed many obligations on dealers, this does not always translate well to the manufacture of insurance,” says Ali Ghiassi, vice president of industry affairs and government relations with Canada Life.
Aligning regulatory expectations
“We agree with aligning regulatory expectations across mutual funds and seg funds where appropriate. For instance, we joined others in the industry in calling on the CCIR (Canadian Council of Insurance Regulators) to align seg fund cost disclosure with mutual fund cost disclosure, both in terms of substance and timing. We are of the view that this was critical to avoid confusion for consumers. We are therefore very pleased with the announcement that the CCIR and the CSA (Canadian Securities Administrators) have formed a working group to pursue this alignment,” he adds. “We need to be careful (about) taking a simple cut and paste approach to applying the CFRs to segregated funds.”
The products, he says, are similar, but not identical. “While there may be similar exposure to market risks, at the end of the day, insurance products are fundamentally about mitigating risk, whereas securities holders voluntarily assume some risk in hopes of a return.”
Product design and risk distribution structure
Richard Hogeveen, vice president and chief compliance officer with Manulife, says it is important that consideration be given to the distinction in product design, risk distribution structure and regulatory frameworks governing the two industries before arriving at an appropriate outcome.
“The CSA’s client focused reforms were adopted as securities dealer requirements to ensure suitability. If you map those onto the insurance distribution model, many of those requirements and responsibilities would be split between the insurer, the MGA (managing general agency) and the intermediary. There needs to be consideration to how we adapt a CFR-type reform to our distribution model,” he says. “I am not sure that is as easy as it may sound.” Having said that, “there is no reason why customers should not benefit from similar protections and outcomes as in the security side,” he adds.