Regulator seeks feedback about upfront compensation models
The Financial Services Regulatory Authority of Ontario's (FSRA) is exploring the elimination of deferred sales charges (DSC) from new segregated fund contracts, and restricting their application in current ones, as part of its efforts to better safeguard consumers.
In a statement, the agency said it’s floating changes Unfair or Deceptive Acts or Practices (UDAP) Rule. The two amendments, if accepted, would restrict the issuance of new DSC-based individual segregated fund contracts by insurers on or after June 1, 2023.
Additionally, it would implement user safeguards, such as customer disclosure and usage restrictions on current DSC alternatives, that cover the use of DSCs for all individual segregated fund contracts, regardless of when the customer acquired them.
With DSCs for mutual funds being eliminated across Canada as of June 2022, this would bring the regulation of segregated funds in Ontario in line with national standards for both securities and insurance authorities.
"Insurers and agents in Ontario need to treat customers fairly and provide them with product options that suit their needs," said Huston Loke, executive vice president, Market Conduct. "These charges raise serious consumer protection concerns for customers who may need to access their own investments. FSRA is moving to stop sales of new individual segregated fund contracts that include DSCs and to ensure fairness for customers who remain in existing contracts."
This past September, the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) published a discussion paper seeking feedback from the public on whether or not to prohibit advance payments made in connection with the selling and maintenance of segregated funds and individual insurance contracts (IVICs).
CCIR and CISRO are urging Insurance companies to hold off on signing any new DSC sales contracts under segregated fund contracts and to plan on these sales being prohibited by June 2023.