Insurance regulators set more modest goals for advisors than securities administrators

While securities commissions struggle with a uniform securities law or a stripped-down continuous disclosure system, or even just a universal passport to sell securities in every province, insurance regulators, Davies said, contemplate “nothing as profound as in securities law, where they’re trying to do everything at once.”

Instead, he offered, insurance regulators “start by picking off issues and getting them harmonized one at a time.” The one success he cited was the Life Licence Qualification Program (LLQP). That took four years from inception through consultation to implementation, providing a standard across all provinces save Quebec, and as of January 1, 2003, specifying a one-step licensing system based on a mandatory pre-licensing course and a qualifying examination.

Davies argued that FSCO fosters a “culture of cooperation and consultation” that shows up in a number of its efforts. One is the harmonization of point-of-sale documents for both mutual funds and segregated funds, an initiative led by the Joint Forum of Financial Market Regulators.

It’s a common-sense approach, he said, “to bring information to consumers when they need it, and in a form that they can use.” The Joint Forum’s proposals would lead to an integrated disclosure system, so that clients could find more extensive information, such as annual reports and management discussions of fund performance on the Internet or receive them by mail. But the basic document would be a one- or two-page pre-sale document that would point to a “foundation” document, outlining a fund’s objectives, managers and strategies.

The consultation period for point-of-sale documents ended April 30, with 28 submissions. In the submissions, Davies noted, the common theme was that current disclosure documents didn’t provide clients with the appropriate information about what they were investing in. The Joint Forum is going to prepare mock-up documents to test consumer and advisor responses. Davies expects a final rule later this year.

Another issue financial regulators are tackling is practice standards that they hope will be embraced as codes of conduct for associations whose members are active in the regulated financial markets. The point, he said, is to avoid wholesale changes in securities laws in every province, while providing a standard for professionalism that can apply across all jurisdictions and regulatory regimes. Even though it would be a voluntary standard, covering such things as conflict of interest, the priority of client interests, knowing client needs and matching financial products to them, Davies argued it would also be a benchmark for non-regulated financial services participants to follow.

“Associations are expected to set a code of conduct and establish a system to promote compliance,” Davies said. “Individuals who are not members of associations would adhere to industry best practices.” While non-regulated advisors may fall in line with voluntary standards, just as important, said Davies, is that “the credibility of an association is based on the actions of its members. We as regulators will see how this initiative of voluntary standards works before deciding whether there might be an argument for taking a more enforcement-related approach.”

On regulation in general, Davies also noted that financial market administrators have moved to risk-based regulation: regulation by complaint rather than by compliance — “where you treat every intermediary or company in exactly the same fashion and conduct the same examinations on everyone.” Instead, given limited resources, regulators “look for patterns of behaviour or products that have caused problems in the past.”

Filed by Scot Blythe, Advisor.ca, sblythe@advisor.ca