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Comments on Proposed Supervision Framework and Publishing Principles for FCAC Decisions

Release Date: 11/10/2016
Staff Reference: Ethan Kohn

November 10, 2016

Financial Consumer Agency of Canada
Supervision and Promotion Branch
427 Laurier Avenue West, 6th Floor
Ottawa, Ont. K1R 1B9

To Whom It May Concern:

The Canadian Life and Health Insurance Association (CLHIA) is a voluntary association with member companies which account for 99 per cent of Canada's life and health insurance business. The life and health insurance industry is a significant economic and social contributor in Canada. It protects over 28 million Canadians and makes more than $84 billion a year in benefit payments to residents in Canada (of which 90 per cent goes to living policyholders as annuity, disability, supplementary health or other benefits and the remaining 10 per cent goes to beneficiaries as death claims). In addition, the industry has $760 billion invested in Canada's economy. In total, 104 life and health insurance providers are licensed to operate in Canada.

The CLHIA appreciates the opportunity to provide our comments on FCAC's proposed Supervision Framework and Publishing Principles for FCAC Decisions. The document provides a comprehensive blueprint for industry and consumers to understand the approach to supervision adopted by FCAC. In particular, the publication of guiding principles, the risk-based approach, and the three pillars of supervision will ensure that there are no surprises for affected stakeholders.

Publication of the framework is consistent with the first of the guiding principles--transparency--and we would like to suggest one aspect where more detail would also be beneficial. Section 6.5 of the document lays out certain criteria which the Commissioner will consider in deciding whether to publish the name of an institution which has committed a violation. Two factors--the egregiousness of the entity's actions and the impact of the violation--are very similar to the criteria used to decide the amount of an administrative penalty. It would be helpful to understand how these two factors will be applied separately in each case ( AMP determination compared to a decision to reveal an institution's identity). Furthermore, consideration of FCAC's consumer protection mandate is another factor that will be given weight in deciding whether to identify a violator, though it remains unclear how, specifically, this will factor into the mix. Finally, the list of factors for consideration would appear to be non-exhaustive, since the Commissioner will consider factors "such as" the ones listed. We suggest that a comprehensive listing of criteria be provided. Without clarification of each of these points, ambiguity remains. Will the default be to identify a violator, or will anonymity generally be the default? By providing more detail, not only will the process be more transparent, but the decision would also be more defensible should it be challenged in court.

In the recent case of R. v. Kabul Farms Inc., 2016 FCA 143 (CanLII), the Federal Court of Appeal criticized the Financial Transactions and Reports Analysis of Canada (FINTRAC) for failing to explain how it arrived at a particular administrative monetary penalty. The Court saw its function as one of judicial review of an administrative decision by FINTRAC's Director, and it felt that there was insufficient explanation provided to support a decision and allow for meaningful review. A comprehensive list and weighting of factors would provide a more robust defense of the Commissioner's decision.

Our second comment relates to the risk-based approach to supervision, which we also support. As noted in the paper, FCAC tiers institutions based on the risk factors associated with their business models and product and service offerings. We appreciate that insurers have been categorized as Tier 2, or lower risk. We believe that one reason insurers can be considered lower risk of breaching their market conduct obligations is that, unlike institutions which are within exclusive federal remit, our industry is regulated by the provinces for market conduct. It would be beneficial to include a statement to this effect in the proposed framework.

On a related point, section 5.1 of the paper indicates that FCAC assesses each regulated entity focused on several factors, including effectiveness of five oversight functions: compliance, risk management, internal audit, senior management and the board of directors. First, it seems that this will only be relevant for institutions designated as Tier 1. Accordingly, it would be helpful if the description of the execution stage could clarify that point. Second, Tier 1 and 2 institutions are already subject to comprehensive and effective oversight in the area of governance both by OSFI and, for insurers, by certain provincial regulators such as the Autorité des Marchés Financiers in Quebec. We encourage FCAC to recognize OSFI's efforts in this area to minimize duplication and enhance efficiencies.

Once again, the CLHIA appreciates the opportunity to comment on the proposed Supervisory Framework.

Yours sincerely,

(Original signed by)

Ethan Kohn