British Columbia's proposed regime for levying administrative monetary policiesRelease Date: 10/31/2014 Staff Reference: Ethan Kohn
October 31, 2014
Mr. Harry James, Director, Policy Initiatives
Financial Institutions Commission
2800-555 West Hastings
Dear Mr. James:
We are pleased to respond to your letter of September 9, 2014, in which you invite comments on British Columbia’s proposed regime for levying administrative monetary penalties (AMPs).
Established in 1894, CLHIA represents life and health insurers accounting for 99% of the business in Canada. The life and health insurance industry is a major contributor to B.C.’s economy, with over 15,000 British Columbians directly employed by the industry and with investments in the province of almost $70 billion. In 2013, the industry paid almost $9 billion in benefits to British Columbians through supplementary health plans, life insurance, annuities, RRSPs, and disability insurance.
Per Diem (Option 1) versus Flat Rate (Option 2) versus Escalating Flat Rate(Option 3) and Size of AMP
In terms of the three options being considered, CLHIA prefers a model which draws on aspects from the three Options listed in the proposed Guideline—Option 1-per diem, Option 2- flat rate, and Option 3-escalating flat rate. Our proposal would be a hybrid of these 3—a per diem fine up to the flat rate set out in Option 2, with this flat rate escalating for each subsequent contravention, as set out in Option 3. Whatever the methodology which is ultimately selected we offer the following suggestions:
- A warning should be issued before penalties are assessed. A warning is contemplated in Option 3 but not in the other Options.
- The fine for the first offence in Option 3 should be the same as for a first offence in Option 2 (where the latter contains no warning at present).
- If a per diem fine is imposed, there should be an overall cap to ensure that the sums payable are comparable to those under a flat rate option.
- Fines levied on individuals (as opposed to the company which employs them) should not be scaled up or down based on the size of an institution. There may be several reasons why larger institutions attract larger fines: There could be an expectation that their controls will be more sophisticated than a smaller institution; an AMP may need to be scaled up for a larger institution for the penalty to have the desired effect; and, finally, because of the non-punitive nature of an AMP, ability to pay is a factor in the quantum of penalty. (This last point is made explicitly by FINTRAC in its AMP Guidance.) None of these factors translate into a need to punish an employee of a larger institution more harshly.
In addition to signifying criteria for setting penalties, guidance can also be helpful in informing the public about other aspects of an AMP regime, including when AMPs will be invoked (relative to other instruments). The emphasis should be on ensuring compliance, and it is important not to lose sight of the fact that AMPs are merely one instrument at the disposal of FICOM. Guidance should deal with general enforcement philosophy, including that AMPs should not generally be used as a first resort. Consistent with the spirit of co-operation between insurers and regulators, it is more effective to work with companies rather than to use fines as a first resort.
We would also offer the following specific suggestions to promote a more gradual approach to enforcement:
- If Option 3--an escalating flat rate—were to be adopted, after a certain number of years, earlier contraventions would be forgiven and the penalty would revert back to the same as for a first offence.
- In our discussions, you mentioned that an AMP might not be imposed, or a lower fine could be levied, if an institution presents mitigating factors by way, for instance, of an explanation at the time a late filing is submitted. This would be in contrast to the institution having to appeal an AMP based on those factors after the AMP is imposed. This is not found in the discussion draft, and we suggest that such expectations be communicated to the industry. The advantage would be that an AMP could be adjudicated at the initial stage, and the decision-maker would not have to consider the matter on appeal.
- The AMP process is an expeditious one. A party wishing to dispute a lower-value penalty must provide the Commission with written notice within 14 days of receipt of the Notice of Penalty. For larger penalties, a complete submission is required within 30 days. Presumably, one rationale for these tight timelines is to bring disputes to conclusion in short order, and perhaps to ensure that any evidence in support of the dispute is as fresh as possible. In this context, the suggestion that FICOM would pursue a violation up to two years after the date that the infraction first came to its attention would seem to be an overly lengthy period of time.
- Both FICOM and other jurisdictions consider the enforcement history of individuals and companies as a factor in determining an AMP. Page 3 of the draft expresses this broadly as “a review of previous enforcement actions for contraventions of a similar nature by the corporation and/or individual”. We note that FINTRAC limits the number of years of history that will be considered to 5 years. We believe that circumscribing the review of historical compliance to a few years is the proper approach and that breaches that occurred in the distant past should be forgiven. Their relevance to a current incident will likely be tenuous at best given the passage of time and changes, such as those in senior management. Forgiving earlier violations is also consistent with other regulatory regimes (e.g., demerit points under highway traffic legislation).
- Filings are submitted electronically by e-mail. We request that FICOM send an immediate confirmation so as to limit potential penalties if there has been a transmission error or misplaced documents. Late or incomplete filing alert notices should be sent by e-mail. If there is only notification by mail there is the potential for penalties to mount significantly. A second notice should be sent by registered mail to the Chief Agent or Chief Executive Officer to ensure receipt.
- In its approach, the AMF in Quebec states that, “To facilitate companies’ compliance with their filing obligation, prior to the end of each fiscal period of trust companies and savings companies, the AMF prepares a list of the documents to be filed with the AMF and the dates by which they are to be filed. These documents may differ depending on the company’s activities.” CLHIA believes that a similar initiative by FICOM would greatly assist member companies, particularly smaller ones.
CLHIA appreciates the opportunity to comment on the draft Non-Compliant Filings Administrative Penalty Guideline. It is important that companies and individuals who will be exposed to potential penalties understand FICOM’s enforcement philosophy, including factors to be considered in calculating the quantum of fines. We appreciate your consideration of the additional suggestions above as you work to finalize the document.
Should you have any questions regarding our comments above, please contact me or my colleague Ethan Kohn (416-359-2010; firstname.lastname@example.org).
Yours very truly,
Vice President and General Counsel