Download Market Conduct Training

Market Conduct Monitoring
Training for MGA Staff
What is Market Conduct?
• The way that stakeholders in the insurance industry
behave, as a result of law, regulation, market forces
and traditions.
• Stakeholders include regulators, consumers, insurers,
Advisors and MGAs.
Who Regulates Market Conduct?
• The Provinces individually
• The Provinces collectively through regulatory
associations
– Canadian Council of Insurance Regulators (“CCIR”) includes
OSFI (federal) and provincial superintendents of insurance
– Canadian Council of Insurance Regulatory Organizations
(“CISRO”) includes Agent Councils where they exist.
Why Do They Regulate?
• To protect consumers
• To ensure the reputation and good standing of the
industry
What Do They Regulate?
• Behaviors of stakeholders, particularly insurers and
Advisors
What About MGAs?
• Currently regulated as agents except in BC,
Manitoba, Quebec and Saskatchewan, which impose
some requirements.
What Kinds of Behaviors?
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Anything that poses a risk to consumers
Anything that is an unfair trade practice
Anything that is criminal
Anything that can cast the industry in a negative light
What Part Do We Play?
• Our staff are the first line of defense and often the
first to detect bad behaviors
• By monitoring applications and inforce changes, you
have an opportunity to identify problems before they
get out of hand.
What Kinds of Problems?
• Money laundering – see the training for money
laundering.
• Privacy violations – see privacy training.
• Market conduct problems.
Market Conduct Problems
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Fraud
Misappropriation of client funds
Selling without a licence or E&O
Forgery
Use of unlicensed associates
Fronting
Privacy breaches
Market Conduct Problems
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Rebating and other inducements
Violation of holding out rules
Problems with non-face-to-face selling
Failure to disclose conflicts of interest
Tied selling
Poor disclosure or non-disclosure
Market Conduct Problems
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Undisclosed replacements
Systematic, indiscriminate replacements
Twisting
Churning of accounts
Market Conduct Problems
• Use of unqualified translators or language barriers
that cause concern about customer understanding
• Sales to seniors and other vulnerable groups concerns about compromised understanding or
predatory sales tactics
• Inappropriate leveraging
Market Conduct Problems
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Failure to provide required disclosures
Misuse of or material changes to illustrations
Incomplete comparisons
Poor or non-existent needs analysis or KYC
Material misrepresentations or omissions
Coercion or undue influence
Misleading statements to an insurer
Market Conduct Problems
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Incompetence
Lack of trustworthiness
Commission-sharing with an unlicensed individual
Unnecessary delay in delivering policies and other
documents
• Trafficking/Viaticals/IOLI/STOLI and premium
financing associated with them
Market Conduct Problems
• Poor file management and record-keeping
• Investment money parked in money market long past
the contract date and free look return date
• Market timing
• Poor personal financial management by Advisor
We Can’t Be Expected to
Identify All of This, Can We?
• No, not consistently.
• But some things are easier than others to pick out.
• You may become aware of other problems
accidentally, through complaints, word of mouth or
some other means.
Take the Next 10 Minutes
Take the list of market conduct problems on these
slides and sort them into categories:
1. Problems I can detect while performing my role.
2. Problems I’ve come across in my role, but wouldn’t
be able to detect consistently.
3. Problems I haven’t seen or don’t believe I can
detect.
How Does Your List Compare to Ours?
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Selling without a licence or E&O
Systematic, indiscriminate replacements
Churning of accounts
Misuse of or material changes to illustrations
Misleading statements to an insurer
Incompetence
How Does Your List Compare to Ours?
• Lack of trustworthiness
• Investment money parked in money market long past
the contract date and free look return date
• Market timing.
How Does Your List Compare to Ours?
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Incomplete Comparisons
Unnecessary delay in delivery
Misuse of or material changes to illustrations
Poor personal financial management by Advisor
How Does Your List Compare to Ours?
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Fraud
Misappropriation of client funds
Forgery
Use of unlicensed associates
Fronting
How Does Your List Compare to Ours?
• Sales to seniors and concerns about compromised
understanding or predatory sales tactics
• Inappropriate leveraging
• Use of unqualified translators or language barriers
that cause concern about customer understanding
How Does Your List Compare to Ours?
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Rebating
Violation of Holding Out Rules
Poor File Management and Record-Keeping
Poor Needs Analysis and KYC
Undisclosed replacements
Commission-sharing with an unlicensed individual
Twisting
Problems with Non-Face-to-Face Selling
How Does Your List Compare to Ours?
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Privacy Breaches
Other inducements
Failure to provide required disclosures
Material omissions or misrepresentations
Coercion or undue influence
How Does Your List Compare to Ours?
• Tied Selling
• Failure to disclose conflicts of interest
• Poor disclosure or non-disclosure
Our Color Wheel
• Anything in red is something that you might be able
to detect from daily review of applications and
changes, if you’re looking for them (and for some
problems, if the Advisor places a high percentage of
his business with us).
• You won’t catch them all by any means, but over
time, most of the things on this list are things that
you’ll be aware of.
Our Color Wheel
• Anything in gold is possible to detect either
accidentally or over time as you notice things that
don’t make sense.
• Your ability to detect these things is far less than
your ability to detect the red items.
Our Color Wheel
• Anything in green would be very hard to detect
through reviews.
• You may become aware of something accidentally,
because you note something, someone complains,
etc.
So Where Does This Leave Us?
• We’ve set up an escalation form for you to use for
the most common things you can detect.
• It provides space for escalating less common items.
• This isn’t science; it’s art.
Escalating Concerns
• New Business and Inforce Form to be used to report
any concerns about any questionable activities of a
Advisor relating to a new sale, a matter that arises in
servicing business or some general behavior pattern
you may have noticed. Please complete this form
and provide it to your Compliance Officer
immediately if you have concerns.
Escalating Concerns
1. A customer complaint has been received.
2. Premium amount on a current application may be
inconsistent with customer’s financial status.
Escalating Concerns
3. Patterns of:
– replacement activity
– unusual number of lapses, NPWs, not takens or free look
returns.
– selling to customers where Advisor is not licensed.
– sales to seniors where it isn’t clear that products/premiums are
appropriate.
– incomplete applications, i.e. not recording AML info.
– Sloppy handling of customer personal information.
– non-face-to-face sales of complex products or high premiums.
– overly consistent applications, i.e. same face amount, premium.
– possible attempts to market time in segregated funds.
– forgetting to move investment allocations out of Money Market.
Escalating Concerns
4. Fronting – Handwriting and Broker signatures
appear to be different.
5. Possible Forgery – customer’s signature is not
consistent with other samples or looks suspicious.
6. Advisor is not licensed where application was
signed.
7. A spot check of license and E&O shows one or both
are cancelled.
8. It appears that the Advisor is using modified
versions of insurers’ illustrations.
Escalating Concerns
9. Advisor may be churning one or more customer’s
investment products.
10. Advisor may be engaging in rebating or paying
customer premiums.
11. Advisor may be engaging in sale of investor-owned
life insurance (“trafficking”).
12. Advisor may be experiencing financial difficulties
13. Other
Trust Your Gut
• You know a lot more than you probably think you do.
• If something doesn’t look right, even if you haven’t
got a strong sense of what’s wrong, escalate it to
your supervisor or compliance officer.
Your Input is Needed
• We can modify the escalation forms and training
• Once you’ve had a chance to look at this material
and use it, provide feedback so that it can be kept
current and useful.
Your Input is Needed
• Are there things that need to be on the list that
aren’t?
• Are the items in each of the categories of red, gold
and green about right or would you switch some of
them?
• Are there other things that you can do to monitor for
market conduct behaviors?
Monitoring
• We monitor because
– we are responsible for doing this under our
contracts
– it is a prudent business activity
– we have a big part to play in ensuring proper
market conduct.
We Need to Focus on Behaviors
• Our Advisors are also our customers and we need to
be:
– Careful in our approach
– Discreet in our communications
– Respectful of Advisors’ privacy and the confidentiality of
their personal information and
– Diligent about ongoing monitoring.