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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? • • • • 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 • • • • • • • Fraud Misappropriation of client funds Selling without a licence or E&O Forgery Use of unlicensed associates Fronting Privacy breaches Market Conduct Problems • • • • • • 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 • • • • 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 • • • • • • • 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 • • • • 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? • • • • • • 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? • • • • 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? • • • • • 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? • • • • • • • • 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? • • • • • 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.