BRIDGEFORCE 2014 COMPLIANCE MEETING FSCO Compliance March 2014

About FSCO v FSCO is a provincial body with regulatory jurisdiction in Ontario and is governed by the Financial Services Commission of Ontario Act, 1997. v FSCO is an integrated regulator with solvency and market conduct oversight of the following sectors: n n n Insurance (Life & Health and Property & Casualty) Pension Plans Credit Unions and Caisses Populaires Mortgage Brokers and Administrators Co-operative Corporations Loan and Trust Companies March 2014 Financial Services Commission of Ontario 2

FSCO Regulatory Core Activities Filings & Applications Monitoring & Compliance Enforcement & Intervention Licensing & Registration Regulatory Policy March 2014 3 Market Conduct Regulation and Supervision Financial Services Commission of Ontario Regulatory Collaboration

CCIR / CISRO MFDA FMGF / OMIA OSC RIBO DICO IIROC Ministry of Finance OSFI / FCAC Other Regulators FINTRAC Police Services March 2014 Financial Services Commission of Ontario 4

Outcomes of Risk-based Market Conduct Regulation FSCO’s expectations for the conduct of individual licensees: n Fair treatment of consumers and claimants n Disclosure of information to enable consumers to make informed decisions n Compliance with laws n Good corporate governance v FSCO’s expectation for system level conditions supported by individual licensees: n Stable marketplace n Proactive identification of issues n Fair Dispute Resolution v March 2014 Financial Services Commission of Ontario 5

Compliance Regulatory and Supervisory Landscape 2004 Removed unnecessary barriers to licensing v Introduced written disclosure of actual or potential conflicts of interest (O. Reg 347/04) 2006 v Insurance industry practices review: v n n n Questionnaire Industry sponsored codes of ethics rather than impose rules Principles based n n n March 2014 Priority of the Client’s interest Disclose actual or potential conflicts Recommend suitable products Financial Services Commission of Ontario 6

Compliance Regulatory and Supervisory Landscape 2012 2013 v Agreement on Internal Trade, the Ontario Labour Mobility Act, the Ontario-Quebec Trade and Cooperation Agreement and industry requests for harmonization. v Life Insurance Product Suitability n n n v March 2014 Questionnaire Agent non-compliance activity Follow-up on improvements Canadian Insurance Regulators Disciplinary Actions database Financial Services Commission of Ontario 7

Compliance Regulatory and Supervisory Landscape March 2014 2013 v 2014 v Consultation on a Proposal to Modernize Disciplinary Hearings for Insurance Agents and Adjusters Develop a harmonized proficiency standard to replace the LLQP and the standard currently in place in Quebec v New FSCO computer system under development to handle all types of licences on line Financial Services Commission of Ontario 8

Consumer Complaint Handling System v Consumers have come to rely on a high level of complaint handling and dispute resolution service from the “Industry First Response” framework. v Ontario’s consumer complaint handling system is working well. v All stakeholders must continue to refine and strengthen industry standards for Consumer Complaint Handling Protocols. v Work with companies to ensure that complainants who have unresolved complaints are aware of the opportunity to have those complaints reviewed independently. March 2014 Financial Services Commission of Ontario 9

Complaints – Life & Health Insurance Life and A&S Products Life Investment Products 9% 12% 10% 30% 13% 19% 30% Administration , 69% 14% 30% Life - Whole 10% Life - Term 14% Life - Other 9% Disability Claims / Settlements, 36% 13% Life - Universal 69% IVICS – Seg Funds Top 5 Life Investment Causes Top 5 Life and A&S Causes 30% Marketing & Sales 4% 13% 30% 26% Licensing 11% 12% 26% 13% Administration 4% Other 47% Marketing & Sales 4% 47% 13% Claims & Settlement 13% 19% Other 12% Annuities/RSPs 26% Administration 12% Licensing 11% Product 4% Other IMPORTANT: This presentation and the data included herein is intended for limited purposes and should NOT be used by any other parties or in advertising or any publications without FSCO’s prior written consent. The information above should only be considered in the context of this illustration. March 2014 Financial Services Commission of Ontario 10

How Do We Decide What Action to Take? v v v v March 2014 Within the Superintendent’s authority to do so Public harm – number of victims or amount of money involved Type of offence Deterrence value – specific and general Seriousness of misconduct Frequency Sensitivity v v v v Financial Services Commission of Ontario Repeat occurrences or the risk of reoccurrence Timeliness Chances of success Appropriate remedy is available Matter is subject to criminal prosecution or other litigation Issue is systemic in nature Sometimes, because it is the right thing to do 11

Scope of Possible Compliance Actions http: //www. fsco. gov. on. ca/en/insurance/enforcement/Pages/agents. aspx March 2014 Financial Services Commission of Ontario 12

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Recommendations from the 2013 IMF Assessment of Canada Against the Insurance Core Principles 18. Intermediaries March 2014 a) Maintain the positive momentum in promoting appropriate harmonisation of the regulatory regimes and supervisory practices with respect to intermediaries across provinces; b) Consider establishing proportionate expectation tailored for intermediaries, focusing on achieving fair treatment outcome for policyholders; Financial Services Commission of Ontario 14

Recommendations from the 2013 IMF Assessment of Canada Against the Insurance Core Principles 19. Conduct of Business (COB) March 2014 Strengthen the current COB regimes by: a) Continuing the proactive initiatives by CCIR and JFFMR to enhance consistency of COB regulatory regimes across provinces; b) Empowering FSCO to issue enforceable rules on product development and promotion as well as require insurers and intermediaries to conduct needs analysis before providing advice and meet policy servicing obligations; Financial Services Commission of Ontario 15

Recommendations from the 2013 IMF Assessment of Canada Against the Insurance Core Principles 21. Countering Fraud in Insurance March 2014 While their enforcement work has included action against intermediaries in relation to misrepresentation of insurance cover to a customer, consider the merits of setting out both AMF and FSCO expectations of intermediaries in the area of fraud controls more clearly. Financial Services Commission of Ontario 16

Recommendations from the 2013 IMF Assessment of Canada Against the Insurance Core Principles 22. Anti-Money Laundering and Combating the Financing of Terrorism March 2014 In relation to intermediaries, consider how best AMF and FSCO should set out their AML/CFT expectations in more detail, drawing on their supervisory work and experience. Financial Services Commission of Ontario 17

Emerging Issues - Complexity 1. Products are targeted and marketed to customer groups for which they are not suitable. 2. The customer does not understand the product being targeted at them. 3. The intermediary does not understand the product. 4. The company does not fully understand how the product will perform or is unable to monitor the risks to customers. 5. The company cannot fully support a product after it is launched (systems / volumes). 6. All financial services sector market participants will be affected by global regulatory reforms and market trends. March 2014 Financial Services Commission of Ontario 18

Questions? March 2014 Financial Services Commission of Ontario 19