Joint Forum of Financial Market Regulators Forum conjoint des autorités de réglementation du marché financier

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1 Joint Forum of Financial Market Regulators Forum conjoint des autorités de réglementation du marché financier CANADIAN ASSOCIATION OF PENSION SUPERVISORY AUTHORITIES Robert Christie Chair of the Joint Forum Chief Executive Officer & Superintendent of Financial Services Ontario Debbie Lyon Superintendent of Pensions Manitoba David Wild Chair, Saskatchewan Financial Services Commission, and Superintendent of Pensions, Saskatchewan Dennis Gartner Superintendent of Financial Institutions Alberta Finance Julian McCarthy Deputy Superintendent of Pensions Newfoundland & Labrador CANADIAN SECURITIES ADMINISTRATORS Jean St-Gelais President & Chief Executive Officer Autorité des marchés financiers Québec Stephen Murison Vice Chair Alberta securities Commission Doug Hyndman Chair British Columbia Securities Commission Les O Brien Chair Nova Scotia Securities Commission Lawrence Ritchie Vice Chair Ontario Securities Commission CANADIAN COUNCIL OF INSURANCE REGULATORS C. Michael Grist Deputy Superintendent of Insurance British Columbia James Scalena Superintendent of Financial Institutions Manitoba Suzanne Bonnell-Burley Assistant Deputy Minister New Brunswick Danielle Boulet Superintendent de l encadrement de la solvabilite Autorité des marchés financiers Québec Jim Hall Superintendent of Insurance and Financial Institutions Registrar of Credit Unions Saskatchewan CANADIAN INSURANCE SERVICES REGULATORY ORGANIZATIONS Gerry Matier Executive Director Insurance Council of British Columbia British columbia Le 17 novembre 2008 À l attention des intervenants intéressés par le Forum conjoint : Objet : Plan stratégique du Forum conjoint Le Forum conjoint renouvelle son plan stratégique tous les trois ans. Nous nous apprêtons à élaborer un nouveau plan stratégique qui entrera en vigueur le 1 er avril Dans le cadre de ce processus, nous aimerions solliciter la participation des intervenants. Le Forum conjoint a été créé en 1999 par les membres de l Association canadienne des organismes de contrôle des régimes de retraite (ACOR), du Conseil canadien des responsables de la réglementation d'assurance (CCRRA) et des Autorités canadiennes en valeurs mobilières (ACVM). Le rôle du Forum conjoint est de faciliter et de coordonner proactivement l élaboration de solutions intersectorielles et interjuridictionnelles harmonisées pour les problèmes de réglementation qui surgissent dans le secteur des services financiers. Ces quatre dernières années, le Forum conjoint a ajouté à son palmarès un certain nombre de réalisations notoires, notamment : 1. Cadre - Information au moment de la souscription des organismes de placement collectif et des fonds distincts. En octobre 2008, le Forum conjoint a publié le cadre relatif à la diffusion d information sur les fonds mutuels et les fonds distincts. Le cadre a été renvoyé aux ACVM et au CCRRA aux fins de mise en œuvre. 2. Le Réseau de conciliation du secteur financier Un cadre pour la collaboration. Le Forum conjoint a publié le cadre de travail en août Il énonce les bases fondamentales des relations continues entre les services de conciliation et les autorités de réglementation. Le cadre contient aussi des lignes directrices qui énoncent des objectifs d intérêt public pour les services de conciliation. 3. Règles de placement pour les fonds. Pendant nos consultations sur les lignes directrices relatives aux régimes d accumulation du capital, un certain nombre d intervenants ont cerné les problèmes découlant des différences entre les règles sur les placements qui s appliquent aux caisses de retraite, aux fonds mutuels, aux fonds 5160, rue Yonge, case postale 85, 17 e étage, Toronto ON M2N 6L9 Téléphone : Télécopieur : courriel : jointforum@fsco.gov.on.ca Site Web :

2 distincts et aux autres fonds communs de placement. Au printemps 2007, le Forum conjoint et ses organismes clients ont approuvé des recommandations qui élimineraient deux de ces différences. Les recommandations seront mises en œuvre par l ACOR et le CCRRA. Pour élaborer le plan, il faudra examiner les conditions actuelles de la réglementation, définir les priorités stratégiques et mettre au point un certain nombre d initiatives pour réaliser ces priorités. Nous aimerions particulièrement obtenir vos commentaires sur des problèmes précis qui existent dans le secteur et qui devraient, selon vous, être réglés par le Forum conjoint dans son nouveau plan stratégique. Les initiatives seront choisies selon les principes suivants : Les questions visées doivent concerner plus d un territoire de compétence. Les questions visées doivent concerner plus d un secteur des services financiers. Les questions visées doivent relever du mandat des autorités de réglementation en matière de régimes de retraite, d assurance et des valeurs mobilières. Les questions visées doivent avoir des résultats concerts, définissables et mesurables. Nous vous prions de bien vouloir détailler le plus possible vos propositions et d indiquer en quoi elles permettront de progresser vers l atteinte des objectifs du Forum conjoint, qui en profitera et comment les résultats pourraient être mesurés. À titre d information, nous vous faisons parvenir en annexe le plan stratégique actuel du Forum conjoint. Veuillez envoyer vos propositions au Secrétariat du Forum conjoint, avant le 19 janvier 2009 au plus tard, à l adresse indiquée ci-dessous ou par courriel à jointforum@fsco.gov.on.ca. Prenez note du fait que l intention du Forum conjoint est de rendre publiques les propositions reçues dans le cadre de ce processus de consultation. Merci de votre coopération. Meilleures salutations. 5160, rue Yonge, case postale 85, 17 e étage, Toronto ON M2N 6L9 Téléphone : Télécopieur : courriel : jointforum@fsco.gov.on.ca Site Web :

3 Le président, Forum conjoint des autorités de réglementation du marché financier ORIGINAL SIGNÉ PAR Bob Christie Secrétariat du Forum conjoint 5160, rue Yonge 17 e étage, case 85 North York ON M2N 6L9 5160, rue Yonge, case postale 85, 17 e étage, Toronto ON M2N 6L9 Téléphone : Télécopieur : courriel : jointforum@fsco.gov.on.ca Site Web :

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6 Advocis 390 Queens Quay West, Suite 209 Toronto, ON M5V 3A2 T F January 19, 2009 Dr. Bob Christie Chair Joint Forum of Financial Market Regulators 5160 Yonge Street 17th Floor, Box 85 North York, Ontario M2N 6L9 Dear Dr. Christie, Re: Joint Forum Strategic Plan Advocis, the Financial Advisors Association of Canada, appreciates the opportunity to provide input as the Joint Forum prepares to renew its three-year strategic plan. We believe that stakeholders and regulators, working jointly, can achieve far superior results for consumers and for the financial markets. Advocis is the largest and oldest voluntary professional membership association of financial advisors and planners in Canada. Our members are primarily independent owners and operators of small businesses and sales representatives of medium and large-size financial services companies, who provide comprehensive financial planning and investment advice, retirement and estate planning, and employee benefit plans. Our members offer clients a prudent long-term perspective on managing a wide array of financial risks and meeting long-term financial goals. Our members are typically duallicensed to provide life and health insurance as well as mutual funds and other securities. Establishing a three-year strategic plan is challenging, particularly given the speed with which change is taking place in the financial markets. In tandem with the change has been the increasingly important role that financial markets and financial products play in the overall health of our domestic and the global economy. The immobilization and dematerialization of securities has provided solutions to the technical barriers that once limited the volume and speed of transactions. It has also benefited consumers as the cost of products, which factor in systemic risks, are adjusted to account for the reduction in failed trades and the subsequent legal actions. The resulting interests in securities allow for the continued creation of innovative investment vehicles and products that professional financial advisors and their clients use in developing, reviewing and revising long term financial plans aimed at providing beneficial owners with financial security and independence. These innovations also place increased stress on

7 regulators who are under constant pressure to provide the necessary environment that allows market participants to maximize investment opportunities. Fundamental changes within the financial markets have highlighted the importance of cross-sectoral communications between financial services regulators, as identified problems simultaneously touch on insurance, pension and capital markets. We believe that the Joint Forum must focus their efforts on identified cross-sectoral problems that pose real risks to consumers and not expend scarce regulatory resources on perceived problems. At this time we are not aware of any such major problems. The Joint Forum has made considerable progress within the last three years in dealing with cross-sectoral problems, attributable in large to their general acceptance of a principled approach to dealing with issues. The Joint Forum in 2005 released a document entitled Principles and Practices for the Sale of Products and Services in the Financial Sector. The purpose of this document was to set out best practices that should apply to the conduct of all financial intermediaries in their dealings with consumers of financial products and services, and to provide consumers with a benchmark to assess the conduct of any financial intermediary with whom they currently have a relationship, or are considering establishing a relationship. Securities and insurance regulators across Canada unanimously endorsed this paper. The eight principles and practices outlined by the Joint Forum in the paper are: 1. Interests of the Client 2. Needs of the Client ( Know Your Client ) 3. Professionalism 4. Confidentiality 5. Conflicts of Interest 6. Disclosure 7. Unfair Practices, and 8. Client Redress. In its backgrounder to the Principles document, the Joint Forum states that its preference is to develop voluntary principles that intermediaries would adopt. Therefore, it set out to create principles and practices that industry associations and associations representing intermediaries would endorse on behalf of their members. For this reason, the principles and practices are expressed as high-level principles rather than specific details. The Joint Forum states that a benefit of this approach is that they are general enough to dovetail with the existing codes of industry associations and voluntary codes can complement requirements set down by law and can be adapted to changing circumstances more quickly than a statutory code can. Once the principles and practices are widely adopted by industry associations, the Joint Forum is confident that they Advocis, CLU and APA are trademarks of The Financial Advisors Association of Canada. 2

8 will come to be seen as the norm. Competition and market forces will operate to encourage higher standards to the benefit of consumers. We fully support the sentiments of this document, however, our experience suggests that the message has not been fully accepted by all regulators and most certainly not by the self regulatory organizations, namely the Mutual Fund Dealers Association of Canada (MFDA) and the Investment Industry Regulatory Organization of Canada (IIROC). On a going forward basis, we believe that the Joint Forum must ensure that this general principle is applied with consistency, where warranted. We believe that the Joint Forum should ensure that principles-based regulation is employed to address identified market failures, information asymmetry, and consumer protection in achieving the desired regulatory outcome. We recognize that there are times when prescriptive policy intervention may be necessary, however, we feel that regulators are not fully utilizing the regulatory tools available to them in achieving policy objectives and are resorting to prescription prematurely. Misplaced prescriptive regulation has the net effect of removing creativity and innovation that market participants can provide. Often, prescriptive regulation is applied as a result of regulators incorrectly identifying problems, failing to consider the least intrusive means of achieving the policy objective, and the markets ability for self-correction in many cases. In cases of consumer protection, information asymmetry or market failure we believe that more coordination is required between, regulators, including SRO s, and market participants in finding the proper regulatory response and solution to properly identified problems. A principles-based approach to regulation is one such means. We commend both FSCO and CCIR for continuing their tradition of consulting with stakeholders at the early stages of policy development. We believe that this is extremely important since it is in the early stages of developing new policy directions where stakeholders input is the most valuable. It is our hope that other Canadian regulators will follow the example set by insurance regulators as a model for undertaking meaningful public consultation with consumers, financial advisors and other market participants. This approach has resulted in effective implementation of principles-based regulation as it pertains to managing conflicts of interest in the life and health insurance industry. Advocis would urge the Joint Forum to revisit its commitment to the use of principlesbased regulation to achieve desired outcomes. The core regulatory principles that should guide the actions of regulators are: act only in the case of market failures, information asymmetries or matters of consumer protection. Regulators must identify through detailed consultation and analysis the true nature of the problem, and employ principles-based regulatory responses unless there is clear evidence that absent a prescriptive policy response, harm will be done to the market or consumers. It is also critically important that filing requirements allow regulators to gather information that will help them determine if the policy response has properly identified and corrected the identified problem. Built into every policy instrument should be a Advocis, CLU and APA are trademarks of The Financial Advisors Association of Canada. 3

9 requirement for a five year review. If the evidence gathered through the filing requirements indicate that a policy instrument has not achieved its stated purpose, or has ancillary effects that are harmful or inadvertently restrict market practices, then the policy must be set down for immediate review. The review should consider whether the regulation is justified, needs amendment or should be repealed. As financial markets are increasingly international, it is imperative that we regulate in a manner that encourages innovation and investment without compromising consumer protection. In striking the right balance between investor protection and increased market efficiency there is a need on the part of regulators to properly identify issues and employ a measured response in achieving the desired outcome. In conclusion, we feel that the Joint Forum has had a positive impact on cross-sectoral issues, but would urge you to continue to focus the limited regulatory resources on dealing with identified problems and through a principles-based approach. We would be pleased to discuss these matters with the Joint Forum further. Sincerely, Greg Pollock President and CEO Advocis, CLU and APA are trademarks of The Financial Advisors Association of Canada. 4

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12 Submission to The Joint Forum Strategic Plan by The Canadian Association of Financial Institutions in Insurance (CAFII) January 2009

13 The Canadian Association of Financial Institutions in Insurance (CAFII) is pleased to contribute to the Joint Forum Strategic Plan About CAFII CAFII membership is comprised of insurance companies licensed in all Canadian jurisdictions. CAFII was established in 1997 to represent insurance companies involved in selling insurance through a variety of distribution channels traditional channels such as agents, brokers, and travel agents, as well as alternate direct and electronic methods call centres, direct mail, the Internet, and, for creditor and travel insurance, branches of deposit-taking institutions. These non-traditional channels provide an important alternative to consumers by offering them convenient access and a lower cost alternative to the traditional broker channel. The evolution of the insurance marketplace in the area of non-traditional direct and electronic distribution significantly improves consumer access to protection products. CAFII members serve a significant share of the Canadian insurance marketplace, collectively facilitating insurance protection to more than 10 million Canadians. CAFII members offer life and health, property and casualty, travel and creditor insurance, as well as reinsurance. Our diversity enables us to take a broad view of the regulatory regimes governing the insurance marketplace. In this submission, we will set out background information on the evolution of the marketplace and some of the challenges our members face. We then offer several recommendations for items to include in the Joint Forum s strategic plan. Evolution of the Insurance Marketplace The insurance needs of Canadians have evolved dramatically over the past decade. The marketplace has experienced ongoing channel and product innovation. Canadians across the spectrum of society are now served by multiple distribution channels, providing products tailored to meet their unique needs. Products offered through direct channels have been designed to meet customer needs in the channel, are simplified with fewer features enabling more immediate and affordable coverage and are easily communicated by well trained representatives supported by detailed disclosure documents. Group products are well suited to the requirements of deposit-taking institution branches and direct channels and the needs of lower to middle income households. Among online consumers who purchased life insurance or annuities, 30% used non-traditional channels, e.g. deposit taking institutions, mail, phone and internet 1 Consumers now depend on the internet for access to information and advice: Among online consumers who sought out information about insurance most believe that the internet is a good source of insurance information (84%) and insurance advice (61%) 1 Among online consumers the internet is the 3 rd most valued information source for insurance and annuities ahead of books, magazines, friends and family 1 1 LIMRA, Consumer Internet Use for Insurance and Investments, 2003 January 19, 2009 CAFII Submission to Joint Forum Strategic Plan

14 Broader access to protection through alternate channels has enabled a segment of the population access to protection that they would otherwise not have. Lower to middle income households in Canada have traditionally been less well protected 2 : 42% do not own any individual life insurance (vs. 26% of higher income households) 71% do not have a personal life insurance agent (vs. 58% of higher income households) more than a third feel they need more life insurance (vs. 15% of higher income households) The traditional distribution agent model focuses on more affluent customers at the expense of lower and middle income Canadians, as evidenced by: a steady decline in sale of individual life insurance policies over 10 years 3, while the average face amount of new individual term life insurance policies increased significantly from $205K in 1998 to $350K in Alternative channels and offers have been developed to reach segments of the population that are economically unfeasible through traditional methods or are not permitted by regulation. Direct and electronic distribution are now established and valued channels for Canadian consumers, distinguished from traditional channels by the following features: Simple product design Straightforward enrolment process Affordable protection products Convenient and broad access Focus on meeting the needs of the underserved lower and middle income market Immediate and reliable coverage The insurance regulatory environment must ensure that consumer needs for direct and electronic access to protection are effectively met; regulation must not unduly impact consumer access to protection. Multi-jurisdictional Licensing Challenges Financial institutions in insurance and in other financial sectors offer a number of their products and services on a national basis through call centers. With distinct provincial regulations, institutions must deal with a patchwork quilt of regulation and licensing requirements across provinces. Variations in regulatory requirements across Canadian jurisdictions increase costs and administrative burden for multi-province distribution. CAFII would like the regulatory environment to recognize the importance of the telemarketing channel and relieve it of this unnecessary burden. Currently, for individual life insurance, call centers employ agents who must hold licenses in all jurisdictions serviced by the center; up to 12 jurisdictions. It is administratively costly and cumbersome to manage the licensing for 12 jurisdictions (including separate background checks, monitoring expiry dates for each jurisdiction, completion of forms and compliance with multiple continuing education and errors and omissions insurance requirements). One company 2 LIMRA, TOPIC Study, LIMRA, Facts, Life Insurance Awareness Month, September LIMRA Canadian Individual Life Sales January 19, 2009 CAFII Submission to Joint Forum Strategic Plan

15 estimated that their 20 person call centre generated 12,000 pieces of paper related to licensing in This is costly and time consuming. The reality of the call center operation is that customers may contact a center several times over the course of a transaction, to ask questions, to complete the transaction, or to change coverage. In each case, if the answering agent is not licensed for the jurisdiction of the caller, the call must be transferred and queued for the appropriate agent, even though the answering agent would be fully competent to handle the caller s needs. In many cases a caller may be asked to call back later because the queue is too long. From an operational perspective, some companies choose to simplify their operations by offering products in only select jurisdictions. In such cases, call centres will license all agents in key markets, but only a portion of the agents will be licensed across the country. Since the key markets selected usually represent larger markets, this may impact availability in smaller markets and population segments (rural, low and middle income, young families) that are already underserved by the traditional face to face channels. As the average age of traditional agents increases and retiring agents are not replaced at the same rate in the face-to-face distribution channel, there is an increased demand for access to life insurance products through call centres. Insurers have not been able to achieve the growth in these channels that customer demand warrants, for reasons directly related to multi-jurisdictional licensing challenges. The situation also poses risks to agents and companies in navigating the system, mainly the possibility of errors and inadvertent non-compliance. While the problems noted above are experienced by insurers, we believe the same issues are faced by all financial institutions who offer products by licensed representatives into multiple jurisdictions. Recommendations for Items to Include in the Joint Forum Strategic Plan Mutual Recognition of Licenses CAFII recognizes and appreciates the work that CCIR members have achieved so far through harmonized training standards and development of a common application. However, we recommend that the Joint Forum promote mutual recognition of licenses for financial services providers. Ideally, if an agent is duly licensed, this license should be recognized by other Canadian jurisdictions with no further requirements or local license needed other than registration and fee payments. We recommend that the Joint forum pursue reciprocal licensing across all financial services. Labour Mobility There are now a number of inter-provincial trade agreements; Alberta and British Columbia with Trade Investment and Labour Mobility Agreement (TILMA), the Ontario-Quebec agreement, and the Agreement on Internal Trade (AIT). We note that the AIT is mandating full mobility of labour. According to the Council of the Federation in April 2008, the premiers of each province committed to the following: Any worker certified for an occupation by a regulatory authority of one province or territory shall be recognized as qualified to practice that occupation by all other provinces and territories; and January 19, 2009 CAFII Submission to Joint Forum Strategic Plan

16 Such recognition shall be granted expeditiously without further material training, examinations or assessment requirements. CAFII supports and encourages all trade agreements to recognize providers of financial services, in particular, insurance agents and adjusters in labour mobility clauses. CAFII recommends that the Joint Forum promote the labour mobility goals of interprovincial trade agreements with a view to ensuring barriers to labour mobility in financial services are removed for all provinces. Electronic/ Internet Licensing CAFII would like to see the use of Internet licensing administration, such as is available in Ontario, offered in every jurisdiction. This system permits electronic applications and tracking systems for new and renewal licenses. Such electronic systems reduce paper flow, speed up processes and create conditions for increased mutual reliance. Regulators in a number of provinces have advised CAFII that they are considering developing and implementing electronic based licensing systems. If regulators coordinated their systems, it would facilitate efficient use of resources as well as ensuring consistency and harmonization of license requirements. Opportunities exist to implement electronic systems in individual jurisdictions where they are not already in place, as well as coordinating electronic systems regionally or nationally. The securities National Registration System is an example of a national approach Electronic Commerce In several places in financial institutions legislation, there are requirements for communication in writing or words to that effect. CAFII would like financial institutions legislation to reflect that not all sales are paper based or done in face-to-face transactions. Customers arrange insurance through call centers for the convenience and efficiency which they offer. Having requirements for the provision of written communication may add cost and time delays to transactions through such channels. CAFII believes that relevant legislation should be updated to reflect the increasing prevalence of verbal and electronic forms of communication in the business environment. For such electronic transactions we therefore recommend that legislation be changed to not require documents to be delivered in hard copy or for requirements to be in writing. CAFII appreciates the opportunity to provide input to the Joint Forum s strategic plan. We would be pleased to answer any questions you may have regarding this submission. Yours truly, Rick Lancaster, Chair January 19, 2009 CAFII Submission to Joint Forum Strategic Plan

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19 Canadian Life and Health Insurance Association Inc. Association canadienne des compagnies d assurances de personnes inc. Frank Swedlove President January 19, 2009 Dr. Bob Christie Chair Joint Forum of Financial Market Regulators 5160 Yonge Street 17th Floor, Box 85 North York, Ontario M2N 6L9 Dear Dr. Christie: Re: Joint Forum Strategic Plan We appreciate the opportunity to comment as the Joint Forum begins deliberations for a new three-year strategic plan to take effect April 1, In your letter of November 17, 2008, you invited proposals for specific marketplace problems that the Joint Forum might tackle that would advance the Joint Forum's goals. We see this as an excellent opportunity to revisit first principles. The driving force behind the Joint Forum, as we understand it, was the importance of cross-sectoral communication among financial services regulators to improve understanding of each others' regulatory regimes and to position financial services regulators to work cooperatively when a cross-sectoral problem arises. The intent was that this would lead to greater harmonization among regulatory approaches, where appropriate, and streamlining of regulatory approaches where unnecessary duplication existed. At this point, we are not aware of any cross-sectoral issues that would require the attention of the Joint Forum. Indeed, given the market turmoil and larger issues at play, it may well be that each industry and its regulators need to stay focused for the moment on matters that fall directly within their authority. It should not be necessary and, indeed, might even be counter-productive, for the Joint Forum to act in the absence of a cross-sectoral problem. Each of the three sets of regulators (pension, securities, insurance) is continually working with their own industries on approaches and solutions to industry-specific issues. 1 Queen Street East Suite 1700 Toronto, Ontario M5C 2X9 Tel: (416) Fax: (416) , rue Queen Est Bureau 1700 Toronto (Ontario) M5C 2X9 Tél.: (416) Fax: (416) Toronto Montreal Ottawa

20 From the perspective of the life and health insurance industry and its consumers, we commend insurance regulators, through the Canadian Council of Insurance Regulators, for taking a responsible and responsive approach to regulation, an approach which is reflected in public confidence and the scarcity of any significant problems. The industry has long had a respectful and constructive working relationship with its regulators and continues to work on industry-specific issues. Layering on a Joint Forum approach adds time and complexity to the process. We would suggest that should the Joint Forum be entertaining any possible projects, now or in the future, they should be examined carefully against the following criteria: (1) differences in regulatory approaches, in and of themselves, do not create the necessary condition for a Joint Forum project; rather, there needs to be evidence that such differences create a problem for consumers; (2) any project needs to be subject to full consultation with all affected stakeholders; (3) any recommendations developed at the Joint Forum level need to be based on principles; how things are subsequently implemented should be left to the regulators and their respective industries. We thank you for the opportunity to provide input to the process, and would be pleased to discuss further at your convenience. Yours sincerely, Original signed by Frank Swedlove FS:241 2

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24 30 Eglinton Avenue West, Suite 306 Mississauga ON L5R 3E7 Tel: (905) Website: January 19, 2009 Bob Christie, Chair Joint Forum of Financial Market Regulators Joint Forum Secretariat 5160 Yonge Street, 17 th Floor, Box 85 North York ON M2N 6L9 Sent by Dear Sirs/Mesdames: Subject: Joint Forum Strategic Plan Independent Financial Brokers of Canada (IFB) welcomes the opportunity to provide input to the Joint Forum as it considers its strategic priorities and initiatives for the period Initiatives undertaken by the Joint Forum can have a direct impact on our members because most are insurance licensed, mutual fund representatives or Approved Persons, and securities registrants. As well, many members offer financial planning services to their clients, including provisions for retirement. IFB appreciates the difficulties faced by pension, securities and insurance regulators as Canadians from all walks of life struggle with the enormous impact the current economic downturn has had on the financial marketplace, including our savings, retirement plans and everyday life. Our suggestions reflect this current reality. We trust they will be helpful as you draft your Strategic Plan. 1. Financial Planning As you will be aware, the Investment Industry Regulatory Organization of Canada (IIROC) issued a public consultation paper in August, 2008 requesting comments on its proposal to define and regulate the financial planning activities of its registrants. IFB, along with a number of other organizations, expressed deep concern over this proposal in our formal submission. In summary, we objected to the application of the Rule to client services rendered outside of securities and to the fragmentation that will be created if individual regulators independently define how, or if, financial planning should be regulated in their sector. 1

25 Clearly, financial planning in many forms is carried on by insurance brokers, securities advisors and mutual fund representatives, among others. Indeed, these advisors would be remiss in their duty to their clients by not considering all the relevant details of their financial situation before developing an investment strategy or recommending a product. Isolating this for securities registrants into an activity that their dealer would become responsible for, including overseeing and determining the appropriateness of the advisor s methodology and advice, has many practical drawbacks and extends their authority into areas where IIROC and their dealer members have no jurisdiction. For example, many of our members are licensed to provide multiple financial services, such as life/health insurance and securities. It is extremely troubling to us and our members that under the IIROC proposal, the securities dealer would become responsible for oversight of the advisor s financial planning activities, even when these activities are not related to securities and conducted outside of the dealer. Furthermore, if this proposal is implemented, similar proposals will no doubt be raised individually by other regulators, such as the MFDA. It is not rational or efficient for industry participants or clients to be forced to understand and comply with multiple approaches to financial planning regulation. IFB recommended in its response to IIROC that the issue of financial planning regulation should be dealt with by the Joint Forum where any approach would benefit from the cross-sectoral representation of its members. We continue to see value in this recommendation and urge the Joint Forum to consider the merits of such a co-ordinated solution. 2. Improve upon the existing regulatory framework. In our view, this is not the time to introduce new rules, policies or regulations - beyond those essential to preserving the integrity of the marketplace - given the prevailing level of economic uncertainty and yet undetermined impact of it into the future. We have long argued, in various submissions to regulatory authorities, that new compliance requirements frequently have an unequal impact on small, independent firms and their advisors as compared to large financial institutions. Large financial institutions can absorb the increased cost of compliance more easily than small, owner operated businesses. This creates an unequal playing field one which may lead to a serious reduction in the number of independent advisors available to consumers in communities across Canada. It is our firm belief that if this is allowed to happen, the result will be fewer product choices for consumers, less access to independent financial advice and an overall reduction in consumer protection as more advice and product selection will come from proprietary sources of information. Canada s Competition Bureau has developed six principles to help determine whether a regulatory framework is unduly restrictive, thereby disadvantaging consumers. They are as follows: Restrictions should be directly linked to clear and verifiable outcomes. 2

26 The regulation should be the minimum necessary to achieve stated objectives. That is, the regulation should only comprise what is reasonably required to protect the public and should not restrict competition any more than is necessary to achieve the desired objectives. The regulatory environment should neither favour nor constrain the ability of particular market participants to compete in the market. The regulatory process must be impartial and not self-serving. A regulatory scheme would also allow for periodic assessment of the regulations effectiveness and be subject to regular reviews. Finally, a primary objective of the regulatory framework should be to promote open and effective competitive markets. 1 We ask the Joint Forum to be cognizant of the potential for regulatory measures to reduce the competitive position of independent advisors and the impact that this will have on Canadians, as it considers its strategic priorities. Opportunities currently exist for the Joint Forum to evaluate existing inter-provincial barriers and streamline legislative and regulatory requirements between provinces. Reducing regulatory barriers, and the associated costs of complying with different jurisdictional requirements, will assist our members to continue to provide much needed professional advice and services to their clients throughout these difficult times. 3. Consumer Education We believe that consumer education is a cornerstone of consumer confidence and is a benefit for those who use a professional financial advisor. Our members, for example, pride themselves on the personalized service they provide to clients so they understand how any product sold fits into their financial plan. However, many Canadians do not use the services of a financial advisor. Sponsoring educational information and tools for consumers may interest the Joint Forum because thoughtful financial planning must take into account, among other considerations, replacement income at retirement, investment income and insurance needs. Consumers who are well-equipped to understand this process and actively participate in the development of their own financial plan will be more successful in evaluating whether the advice they receive is appropriate and protecting themselves against unsuitable investments. Specific educational initiatives which help consumers to become knowledgeable, responsible investors will position them well into the future. 1 Competition Bureau Canada, Draft Information Bulletin on Trade Associations, Section 3.7.1, October

27 It is interesting to note that the Financial Services Authority in the U.K. has issued a discussion paper 2 aimed at exploring how to empower consumers with increased knowledge and understanding of the financial marketplace so they can participate more fully in investment decisions and take more responsibility for their financial wellbeing. Briefly, the elements the FSA is looking at when considering the responsibilities of the consumer are: Reasonableness (the overriding principle that consumers have a responsibility to act in a reasonable and accountable way) Good faith (not acting in bad faith by providing misleading or wrong information and not taking advantage of this wrongdoing) Participation (make a reasonable effort to understand the advice and the information provided) Disclosure (disclose relevant facts accurately and level of risk tolerance, as well as other details that could reasonably be expected to affect the advice offered) Action (promptly report complaints and act to mitigate losses) Including these elements as part of an overall educational initiative aimed at consumers, we think, fits well with the parameters identified by the Joint Forum. 4. Point of Sale Disclosure for Mutual Funds and Segregated Funds Certain of the delivery requirements inherent in the Point of Sale disclosure regime will be problematic for our members and may lead consumers to choose investment options with less onerous delivery requirements. The details of our specific concerns have been communicated to the Joint Forum in previous consultations on this subject and we will continue to work with the life insurance and mutual fund industries to seek out appropriate solutions. 5. Closing Remarks To summarize the foregoing, it is our view that exploring how - or if - financial planning activities should be subject to regulatory oversight is best sited with the Joint Forum because of its cross-sectoral composure. Furthermore, we feel it is essential that the Joint Forum subject any newly proposed project, initiative or regulatory change to a strict multi-disciplinary evaluation, including a comprehensive cost-benefit analysis, to ensure that only those proposals where there is an established and proven need are endorsed. This will ensure stakeholders in each of the financial sectors represented by the Joint Forum can count on responsible regulation, not more regulation. Where a need for further regulation exists, we support a principles-based approach, which allows regulators to set guiding principles and industry stakeholders to develop solutions, appropriate to their sector. 2 Financial Services Authority, Discussion Paper on Consumer Responsibility, December

28 IFB is pleased to have offered these comments on behalf of its members and looks forward to participating in future consultative opportunities as they arise. Yours truly, John Whaley Executive Director 5

29 BY ELECTRONIC MAIL: January 19, 2009 Dr. Bob Christie Chair, Joint Forum of Financial Market Regulators 5160 Yonge Street 17 th Floor, Box 85 North York, Ontario M2N 6L9 Dear Dr. Christie: Re: Joint Forum of Financial Market Regulators - Strategic Plan We are writing to provide the comments of members of The Investment Funds Institute of Canada ( IFIC ) with respect to the Joint Forum Strategic Plan We welcome this opportunity to contribute to the development of the strategic plan. As noted, the Joint Forum was established as a mechanism through which cross-sectoral regulators could co-ordinate and streamline the regulation of financial products and services in Canada. We agree with these objectives, and believe that the Joint Forum can continue to provide significant benefits to the Canadian financial services regulatory system by broadening regulators knowledge and understanding of the financial services industry through the sharing of information and the monitoring and evaluation of financial sector regulation. We do not, however, see any new policy initiatives that we believe would warrant the Joint Forum s attention at this time. Thank you for providing us with an opportunity to comment on this important matter. If you have any questions, please contact me directly by phone at or by at jdelaurentiis@ific.ca or Jon Cockerline, Director, Policy Dealer Issues by phone at or by at jcockerline@ific.ca. Yours truly, THE INVESTMENT FUNDS INSTITUTE OF CANADA By: Joanne DeLaurentiis President & Chief Executive Officer

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32 MOUVEMENT D ÉDUCATION ET DE DÉFENSE DES ACTIONNAIRES (MÉDAC) 82 rue Sherbrooke Ouest, Montréal (Québec) H2X 1X3 Tél : Cette lettre suivra par la poste Montréal, le 15 janvier 2009 M. Bob Christie Président du Forum conjoint, Directeur général et Surintendant des services financiers Commission des services financiers de l'ontario 5160 rue Yonge, 17e étage Boîte 85 North York ON M2N 6L9 jointforum@fsco.gov.on.ca. Objet : Propositions d orientations pour Monsieur Christie, Cette lettre a pour but de vous transmettre nos suggestions quant aux orientations stratégiques que vous devriez privilégier au cours des trois prochaines années. Permettez-moi en premier lieu de rappeler que le Mouvement d éducation et de défense des droits des actionnaires («MÉDAC») est un organisme à but non lucratif fondé depuis maintenant plus de dix ans et que j ai l honneur de diriger. Organisme unique au Québec et au Canada, il vise à protéger les droits des petits actionnaires et épargnants en ayant recours aux principaux moyens suivants : - la préparation et la défense de propositions lors des assemblées des actionnaires afin de s assurer que les mécanismes de saine gouvernance soient en place pour mettre un terme à la délinquance financière ; - la formation de ses membres en concevant des cours visant à leur permettre à s initier aux rouages des marchés financiers tout en les renseignant sur les stratégies de protection et de défense de leurs droits ; - le dépôt de mémoires auprès des gouvernements et des autorités réglementaires afin de les saisir des préoccupations de ses membres et formuler des recommandations; soulignons à cet égard, notre participation aux exercices de consultation suivants : - la protection des épargnants dans le domaine des fonds communs de placement ; - le réexamen de l information à fournir au point de vente des fonds communs ; - la réforme de la Loi des compagnies (Québec) ; - l encadrement des planificateurs financiers ;

33 - le projet de regroupement des Bourses canadiennes ; - les turbulences du marché et la crise financière. - la publication de brochures, dépliants, bulletins et autres documents ; - un service d alerte et d information de ses membres et du grand public pour les orienter et favoriser en eux des réflexes à la fois de solidarité et de prévention. Dans le contexte de crise financière qui prévaudra au cours des prochains mois et des prochaines années, nous vous recommandons donc les orientations suivantes : - une réglementation harmonisée visant à renforcer la protection de l épargnant investisseur et à accroître sa confiance dans nos institutions ; - une meilleure protection des épargnants et des investisseurs en cas de fraude et de malversation en analysant l opportunité de créer un fonds canadien d indemnisation pour l ensemble des services financiers ; - des actions d harmonisation des pratiques de saine gouvernance au sein des diverses institutions financières canadiennes axées sur les meilleures pratiques en la matière ; - l établissement d un processus continu de consultation des organismes canadiens de protection des droits des consommateurs et des petits investisseurs ; - la sensibilisation de tous les consommateurs de produits financiers à leurs droits et à leurs responsabilités en la matière tout en les invitant à la plus grande prudence dans leur quête de rendements exceptionnels pour contrer les pertes financières occasionnées par les derniers mois ; à cet égard, nous joignons notre mémoire déposé auprès des Autorités canadiennes de valeurs mobilières (ACVM) qui présente des recommandations afin d accroître la protection des consommateurs. Nous croyons que la poursuite de tels principes pour l encadrement de vos efforts d harmonisation permettra de rehausser la qualité de la réglementation actuelle tout en contribuant à augmenter son efficience. Je demeure disponible afin de répondre à vos questions et vous prie d agréer, Monsieur Christie, l expression de mes meilleurs sentiments. Le Président Claude Béland

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36 January 14, 2009 Bob Christie Chair Joint Forum of Financial Market Regulators Joint Forum Secretariat 5160 Yonge Street 17th Floor, Box 85 North York, Ontario M2N 6L9 Dear Mr. Christie: The Pension Investment Association of Canada (PIAC) is pleased to have been invited to assist the Joint Forum in identifying specific problems in the market place that we believe should be addressed by the Joint Forum in its new strategic plan. PIAC has been the national voice for Canadian pension funds since Senior investment professionals employed by PIAC's member funds are responsible for the oversight and management of over $940 billion in assets on behalf of millions of Canadians. PIAC's mission is to promote sound investment practices and good governance for the benefit of pension plan sponsors and beneficiaries. From 2005 to 2007, the Pension Investment Association of Canada (PIAC) was pleased to participate in the Industry Working Group which submitted recommendations to the Joint Forum on developing reforms to investment rules arising in the interaction of pension, insurance and mutual fund rules. One theme heard repeatedly from our members is the need to re-invigorate the process for broad overhaul of pension rules in this changing environment. We believe that the Working Group stopped short of fully addressing these concerns, and that resolution of some of the specific rule issues addressed by the Working Group has led to deferral of broader review of changes (e.g. the implementation of prudent person standards) that might benefit pension plans and reduce the burden on government. We do support your objective of continuous improvement and strongly urge you to push forward with a broader agenda. 39 River Street, Toronto, Ontario M5A 3P1 Tel Fax info@piacweb.org Web

37 2 We understand that the position of the Joint Forum is that the work to streamline capital accumulation plan investment rules has been completed with the harmonization of two specific rules (i.e. the concentration rules based on market value, and the concentration rules applied as a purchase test). However, we must respectfully disagree that the Joint Forum s work related to quantitative investment rules is complete and strongly urge you to give attention to the implementation of prudent person standards. While PIAC was not opposed to the harmonization of these rules, these measures do not go far enough and do not take into account the broader view referred to above. As we have consistently maintained over the past 10 years, PIAC believes that Canada should fully adopt the prudent person standards for investing all types of pension plan assets and eliminate the various quantitative rules pertaining to portfolio diversification, industry concentration, and passive investment. It is our understanding that Canada is the only developed country that uses quantitative limits to the degree outlined in the PBSA, instead of the more universally applied prudent person standards for investing. More detail is provided in the attached Recommendations for Modifications to Pension Plan Investment Rules submitted to CAPSA in August If, in the view of the Joint Forum, moving to prudent person standards is not achievable, then PIAC maintains that more needs to be done to eliminate inconsistencies and inefficiencies in the investment rules, and we would encourage the Joint Forum to add such a review to their initiatives. Specific areas of focus include: the 10% single issuer rule which restricts investments in such liquid assets as US Treasury bonds and other similar bonds of US government agencies, and the rule that limits a pension plan from owning up to 30% of the voting shares of a corporation. PIAC urges the Joint Forum to continue its efforts to reconcile differences in investment rules for pension funds, mutual funds, segregated funds and other pooled investment funds in order to clarify the investment rules that are to be adhered to by plan sponsors who invest in these funds. PIAC pledges to assist you in any ongoing process to move this forward. Yours truly, Gayle McDade Chair Enc. Submission to CAPSA Recommendations for Modifications to Pension Plan Investment Rules dated August River Street, Toronto, Ontario M5A 3P1 Tel Fax info@piacweb.org Web