Financial Services Commission of Ontario Report On Trading Practices Involving Individual Variable Insurance Contracts. June 2005

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1 Financial Services Commission of Ontario Report On Trading Practices Involving Individual Variable Insurance Contracts June 2005

2 FSCO Report on Trading Practices for IVICs Financial Services Commission of Ontario Report On Trading Practices for Individual Variable Insurance Contracts June 2005 BACKGROUND Recent investigations by regulatory authorities in the United States into the trading practices of U.S. mutual fund companies uncovered a number of trading abuses, such as late trading, market timing and frequent trading, which benefited some investors at the expense of others. The Ontario Securities Commission (OSC) recently undertook a similar review of the mutual fund industry in Ontario. The OSC s review was launched in November 2003 and in March 2005 they issued their final report. Individual variable insurance contracts (IVICs), also known as segregated funds, are similar to mutual funds except that they have an insurance component and are issued only by life insurance companies. Under an IVICs contract, the assets are set aside or segregated from the life insurance company s other assets. In Canada, the regulation of insurance products, including IVICs, is governed by provincial insurance legislation. At the Financial Services Commission of Ontario (FSCO), one of the priorities is to ensure that there is strong public confidence in the financial services markets that FSCO regulates, which includes IVICs. In recent years, FSCO has conducted two reviews pertaining to IVICs, one in 2000 and the other in What were the problems that caused the concerns in the United States? The principal problems that gave rise to the concerns in the United States were late trading, frequent trading and market timing. These terms are defined below. Late Trading Late trading occurs when purchase or redemption orders for securities are received after the close of business, but are filled at that day's price rather than the next day's price. Frequent Trading Frequent trading involves the trading activity by an investor that is more frequent than permitted by the fund s prospectus or whose transactions appear to be those of a trader rather than an investor. Market Timing Market timing involves short-term trading by an investor in an attempt to take advantage of short-term discrepancies between the value of the fund s units and the value of the securities within the fund's portfolio. International funds are most vulnerable to this type of trading abuse as traders can exploit differences between time zones. 1

3 FSCO Report on Trading Practices for IVICs Review by FSCO in 2000 In 2000, FSCO conducted a comprehensive review of the life insurance industry s trading practices following the discovery and disclosure by a life insurance company operating in Ontario of inappropriate trading activity by its employees, namely market timing. FSCO consequently required all life insurance companies selling IVICs in Ontario to complete and submit information in a questionnaire, attested by senior officials of the company to its correctness. The questionnaire was designed to: Determine what policies and procedures each life insurance company had in place to monitor and control the trading activities by its own employees in IVICs. It dealt specifically with corporate governance related to their policies and procedures regarding Codes of Employee Conduct and Conflicts of Interest. Confirm to FSCO whether any of the segregated funds had pricing flaws similar to those encountered by the company where the inappropriate trading activity was discovered. The insurance company that discovered and disclosed the market timing activity to FSCO took the required action to ensure that none of the other policyholders who had purchased IVICs from that company suffered any losses as a result of this improper trading activity. They also took disciplinary action against the employees involved and made a public announcement about the matter. FSCO s review concluded that the life insurance companies selling IVICs had adequately analyzed their control systems and had satisfactory internal controls and procedures in place in order to ensure that trading abuses by their employees do not take place. Internal controls and compliance programs Conflicts of interest and situations that may allow inappropriate trading activities give rise to the need for life insurance companies to implement internal controls and compliance programs that prevent or detect them. The implementation of such controls rests with the board of directors of the company. In a risk-based regulatory system, the existence of these controls provides assurance to regulators that opportunities for trading abuses are minimized. Such controls also ensure that if trading abuses do occur, they will be identified. As part of FSCO s review in 2000, FSCO engaged Richard Leblanc, President of University Centre for Management Studies Inc., to analyze the responses to the questionnaire. Mr. Leblanc, a lecturer at York University, is an academic expert specializing in corporate governance and compliance who has undertaken extensive reviews of the policies and procedures of a wide range of major corporations. Mr. Leblanc concluded in his report that codes of conduct exist across the insurance sector and made recommendations to the life insurance industry on how to promote compliance and improve corporate governance. The report was made available to the public and is posted on FSCO s website under What s New?. 2

4 FSCO Report on Trading Practices for IVICs Responsibilities of life insurance companies operating in Ontario Life insurance companies IVICs contracts and Information Folders are the documents which govern the processing of transactions in order to prevent late trading. While market timing and frequent trading are not specifically forbidden under IVICs contracts or by law, these activities, if they were to occur, may advantage some policyholders to the detriment of others. As such the life insurance companies managing the IVICs should monitor activities in the segregated funds they maintain and administer. Review conducted by FSCO in 2004 The review in the United States focused only on trading abuses in mutual funds and did not include a review of IVICs. Although the review by the U.S. regulators did not deal with IVICs, as a prudent and vigilant regulator, FSCO was concerned that the trading abuses uncovered in the United States might negatively impact investor confidence in IVICs and therefore took action to ensure that similar abuses were not taking place in the industry in Ontario. Building upon the review conducted in 2000, a risk-based questionnaire was designed by FSCO to determine whether life insurance companies continued to have adequate policies and procedures in place to ensure that improper trading is not occurring within segregated funds. Scope FSCO designed a questionnaire to determine whether Ontario life insurance companies continued to have adequate control systems including policies and procedures to prevent and detect trading abuses such as market timing, late trading and frequent trading. FSCO examiners went to the life insurance companies offices and obtained responses to the questions in the questionnaire, reviewed supporting documents and met with senior officials at each of the life insurance companies to discuss the results of the reviews. Some similarities between IVICs and Mutual Funds As noted above, IVICs, or segregated funds as they are referred to, are insurance contracts whose values are based on the value of portfolios of assets owned by life insurance companies and kept separate from the other assets owned or managed by the company. Mutual funds and segregated funds are similar in that both pool investors funds, both have investment returns based on the market value of the portfolios of the securities that they hold and both are redeemable on demand. Mutual funds and segregated funds invest in similar types of securities. A segregated fund can also invest in a mutual fund in the same way as it might invest in a stock or bond. Detailed consumer information on a given mutual fund is found in a Simplified Prospectus while detailed information on a given IVIC is contained in a similar document known as an Information Folder. Given the importance of IVICs and mutual funds to the asset accumulation objectives of consumers, The Canadian Securities Administrators (CSA) and The Canadian Council of 3

5 FSCO Report on Trading Practices for IVICs Insurance Regulators (CCIR) decided to review the similarities and differences between these products and how they are regulated. As a result, in May 1999, the Joint Forum of Financial Market Regulators issued an authoritative and detailed comparison report entitled A Comparative Study of Individual Variable Insurance Contracts (segregated funds) and Mutual Funds. This report is available on FSCO s website under What s New?. Key features of IVICs While mutual funds and IVICs do have similarities, it is important to remember that they are also different. IVICs have the following key features: IVICs are insurance contracts, protected under insurance law. Only licensed life insurance agents sell IVICs. IVICs must conform to legislative requirements and guidelines which contain detailed requirements. Life insurance companies carry on business in a highly regulated environment. Federal and provincial regulators monitor their solvency and market conduct. The major life insurance companies are large, operate across Canada and require extensive amounts of capital. If an insurance company becomes insolvent, IVICs, as insurance contracts, have protection against loss of up to $60,000 on death benefits and maturity guarantees, through the Canadian Life and Health Insurance Compensation Corporation (CompCorp). The insurance company will pay a guaranteed death benefit if the policyholder dies before the maturity date of the contract. The maturity value of the contract is guaranteed (at 75% or 100% of the amount invested depending on the specific policy) after a number of years (usually 10 years). IVICs may be protected from creditors in the case of bankruptcy. IVICs may be excluded from probate. OVERVIEW OF THE 2004 FSCO REVIEW The objective of the 2004 FSCO review was to determine whether the abuses occurring in the mutual fund industry were also occurring in the life insurance industry. The review had two phases: In Phase I, using a risk-based approach, FSCO assessed the controls and procedures that life insurance companies had in place in order to prevent, detect and correct potential trading abuses. In Phase II, in order to confirm the finding in Phase I, FSCO reviewed the turnover rates of 653 segregated funds to test whether trading abuses were occurring. Turnover rates may indicate occasions where contract holders may be purchasing or redeeming units of a fund in quick succession. 4

6 FSCO Report on Trading Practices for IVICs PHASE I In Phase I, FSCO developed a questionnaire (see Appendix I) focussing on corporate governance matters relating to the following elements of the company's IVICs operations: the policies and procedures in place to deal with market timing, frequent trading and late trading; approval of the policies and procedures by senior management; monitoring for compliance with these policies and procedures; and the existence of a process to take corrective action if policies and procedures prove inadequate and for non-compliance. The process employed to complete the market conduct assessments On May 20, 2004, FSCO sent the questionnaire to all life insurance companies offering IVICs in Ontario with a letter that informed the life insurance companies of its purpose. The letter indicated that FSCO examiners would attend at the offices of selected life insurance companies to complete the questionnaire and to collect and review supporting documentation. Based upon data at December 31, 2003 there were 26 life insurance companies selling IVICs in Ontario, with approximately $34 billion in investments held in underlying segregated funds by these companies. FSCO considered the potential market exposure and decided to review the 10 life insurance companies representing 90% of the market share. From June 2004 to September 2004, FSCO examiners attended at the offices of the 10 life insurance companies, obtained responses to the questionnaire and reviewed supporting information. Based on the information received, examiners assessed the strength of each company s policies, procedures and controls and determined whether changes were needed. In October 2004, FSCO's examiners and a senior manager held post examination meetings with all life insurance companies to discuss the results of the reviews. FSCO was satisfied that the controls in place were functioning properly since several life insurance companies detected frequent trading/market timing activity and took corrective action. However, FSCO decided to conduct a further review (Phase II) in order to confirm these findings. In Phase I, using a risk-based approach to the review, FSCO obtained information on the policies, procedures and controls that the selected life insurance companies had in place in order to prevent, detect and correct trading abuses. In Phase II, conducted from October 2004 to March 2005, additional steps were undertaken in order to determine if any specific segregated funds showed evidence of frequent trading/market timing and to obtain explanations of the findings. During this period further data was requested to support the responses. Different life insurance companies used varying methods of determining market timing and frequent trading. All of these methods appeared to be reasonable. In Phase II, FSCO used its own test methodology. 5

7 FSCO Report on Trading Practices for IVICs RESULTS OF PHASE I Phase I results indicated the following: Development of Policies All life insurance companies examined have written policies and procedures in place that are contained in internal manuals, policy contracts, Information Folders and other documents. To prevent late trading, life insurance companies using FundSERV, an independent fund transaction processing system, have programmed cutoffs for electronic transactions and specific manual cutoff times for transactions sent by fax or mail. Controls and deterrents to market timing and frequent trading include the imposition of fees for transactions exceeding a certain number per year, or occurring within a certain number of days of the original transaction. These provisions are set out in the IVICs policy contracts and Information Folders. Some policies also allow life insurance companies to delay the processing of transactions where there are concerns that the transactions may result in potential harm to other policyholders. Some IVICs contracts contain restrictions on the timing and frequency of transactions. The IVICs contracts require that transactions must be processed within a specified time period. Therefore, life insurance companies must employ quality control, either manual or computerized scanning, and other procedures to detect market timing and frequent trading transactions and subsequently take the required corrective action. Provisions contained in the policy contracts and Information Folders are approved by senior management of the life insurance companies. Content of Policies Monitoring processes to determine whether late trading, market timing and frequent trading activities are taking place are documented. In addition, life insurance companies have other controls in place, such as segregation of duties and prior written approval of transactions by management, which deal with transactions by their own employees. Policies also contain hard close rules which state that transaction orders received after a specified time must be processed at the next day s values. In addition to the hard close rule, some life insurance companies further restrict the number of trades that an investor can make. Life insurance companies selling IVICs which invest in mutual funds as the investment vehicle behind their policies have no need to adjust their pricing mechanisms since they rely on the valuations done by the mutual fund companies. In recent months, all life insurance companies had audited their internal procedures and systems to detect the presence of inappropriate market transactions. The conclusions were that sufficient controls existed to prevent late trading. All the examined life insurance companies have procedures to deal with the correction of errors occasioned by delays or errors in reporting transactions. The processes in place require that the segregated fund be reimbursed for any losses. These amounts are paid by the company and 6

8 FSCO Report on Trading Practices for IVICs recovered from the sales intermediaries if the delays were unwarranted or if they were responsible for the errors. Monitoring and Management Reporting Front-end controls prevent the processing of inappropriate transactions such as late trading while computerized analysis, transaction counts and date checks detect cases of market timing or frequent trading. Life insurance companies now control frequent trading and market timing through the application of penalties where purchases/sales occur within 5 to 90 days of the original transactions. Reports on monitoring activities are prepared for, and reviewed by, senior managers. All life insurance companies examined have either conducted formal independent reviews or plan to do so in the future. In addition, most life insurance companies have had informal operational reviews conducted by their own staff, including their internal audit departments. Reports on the findings of the reviews were sent to senior management and recommendations from the reviews have been implemented. No instances of material internal control weaknesses were detected. The life insurance companies that FSCO examined reported that they had evaluated the effectiveness of their policies. Reports on the findings were provided to senior management and ultimately to either the life insurance company s Audit Committee or Board of Directors. Because the 10 life insurance companies had already conducted reviews, either formally or informally, changes had already been implemented where required. Only two life insurance companies were planning further changes to their policies and procedures. CODE OF CONDUCT All the life insurance companies examined by FSCO have an employee Code of Conduct in place to deal with conflicts of interest and the use of company information for personal benefit. Generally, a Code of Conduct does not specifically require employees to report on personal or family transactions of their company s IVICs. However, in order to prevent inappropriate transactions, all life insurance companies have controls that require employees to either receive specific management permission or submit their orders through specific persons in order to process a transaction. In all cases, the Code of Conduct is made available to employees and employees are required to sign an acknowledgement annually that they have received a copy of the Code of Conduct, which is retained in their files. Outsourcing Where life insurance companies outsource functions to other companies, the life insurance companies expect these other companies to use their own corporate governance to ensure that a Code of Conduct is in place with adequate procedures to enforce compliance. 7

9 FSCO Report on Trading Practices for IVICs PHASE II In Phase I, FSCO obtained information to assess the controls and procedures that life insurance companies had in place to prevent, detect and correct trading abuses that may occur within their organizations. Adopting a risk-based approach, life insurance companies representing 90% of the market share were examined. FSCO did not identify any problems in this Phase, therefore a review of the remaining companies in the same manner was not warranted. Using a risk-based approach to regulation, FSCO investigated the segregated funds where turnover rates were higher than our established review criteria. While turnover rates may be defined in different ways, FSCO used a more inclusive formula in its calculation that tends to result in higher turnover rates than other less conservative definitions. An analysis of the segregated funds with the highest rates provided evidence of controlled environments at the life insurance companies. Therefore, in our judgment, no further examination of the segregated funds was warranted. RESULTS OF PHASE II Of the 653 segregated funds reviewed, 156 were found to have turnover rates above the criteria that was established. FSCO obtained and reviewed the explanations from the life insurance companies examined and determined that there were justifiable reasons for the trading activities in each of these segregated funds except in one case (market timing) where corrective action was quickly taken (see chart below). Responses provided as to the reasons for high turnover rates # Of Reasons for High Turnover Rates Funds 51 Rapid sales growth for the year 43 New funds with small volume 15 Money market funds 12 Funds closed to new investors 11 Rebalancing of asset allocation funds 10 Funds merged with another 8 Small fund 2 Dollar cost averaging fund 2 Group benefit fund 1 High redemption due to poor performance 1 Market timing immediately stopped upon detection* 156 Total Funds *Note This involved an individual policyholder trading his own investment which lasted only one month before it was identified by the company s internal controls and immediately stopped. The gain was insignificant in relation to the size of the segregated fund. It is important not to confuse the turnover rates of segregated funds with the turnover rates of the underlying mutual funds in which some of them invest. The underlying mutual funds were the 8

10 FSCO Report on Trading Practices for IVICs subject of the OSC review. The review conducted in Phase II confirmed the results of the examination in Phase I that trading abuses were not an issue for IVICs sold in Ontario. CONCLUSION FSCO developed its risk-based questionnaire to review governance and internal controls in place at life insurance companies selling IVICs in Ontario. FSCO undertook a risk-based market conduct approach that focussed on the policies, procedures and controls that life insurance companies had in place to detect and prevent trading abuses, supplemented by a review of underlying financial data. The 2004 review indicated that trading abuses, which could negatively impact investor confidence in IVICs, were not occurring. The reasons, as noted above, are many but they can be categorized as follows: FSCO s review in 2000 helped raise consciousness of the importance of life insurance companies selling IVICs having adequate internal controls and procedures to ensure that trading abuses by their employees were either not taking place or would be detected if they did take place. The life insurance companies had reviewed their internal policies and control systems to address the opportunities for market timing/frequent trading. Life insurance companies continue to have controls, policies and procedures to detect inappropriate transactions. The life insurance companies control environments are working since they had detected instances of attempts at frequent trading/market timing and appropriate actions were taken to prevent trading abuses. Internal monitoring ensures prompt reversals of transactions if and when corrective action is required. IVICs have inherent differences from mutual funds, which may tend to reduce the likelihood of such trading abuses. The maturity values of IVICs are guaranteed at 75% or 100% of the amount invested after a number of years. Therefore, life insurance companies have a financial incentive to protect the interests of their policyholders. 9

11 FINANCIAL SERVICES COMMISSION OF ONTARIO INDIVIDUAL VARIABLE INSURANCE CONTRACTS APPENDIX I Name of Company: Name of Chief Executive Officer : Name of Contact Person: Responses Received From: Date: Date: 10

12 FINANCIAL SERVICES COMMISSION OF ONTARIO INDIVIDUAL VARIABLE INSURANCE CONTRACTS DEFINITIONS Code means code of business conduct. Employees mean employees of the company and its subsidiaries/affiliates. Frequent trading means activity by any person who buys and sells more frequently than either the specified limit in the IVICs, or whose frequency of transactions appears to be to the detriment of other unitholders. Hard close means the point in time after which a transaction, without exception, will not be entitled to receive a fund=s current day pricing. Investor means any person buying and selling units in Segregated funds either directly or through a financial intermediary. Late trading occurs when purchase or redemption orders are received after the close of business, but are filled at that day's price rather than the next day's price, to the detriment of other unitholders. Market timing involves short-term trading of IVICs units, whose underlying securities are traded in another time zone, to take advantage of short-term discrepancies between the current value of those securities and the stale values of the IVICs units, to the detriment of other unitholders. Policies may include documented procedures, bulletins, contractual arrangements and rules. Transactions mean purchases, redemptions and transfers from one fund to another.

13 FINANCIAL SERVICES COMMISSION OF ONTARIO INDIVIDUAL VARIABLE INSURANCE CONTRACTS # Questions 1. BACKGROUND Please provide names and total asset values of Segregated Funds available through IVICs 1. Segregated Funds, whose closing values are not affected by securities which are traded on an exchange in another time zone, (include funds that have foreign content not exceeding 30%). Name Amount Segregated Funds, whose closing values are affected by securities which are traded on an exchange in another time zone, (exclude funds that have foreign content not exceeding 30%). Name Amount # Questions Yes No n/a Comments 2 Outsourcing Does the company outsource the handling of

14 # Questions Yes No n/a Comments any of its IVICs transactions to third parties? If Yes, a. Which functions are outsourced? b. Does the outsourcing contract require the provider to follow the company=s policies? c. Does the company monitor the performance of the outsourced functions for compliance with the company=s policies? If Yes, a. How often? b. When was it last done? c. What were the findings? d. If applicable, how were they dealt with? Reported Experience 3 Is the company aware of any of the following activities in transactions involving its IVICs at any time over the last two years? If Yes: a. How were the activities discovered? b. What were the circumstances surrounding, as well as the sources of, these activities? c. Describe the actions taken to prevent the recurrence of such activities 4 Do you have written policies and procedures in place governing general trading practices for your IVICs? If Yes, do the policies contain specific rules, restrictions and procedures concerning: 13

15 # Questions Yes No n/a Comments If Yes, please provide details and reference pages in the policies. 5 If Yes, do the policies and procedures in place contain a mechanism to prevent: If Yes, please provide details and reference pages in the policies. 6 Have the policies been approved for? If Yes - By Whom? Senior Management Committee Board of Directors Other Content of Policies 7 Do the policies set out a monitoring process to determine whether the following activities are taking place? 8 Do the policies contain a AHard Close@ rule which states that all transaction orders received after a specified time must be processed at the next day=s values? 9 Do any of the IVICs, issued within the last 14

16 # Questions Yes No n/a Comments two years, restrict the number of trades that an investor can make? 10 Is the daily price of any Segregated Funds issued by you, dependent on the value of securities which are determined on a market that closes before your cut-off time for accepting transactions? If Yes, Have you adjusted the mechanism for establishing the net asset value of your funds to ensure that no arbitrage opportunities exist? 11 Do you regularly monitor fund activity (excluding preauthorized or system generated transfers) to identify? If Yes, what were the findings? If applicable, how was the matter dealt with? 12 Do controls exist that require regular reviews of unusual patterns of trade activity? If Yes, How often are reviews required? By Whom? What were the findings in the past two years? 13 Employees 15

17 # Questions Yes No n/a Comments In addition to the procedures in 12 above, are records/reports of transactions in IVICs by employees and their families reviewed on a regular basis for? If Yes, a. how often? b. by whom? c. What were the results? If applicable, how was the matter dealt with? 14 How are trades submitted? Systems % a. FundSERV b. Faxes c. Telephone d. Other Describe the controls over the systems. 15 Has an evaluation of the system used for processing trades been conducted to determine whether the following are possible? If Yes, what were the results? 16 Do policies provide procedures for correction of errors as they relate to the AHard Close@ rule (e.g., broker delayed placing of the trade)? 16

18 # Questions Yes No n/a Comments If Yes, please explain. 17 Do such corrections require specific authorization? If Yes, Who authorizes the correction? 18. Do the policies ensure that such corrections do not result in a loss to the fund? If Not, why not? 19 Does the contract contain a restriction on the number of trades allowed within a specified time period? If Yes, is there a system in place to ensure that the restriction, if applicable, on the number of trades that an investor can make is enforced? If Yes, please describe. 20 Do any contracts provide for penalties to investors when the number of trades allowed are exceeded? If Yes, is the penalty imposed every time the number of trades is exceeded by an investor? If No, why not? 21 Do you provide any contract holders with preferential information that may be detrimental to the interest of other contract holders? If Yes, why? 17

19 # Questions Yes No n/a Comments Monitoring and Management Reporting 22 Are there internal controls in place to ensure adherence with the policies regarding? If Yes, describe how the controls are applied. 23 Is there monitoring to ensure adherence to the policies regarding? If Yes, by whom? 24 Are reports prepared on the monitoring findings? If Yes - for whom? Senior Management Committee Board of Directors Other 25 Has an independent review been conducted to determine compliance with the policies regarding? If Yes by whom: 25 ct d a) Internal Audit b) Other 18

20 # Questions Yes No n/a Comments If Yes, a) What were the findings? b) When was it conducted? If No, is there a planned review? If Yes, when? 26 To whom are the results of the independent review reported? Senior Management Committee Board of Directors Other 27 Did any recommendations emanate from the independent review? If Yes: a. What were they? b. Have they been implemented? c. If implemented, when? d. If not implemented, why not? 28 Do you have a process in place to regularly evaluate the effectiveness of the policies regarding? If Yes - who receives the report: Senior Management Committee Board of Directors Other COMMENTS 19

21 # Questions Yes No n/a Comments 29 Are you planning any significant changes to the policies regarding? If Yes, please provide brief details. CODE OF CONDUCT Yes No n\a Comments 30 Does the company have a code of business conduct for its employees? If Yes, please provide copy. 31 If Yes, does that code deal with conflict of interest? If Yes, please provide copies of the relevant material. 32 Does the code include a statement about inappropriate use of company information by employees for? $ their own financial benefit, or $ the benefit of another investor? 33 Does the code contain direction to employees about their direct dealings in transactions of IVICs issued by the company? 34 Does the code contain direction to employees to report any transactions made by them on their own account or by members of their immediate families? 35 Is the code made available to all employees? 20

22 # Questions Yes No n/a Comments 36 Does the code require that each employee provide a signed acknowledgment of having received the code? 37 Are signed acknowledgements maintained in each employee=s file? 38 Are employees periodically reminded about the signed acknowledgement? 39 Are you planning any significant changes to your code? If Yes, please provide brief details. 40 Outsourcing If the answer to question 2 is AYes@, does the contract require the service provider=s employees to abide by your company=s code of business conduct? If No, why not? 41 Do you require the third party to confirm that the code of business conduct is being monitored? If Yes, a. How often? b. When was it last done? c. Are you provided with a copy of their monitoring report? d. What were the findings? e. If applicable, how were they dealt with? 21