The guidance “closes gaps in conduct standards” for the sale and servicing of segregated funds and builds on expectations set out in the fair treatment of customers guidance and incentive management guidance, a release said.
“This is an important milestone that demonstrates our collective commitment to protect consumers and ensure they are treated fairly,” said Patrick Déry, chairman of the CCIR and superintendent of financial institutions with the Autorité des marchés financiers, in the release. The guidance “sends a clear message that Canadians’ best interests are being protected across all jurisdictions.”
“CCIR and CISRO expect that insurance regulators in each Canadian jurisdiction will implement the guidance in a manner consistent with their legal framework and culture,” the regulators said in a notice.
The guidance, which is the culmination of nearly a decade’s worth of regulatory work and consultations, covers areas such as the training and compensation of intermediaries; expectations related to know your product, know your investment strategy (e.g., borrowing or leveraging) and know your client (KYC); and recommendations and advice.
For example, regarding KYC, intermediaries such as agents and MGAs are expected to take “reasonable steps” to collect and document up-to-date information about customers’ personal and financial circumstances (e.g., whether the client is borrowing to invest in a segregated fund, which comes with additional KYC expectations), investment and insurance needs and objectives, time horizon, level of knowledge about investments, and risk tolerance and capacity.
When providing recommendations and advice, agents and MGAs are expected to “place a customer’s interests ahead of their own,” the guidance says.
The guidance also applies to the design of segregated funds. For example, it outlines expectations related to fund facts documents, the calculation of management expense ratios, and offering the chargeback sales charge option under a segregated fund contract. Upfront compensation, such as chargebacks, was part of the insurance regulators’ consultations during the past few years.
On the securities side, the Canadian Securities Administrators have proposed rule changes to ban chargebacks in a consultation that ended in September.