On November 21, 2023, the Financial Services Regulatory Authority of Ontario (FSRA) introduced the Life Insurance Agent & MGA Licensing Suitability guideline (the Suitability Guideline) for public consultation. The Suitability Guideline explains (i) FSRA’s interpretation of life agent licensing suitability requirements under the Insurance Act (Ontario) (the Ontario Act) and (ii) FSRA’s approach for assessing life insurance agents, agencies, and managing general agents’ (MGAs) (including applicants for licensing to act as any of the foregoing) (collectively, Life Intermediaries) suitability to hold licensing in Ontario. The Suitability Guideline applies to Life Intermediaries and life insurance companies (Insurers) conducting business in Ontario.
The Suitability Guideline is part of FSRA’s response to its previous findings of certain gaps and lack of clarity relating to the roles and responsibilities of Life Intermediaries and Insurers in the distribution of life insurance in Ontario. In addition, the Suitability Guideline is meant to ensure that all Life Intermediaries have the requisite skills to hold licensing in Ontario and to comply with all applicable rules and regulations.
This article provides a high-level summary of the Suitability Guideline and implications for Life Intermediaries and Insurers conducting life insurance business in Ontario.
I. FSRA’s interpretation of Life Intermediary suitability requirements under the Ontario Act
Pursuant to subsection 392.4(1) of the Ontario Act, FSRA has broad authority to determine the considerations relevant to determining whether a Life Intermediary is suitable to be licensed under the Ontario Act. FSRA notes that where it believes, on reasonable grounds, that an applicant or current Life Intermediary is not suitable to hold the requisite licensing, then FSRA may refuse to issue (in the case of an applicant), or revoke or suspend the applicable licence.
The Suitability Guideline includes references to the applicable provisions of the Ontario Act that set out certain factors that FSRA considers when assessing suitability for Life Intermediary licensing. Such factors include determining if the applicant or licensed Life Intermediary (a) is engaged in any business or occupation (whether insurance or non-insurance) that would jeopardize its integrity, independence or competence as an agent, (b) demonstrated incompetence or untrustworthiness, or (c) made a material misstatement or omission in its FSRA licensing application.
II. Conduct of Life Intermediaries that may jeopardize suitability for licensing
FSRA will consider both past and present activities of Life Intermediaries (including applicants) when evaluating their suitability for licensing. In particular, FSRA is concerned with any activities or conduct that creates a risk that an individual or business may fail to comply with applicable laws and guidance (including the fair treatment of customers). The Suitability Guideline includes a non-exhaustive list of examples that FSRA considers may indicate a person is not suitable for Life Intermediary licensing, some of which include (a) criminal charges or convictions, (b) bankruptcies or consumer proposals, (c) behaviour that is inconsistent with FSRA guidelines, (d) false statements or omissions in information disclosed to FSRA or others and (e) failing to diligently perform any duty or activity. For a more comprehensive listing of such examples, we recommend that the Suitability Guideline be consulted.
Upon identifying certain behaviours or activities that call into question an intermediary’s suitability to hold life licensing, FSRA then weighs the impact of such behaviours or activities on the applicant’s or Life Intermediary’s suitability for licensing. This analysis involves FSRA assessing the particular issue against a set of factors that are listed in the Suitability Guideline. However, in addition to the factors set out in the Suitability Guideline, FSRA may also consider “additional factors” at its discretion. Ultimately, such analysis would need to provide a reasonable basis to support a determination that the applicable person is unsuitable to hold Life Intermediary licensing in Ontario.
For applicants of Life Intermediary licensing, FSRA considers all information requested as part of the licensing application to be material. The Suitability Guideline provides that FSRA generally has reasonable grounds to believe that a person (individual or business) is not suitable for life licensing where a material misstatement or omission is made in a Life Intermediary licensing application. Accordingly, FSRA may deny an application if any information provided by the applicant during the licensing process is incorrect or incomplete.
III. Additional suitability requirements for corporate Life Intermediary licensees and applicants
The Suitability Guideline states that FSRA will consider additional factors for corporate Life Intermediary licensees (insurance agencies and Managing General Agencies) when determining such businesses’ suitability for Life Intermediary licensing in Ontario. Such additional factors are discussed in further detail below.
- Additional general considerations for agencies and MGAs
In assessing businesses’ suitability for corporate Life Intermediary licensing in Ontario, FSRA will also consider additional factors that include:
- The current and past conduct of individuals or entities associated with or having an interest in the Life Intermediary (including directors, officers, partners, shareholders and employees); and
- The Life Intermediary’s business practices, including recruitment models, referral relationships, training practices, sales strategies, consumer service, contract negotiation, underwriting and administration practices and all of the foregoing in businesses affiliated with the Life Intermediary’s business (including how any conflicts of interest with such affiliates are addressed).
- Additional suitability considerations specific to MGAs
FSRA takes the position that there is an enhanced risk of harm to consumers where an MGA fails to properly carry out its obligations as a licensed Life Intermediary. Where an MGA is either applying for Life Intermediary licensing in Ontario or already holds such licensing, it must ensure compliance with certain additional requirements, including the following:
- Demonstrating that it has the expertise and resources to operate as an MGA in a competent and trustworthy manner;
- Knowing and understanding its regulatory obligations as a Life Intermediary, and ensuring that any agents directly or indirectly recruited, trained, supervised or supported by the MGA are suitable for Life Intermediary licensing;
- Demonstrating that the MGA has an adequate compliance function to ensure it (including its agents, directors, officers and employees, among other individuals) satisfies its regulatory and legal obligations (this includes continuing to reassess such compliance capabilities, as the MGA’s business evolves);
- Ensuring that the insurance products distributed by the MGA or its agents (including sub-agents) are distributed in compliance with all applicable laws; and
- Demonstrating that an MGA’s compliance function is designed to take into account the overall size, complexity, operations and risk profile of the business. FSRA notes that MGAs involved in the recruitment of new individual life agents (including candidates for licensing) may require additional oversight and safeguards.
The Suitability Guideline provides a non-exhaustive list of examples of actions and omissions by MGAs that FSRA may consider reasonable grounds for determining an MGA is not suitable for Life Intermediary licensing.
IV. Obligations of Insurers supervising MGAs and agents
Where Insurers delegate certain functions to MGAs, such delegation does not negate or lessen Insurers’ regulatory compliance and oversight responsibilities (including with respect to obligations under the Ontario Act and associated regulations, regulatory rules and obligations for the fair treatment of customers). For example, Insurers must still maintain a system to ensure its agents (including MGAs) comply with applicable laws, even where such Insurer delegates certain oversight function to an MGA. FSRA notes that depending on the particular arrangement, Insurers (or MGAs) that delegate certain functions may be found to be in a principal-agent relationship, whereby the Insurer, as principal, is responsible for certain actions and omissions of the agent (i.e., the MGA). Such principal-agent relationship could also be found where MGAs delegate certain responsibilities to agencies or individual agents.
Insurers and MGAs that delegate certain functions must ensure that the party to whom they are delegating has the necessary capability to perform the delegated work. FSRA will consider any reasonable reliance by Insurers or Life Intermediaries on a party to whom certain functions were delegated, where such delegating Insurer or Life Intermediary faces regulatory scrutiny in connection with such delegation.
If a Life Intermediary is delegated certain oversight responsibilities by an Insurer, then, despite the Insurer retaining accountability for such oversight it has delegated, the Life Intermediary to whom such function was delegated also has the same accountability to FSRA as the Insurer to ensure it carries out the function delegated to it in compliance with all applicable laws.
The Suitability Guideline also discusses Insurers’ legal obligations for monitoring Life Intermediaries for licensing suitability, including screening agents and MGAs who may represent an Insurer and monitoring such persons on an ongoing basis.
V. Implications and next steps for Life Intermediaries and Insurers conducting business in Ontario
The Suitability Guideline (at Table 1) provides the steps followed by FSRA to determine licensing suitability for Life Intermediaries (applicable to both licensing renewals and initial applications). We recommend that all Life Intermediaries and Insurers review such information in further detail to ensure they are familiar with FSRA’s processes and practices for determining licensing suitability.
FSRA has undertaken an extensive review of the relationships between Insurers and MGAs that distribute their products in Ontario, particularly in the life and health space. Through its review, FSRA reportedly uncovered certain deficiencies related to the fair treatment of customers, including deficiencies in insurers’ oversight of their distributors and the agents they contract with; little agent monitoring by insurers and distributors; insufficient agent training with respect to regulatory requirements and best practices; compensation models that tie compensation to agent recruitment; and lack of clear lines of responsibility between Insurers and distributors for oversight of agents. In light of this new guidance, we recommend that Insurers and Life Intermediaries consider whether there are any gaps in their respective compliance policies and procedures and ensure that all programs are appropriately structured, monitored and audited. Although the Suitability Guideline is only in draft form, FSRA already expects licensees in Ontario to adhere to the compliance principles and requirements contained therein.
There are a number of potential consequences for Life Intermediaries and Insurers found by FSRA to be unsuitable to hold licensing. In particular, FSRA may revoke or suspend an existing licence, or refuse to issue a licence to a new applicant. Licences may also be issued by FSRA, but are subject to certain conditions. A finding that a Life Intermediary is not suitable to hold licensing may also result in monetary penalties and provincial offence charges for a contravention of the Ontario Act, regulations thereunder or FSRA’s rules and guidelines, including such unsuitability being considered an unfair or deceptive act or practice.
FSRA is accepting submissions in respect of the Suitability Guideline until February 9, 2024. Instructions for submitting comments are accessible here.
Dentons Canada’s Corporate and Regulatory Insurance team would be pleased to answer any questions regarding compliance with or interpretation of the Suitability Guideline.