The Office of the Auditor General of Ontario has expressed concerns about the adequacy of the Financial Services Commission of Ontario (FSCO) oversight of life insurance agents.
In the annual report that Auditor General Bonnie Lysyk tabled before the Ontario legislative assembly last week, the government watchdog described FSCO's monitoring of life insurance agents as "weak", and noted that there had been significant delays over several serious complaints, and that investigations had ended with poor enforcement.
In particular, the auditor was concerned by the fact that the regulator's online licensing system allows agents to hold active licences without requiring them to prove that they have errors and omissions insurance. "We noted from our testing of complaints that several agents had operated for one to three years before they were identified as not having errors and omissions insurance," reads the report. "FSCO does not verify whether an agent’s errors and omissions insurance is valid, and relies on insurance providers to notify it of cancelled policies — even though it had no formal arrangements with the providers to do so."
The auditor also pointed out that FSCO failed to properly investigate agent applications and renewed the licences of agents who had been disciplined by other financial service regulators, those who declared bankruptcy, and those with criminal records.
As an example, the auditor noted that in May 2012 the Mutual Fund Dealers Association (MFDA) of Canada fined an Ontario life insurance agent $40,000 for selling unapproved securities to his clients and permanently banned him from the business. FSCO was notified of this event in June 2012 but took another 19 months to begin its own investigation. Even though he had been banned by the MFDA, the auditor points out that FSCO still renewed the agent’s life licence in March 2014 because it had failed to gather sufficient evidence to deny a renewal.
In its response to the auditor, FSCO has said it will look into establishing information-sharing agreements with errors and omissions insurance providers and to use the Commercial Liability Statistical Plan to gather information about claims made by life insurance agents. "FSCO will explore further information-sharing arrangements to ensure that licensees sanctioned by other regulators are assessed more quickly, in accordance with governing legislation and with the due process to which they are entitled. For example, and more recently, FSCO has negotiated a memorandum of understanding with the Mutual Fund Dealers Association," replied the regulator.