How banned IIROC and MFDA advisors can still sell insurance

From 2013 to 2015, 9 advisors sold life insurance after being banned from the securities industry

This story was originally published on our sister site Advisor.ca

Canada’s patchwork of regulators allows wrongdoers to handle clients’ finances years after they’ve been permanently banned from the securities industry.

An Advisor.ca investigation has identified nine cases between 2013 and 2015 where reps were permanently banned by their SRO but remained authorized to sell life insurance products for periods ranging from six months to years after. Of those nine, six are still authorized to sell today (June 14, 2016).

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“Rule breakers should not be able to simply find employment in another area of financial services without potential clients and other regulators knowing what they’ve done,” wrote Doug Harris, vice-president and general counsel, IIROC, in response to our findings.

“We are aware of these situations,” wrote Ian Strulovitch, director of Public Affairs for the MFDA, when asked about banned advisors continuing to be authorized to sell life insurance. “Our goal is to work with provincial insurance regulators to ensure that individuals under the insurance regime are held to the same standards and subject to the same level of enforcement as securities registrants.”

Insurance regulators across the country declined to comment on specific cases, citing privacy concerns.

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The Insurance Council of B.C. pointed out that insurance regulators cannot simply replicate other jurisdictions’ penalties against licensees. “All allegations against an insurance licensee must first be investigated and, if disciplinary action is warranted, the licensee is afforded the due process set out in the Financial Institutions Act before a decision is finalized and available to the public,” wrote ICBC executive director Gerald Matier. This sentiment was echoed across the country. (View full responses from all regulators.)

But how do insurers find out about wrongdoing? Regulators told us they rely on reporting by the licensee and/or the employer, consumer or company complaints, notifications from other regulators, and “monitoring” of offences, both civil and criminal. ICBC told us, for instance, that its licensees must report “any disciplinary action” within five business days, while the Insurance Councils of Saskatchewan require licensees to report the commencement of criminal, civil or regulatory proceedings within 30 days. But a system of self-reporting can be inadequate.

And while the SROs publish disciplinary actions publicly, formal collaboration with other regulators usually happens under a memorandum of understanding (MOU). Of the insurance regulators we investigated, the Financial Services Commission of Ontario (FSCO) has a MOU with both the MFDA and IIROC. The Insurance Councils of Saskatchewan have one with the MFDA. The rest do not have MOUs with IIROC or the MFDA.

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Once regulators learn about their licensees’ troubles, what happens? P.E.I.’s insurance regulator, its Department of Justice and Public Safety, told us that it considers whether to grant or renew a licence based, in part, on whether the applicant has been found to be “unsuitable to be licensed/registered” by other regulators. “If the applicant has been deemed not to be suitable, it is more likely that we would conclude in a similar manner.” This approach was broadly echoed by other regulators we spoke with. For instance, Warren Martinson of the Alberta Insurance Council told us that if a licensee’s offence in another regulatory jurisdiction involved “elements” of “breach of trust,” “untrustworthiness” or “fraud,” for instance, the licensee could, after formal proceedings, be deemed “unfit” to retain his or her insurance licence.

We asked Simon Romano, partner at Stikeman Elliott in Toronto, whether regulators in general tend to penalize similarly. He says it depends on whether it’s a fine or a ban.

Often when someone with multiple registrations commits an offence, “only your principal regulator will fine you, and the others will not fine you in addition,” he says. “But in terms of bans, they’re more protective of future investors. […] If you suspend for a period, I want that to be effective. I don’t want [a person] to move to Manitoba and start fresh. One would expect that suspensions and bans would be more similarly adopted by the regulators.”

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Transcontinental Media G.P.