Panel appointed by Ontario Ministry of Finance recommends creation of new regulatory agency

A panel appointed by the Ontario Ministry of Finance has recommended the creation of a new regulatory agency to operate as an “integrated regulator of financial services with distinct market conduct, pensions and prudential regulatory functions; operating independently of each other, but in a coordinated and consistent manner.”

The recommendation for the creation of a “Financial Services Regulatory Authority” was one of 37 recommendations contained in the Review of the Mandates of the Financial Services Commission of Ontario (FSCO), Financial Services Tribunal (FST) and the Deposit Insurance Corporation of Ontario (DICO), released on Wednesday. The preliminary position paper from panel members George Cooke, James Daw and Lawrence Ritchie made recommendations related to mandate; governance; structure; tools, means and regulatory approach; and the FST.

The panel members reviewed written submissions from 45 organizations and individuals, held seven specific sector roundtable discussions and engaged in open dialogue during more than 35 informal meetings with regulators, financial services stakeholders and investor advocates. They looked at:

• Whether, and to what extent, each agency’s mandate continues to be relevant to Ontario’s goals and priorities;

• Whether the agency is carrying out the activities as required in its mandate;

• Whether all or part of the functions of the agency are best performed by the agency or whether they might be better performed by a ministry, another agency or entity; and

• Whether changes to the current governance structure/associated accountability mechanisms are necessary to improve mandate alignment and/or accountability.

“Throughout our consultation process we heard similar messages,” the authors wrote. “Many feel that there are material shortcomings in the mandates, regulatory approach, operational resources, tools and capacity.”

The panel members also said that they heard, among other themes, that the FSCO is limited by the constraints of the Ontario Public Service, “its regulatory approach is inflexible and insufficient to address both the complex and ever-changing financial marketplace and the challenges to consumer protection,” and “its policy and decision-making process lacks transparency and, in turn, the agency does not require or foster appropriate transparency within the sector it regulates.” The panel members also wrote that “the FST lacks sufficient independence and resources and, in some instances, authority.” Current mandates are “unclear and outdated,” and there is a perceived ambiguity between the roles of FSCO and DICO, the report noted.

“We observe the perception that the Ontario regulatory regime is not as effective as it could or should be,” the report said. “These agencies should have the mandate and authority to work closely with the financial services sector and with ‘sister’ agencies in other provinces to encourage the development of a vibrant and safe financial sector and to better ensure that consumers have a consistently high level of service and protection, without burdening market participants with undue regulatory costs or complexity.”

Other recommendations include:

• That the FST should be separated from, and operationally and financially independent of, the proposed Financial Services Regulatory Authority (FSRA);

• In order to remain relevant and flexible, the mandate of the agency should include a commitment to encourage innovation and transparency within the regulated sectors;

• The FSRA should be given authority over, and responsibility for, the oversight of any self-regulatory body operating within the financial services sector in Ontario (not otherwise overseen by another statutory body);

• The government should give “serious consideration” to transferring responsibility for oversight of all relevant participants in the Ontario financial sector, such as payday lenders and loan brokers, consumer credit reporting agencies, debt and credit counsellors, and guarantee and warranty insurers to FSRA from the Ministry of Government and Consumer Services;

• Regulatory oversight of the Cooperatives sector should be transferred from FSCO to an agency or entity other than the FSRA;

• The administration and funding of the Motor Vehicle Accident Claims Fund should be transferred from FSCO to the industry operated facility association; and

• Consideration should be given to an expanded mandate for FSRA to include the establishment and oversight of a fraud compensation fund.

The report concluded that the panel members “make no recommendation at this time with respect to the prior approval of auto insurance rates by FSCO or its proposed successor. We have been made aware that most other jurisdictions have moved away from the rate setting approach currently used in Ontario. If this approach was to continue within FSRA, we would be concerned that this activity would unnecessarily dominate the agenda of FSRA to the detriment of other sectors.”

In a statement on Thursday, the Insurance Bureau of Canada (IBC) said that it welcomes the findings indicating that the Ontario regulatory regime for insurance, pensions and other financial services activity is not as effective as it could or should be.

“IBC and its members believe that Ontarians will be best served by a framework that is focused on consumers, is proactive and strongly committed to promoting innovation and competition in the marketplace,” said Don Forgeron, president and CEO of IBC, in the statement. “We look forward to continuing our work with the panel to this end.”

Forgeron added that “what many people do not know is that insurers have to apply to FSCO to adjust their auto insurance premiums, whether up or down. This process is slow, cumbersome, lacks flexibility for insurers and does not serve the best interests of consumers. Ontario’s insurers are committed to delivering affordable, high-quality auto insurance that offers secure protection and choice. A modern and efficient system is vital to delivering that product,” he concluded.

Correction: An earlier edition of this article stated that the Financial Services Commission of Ontario has recommended the creation of the new agency, when in fact it was the panel appointed by the Ontario Ministry of Finance. Canadian Underwriter regrets the error.