On November 4, 2015, a panel appointed by the Government of Ontario to review the mandate of provincial financial services regulators - the Financial Services Commission of Ontario (“FSCO”), the Financial Services Tribunal (“FST”) and the Deposit Insurance Corporation of Ontario (“DICO”) - published its preliminary position paper “Review of the Mandates of the Financial Services Commission of Ontario, Financial Services Tribunal, and the Deposit Insurance Corporation of Ontario”. The panel recommended the creation of a new provincial financial services regulatory agency (“Financial Services Regulatory Authority” (“FSRA”)) to exercise both prudential and market conduct regulation, essentially replacing FSCO and DICO. Comments on the paper are due by December 14, 2015.

The panel has undertaken its review at a time of rapid change in the financial services industry. New products, services and technology are being introduced by both new entrants and incumbents, as consumer expectations are increasing. The agencies under review collectively regulate certain aspects of the following financial services industry sectors: insurance companies, intermediaries and services; pension plans; loan and trust companies; credit unions and caisses populaires; mortgage brokering; co-operative corporations; and service providers who invoice auto insurers for listed expenses relating to statutory accident benefits. The review advocates a fundamental restructuring to create a more flexible, adaptable and responsive regulatory regime in Ontario, better suited to a rapidly changing environment. In the panel’s view, many of the functions performed by both FSCO and DICO could be handled better by a single integrated regulator.

The paper sets out the panel’s preliminary recommendations that FSRA be organized into separate market conduct, prudential, and pensions regulatory divisions, each led by a Superintendent and operating independently of each other, but in a coordinated, consistent manner. The market conduct and prudential divisions should include units for particular financial services sectors or operational functions. Due to the unique nature of pension regulation, a separate Superintendent of Pensions is recommended. There should be flexibility for the Legislature to add financial sectors to FSRA’s responsibilities, or to remove them. The paper recommends that FSRA should operate independently, outside the Ontario Public Service; be self-funded; be governed by an independent board of directors with rule-making authority; and be accountable to the Ontario Minister of Finance. The paper notes that FSCO cannot currently impose Administrative Monetary Penalties in the pensions sector, unlike in other sectors it regulates, and recommends that FSRA should be given authority to levy Administrative Monetary Penalties in the pensions sector. FSRA should be given a clear mandate and rule-making authority in all sectors under its responsibility and the authority to retain the funds received from penalties levied. FSRA’s regulatory approach should be risk-based, outcomes-based and proactive.

The paper recommends that DICO’s prudential regulation functions in respect of entities that operate solely in Ontario be transferred to FSRA. Prudential oversight of entities that do not operate solely in Ontario should be transferred to the federal Office of the Superintendent of Financial Institutions (“OSFI”). The paper recommends that a similar regulatory framework should apply to individuals and entities selling similar products such as mutual and segregated fund dealers, insurance agents and brokers and staff selling similar products in banks and other financial institutions. FSRA should be required to cooperate with other regulators, including self-regulatory bodies that oversee sellers of financial products, and have authority over such financial self-regulatory bodies. The Government should consider transferring from the Ministry of Government and Consumer Services (“MGCS”) to FSRA responsibility for regulating payday lenders and loan brokers, consumer credit reporting agencies, debt and credit counsellors, guarantee and warranty insurers and other participants in the Ontario financial services sector.

Not all financial sector regulation should be transferred to FSRA. The paper suggests, for example, that the Government should explore transferring regulation of the Cooperatives sector to MGCS, and that the Government could consider transferring responsibility for reviewing offering statements of cooperatives to the Ontario Securities Commission. Responsibility for the administration and funding of the Motor Vehicle Accident Claims Fund should be transferred from FSCO to the industry operated Facility Association. The paper suggests that the DICO provincial deposit insurance scheme and the activities of the Pension Benefits Guarantee Fund could remain with DICO, with DICO’s name to be changed to reflect its new role.

The paper suggests that the new regulator should strike a balance between effective consumer protection and fostering a competitive financial services sector. In addition to the rule-making powers referenced above, which would be expected to result in additional consumer protection measures being introduced, the paper specifically recommends that FSRA’s mandate include a focus on consumer protection, to be informed by the 10 principles in the OECD’s G20 High-Level Principles on Financial Consumer Protection.The OECD principles specifically call for oversight bodies to be explicitly responsible for financial consumer protection, with the authority required to fulfil their mandates, operational independence, adequate powers and resources, transparent enforcement frameworks, and clear and consistent regulatory processes.The paper recommends that a new separate “Office of the Consumer” be created, as well as a fraud compensation fund to be administered by FSRA.

The paper recommends that the FST continue to exist, separate from FSRA and with a separate adjudicative role, including the authority to adjudicate appeals of FSRA decisions.

The paper does not make any recommendations as to whether the requirement for prior regulatory approval of auto insurance rates should be continued. This matter remains under consideration and the panel continues to seek input on this issue.

Should the recommendations in the paper be implemented, we would expect to see a more robust and proactive financial services regulator in Ontario, that is more flexible and better able to respond quickly to changes in the financial services industry.