Chapter 18: Regulation and Consumer Protection

Question 1

What are the 3 major sources of legislation impacting the securities industry in Canada?

Answer 1

1. Bank Act
2. Provincial Securities Acts
3. Provincial Insurance Acts

Question 2

Why would it be unusual for securities regulation to change in only one province?

Answer 2

The Canadian Securities Administrators (CSA) provides a forum for provincial regulators to discuss legislative changes in order to create a degree of uniformity across the country.

Question 3

Which 2 entities do the provincial insurance regulators form?

Answer 3

The Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organization (CISRO).

Question 4

When was the Bank of Canada created?

Answer 4

1934

Question 5

What is the name of the test for capital requirements of banks used in Canada that set minimum thresholds for how banks are capitalized and how much leverage they can hold?

Answer 5

The Basel III standards set by the Basel Committee on Banking Supervision, an international body based in Basel, Switzerland.

Question 6

Who do Canadian banks report their financial status to?

Answer 6

The Office of the Superintendent of Financial Institutions (OSFI).

Question 7

Which requirement must Canadian life insurers meet?

Answer 7

The Life Insurance Capital Adequacy Test (LICAT), a test of an insurer’s ability to pay claims.

Question 8

What is CDIC?

Answer 8

Canada Deposit Insurance Corporation, a federal Crown corporation created in 1967 that protects deposits up to $100,000 per type of account per member institution.

Question 9

Can credit unions join CDIC?

Answer 9

Only if they are federally regulated.

Question 10

What are the 7 CDIC insured accounts?

Answer 10

1. Individual accounts
2. Joint accounts
3. RRSPs
4. RRIFs
5. TFSAs
6. Trust accounts
7. Pre-paid property taxes on mortgaged properties

Question 11

Which things can one purchase at a bank that are not CDIC-protected?

Answer 11

• Mutual funds, stocks, bonds
• Foreign currency deposits
• T-Bills and banker’s acceptances
• PPNs
• Debentures issued by banks, governments, and corporations
• Deposits where the rights are to the bearer (holder), rather than to a named person
• Term deposits over 5 years

Question 12

How much deposit protection exists for provincial credit unions?

Answer 12

Varies for each province, but generally $250,000 to unlimited (except for Quebec, which is $100,000)

Question 13

What is the CBA and CPA?

Answer 13

CBA - Canadian Bankers Association (industry association representing banks and their associated entities, providing banks the opportunity to discuss and share best practices)

CPA - Canadian Payments Association (association that facilitates most exchanges of money from one institution to another, operating as Payments Canada. Makes sure mechanisms are in place to allow funds to flow freely between all kinds of FIs)

Question 14

When was Assuris founded and what was it originally called?

Answer 14

Founded in 1990 and originally called CompCorp

Question 15

What does Assuris do if an insurance company fails?

Answer 15

On the failure of an insurer, Assuris steps in and will pay benefits during bankruptcy, when it would normally not be possible for a bankrupt insurer to pay any benefits. Assuris then works with other insurers to buy the business of the bankrupt insurer.

Question 16

What are the promises that Assuris makes on death benefits, sickness benefits, income benefits, cash values, and accumulation annuities?

Answer 16

Death benefits - 100% under $200K, then 85%

Sickness benefits (CI, H&D, travel) - 100% under $60K, 85% over $60K

Income benefits (LTC, DI, annuities) - 100% up to $2000/month, 85% over $2000/month

Cash values (seg funds, cash in a UL/WL policy) - 100% up to $60K, 85% over $60K

Accumulation annuities - 100% up to $100K, no coverage beyond that

Question 17

Which insurance companies in Canada do not belong to Assuris?

Answer 17

Fraternal benefit societies and property & casualty insurers. Every other insurance company in Canada belongs to Assuris.

Question 18

What is the equivalent of Assuris for property and casualty insurers?

Answer 18

PACICC - the Property and Casualty Insurance Compensation Corporation.

Question 19

What does PACICC insure and how much?

Answer 19

Property and Casualty Insurance Compensation Corporation

• A&S when sold as part of a P&C policy up to $250K
• Auto insurance up to $250K
• Broiler and machinery ins up to $250K
• Creditor protection up to $250K
• Legal expenses ins up to $250K
• Liability ins up to $250K
• Home ins up to $300K

Question 20

Why is it generally not a problem when a P&C insurer goes bankrupt?

Answer 20

If an insurer goes bankrupt, the policy can be shopped to a new insurer. It’s only a major issue if a claim arises in the midst of an insolvency or bankruptcy.

Question 21

What is the CLHIA?

Answer 21

Canadian Life and Health Insurance Association. The association for life insurers. It sets the rules for the distribution and client disclosures for segregated fund products and other insurance investment.

Question 22

Who is the ombudservice for life and health insurance companies?

Answer 22

OLHI - OmbudService for the Life and Health Insurance Industry.

Question 23

What are the two major securities self-regulatory organizations in Canada? What do they offer as protection for investors?

Answer 23

MFDA and Canadian Investor Protection Fund (CIPF) (which is the equivalent entity for IIROC firms). Both offer up to $1M protection for their clients.

Question 24

What happens in the case of a dispute between a client and a securities dealer where the dealer may have defrauded the client or otherwise caused them a financial loss?

Answer 24

The Office of the Superintendent of Banking Institutions (OBSI) can recommend cash awards up to $350K.

Ombudsman for Banking Services and investments.

If the client seeks a greater award, that would need to be sought through the courts.

Question 25

When did disclosure of advisor compensation become mandatory?

Answer 25

In 1994, Hodgkinson v. Simms went before the Supreme Court of Canada after an accountant was compensated for referring clients to an investment advisor and they purchased an investment that subsequently failed. Since then, it has become the norm for agents to disclosure the fact that they are compensated for selling financial products.