New notice clarifies when information on segregated fund transactions may be included in client statements
The Investment Industry Regulatory Organization of Canada (IIROC) has issued guidance for investment dealers who may want to report information on segregated fund contracts within client statements.
In a notice released last week, IIROC noted that dually licensed individuals working at investment dealers have traditionally had to record their life insurance business separately from the securities business of the leader.
“However, the number of individuals licensed to sell both securities products and life insurance products has increased significantly,” the self-regulatory organization said. “Also, segregated funds and guaranteed income annuities have become increasingly popular.”
Those trends, IIROC said, have given rise to situations where clients of the dealers wish to see the insurance products being recorded in their accounts alongside reports of activities with the dealer in securities products. The similarity of seg funds to securities products, along with the fact that they’re able to purchase both products from the same individual, have also made it difficult for clients to understand why dealers are unable to report on those products simultaneously.
“We have concluded that while legally these products are life insurance products, they exhibit strong similarities to securities products and may be treated for processing and reporting purposes in a similar manner,” IIROC said.
Citing the desire of clients served by dealers with insurer affiliates to have their insurance and security transactions consolidated into a single set of statements, IIROC said it will permit reporting information and confirmations regarding transactions in segregated fund contracts on client statements prepared by the dealer under certain circumstances, including among others:
- The dealer enters into a servicing agreement with the insurance agency it processes segregated fund transactions for;
- Premiums should be paid by the client to the dealer, with instructions for the dealer to transmit the premium to the insurer as agent for the client;
- The individual selling the segregated fund contract is a licensed life insurance agent in the province where the sale takes place;
- Segregated fund transactions must be clearly and reliably identified so as to distinguish insurance transactions from securities transactions.
IIROC stressed that insurer and insurance agency affiliates of a dealer processing segregated funds through a dealer must make sure they’re compliant with applicable insurance laws, regulations, and guidelines.
“In addition, this Guidance makes no statement with respect to the implications of this process on certain aspects of life insurance contracts, including probate status and creditor protection features and Dealers should consult legal counsel with respect to these matters,” IIROC said.
