Ontario acts to protect life insurance consumers from deferred sales charges
Ontario has taken a significant step towards enhancing consumer protection in the life insurance sector.
The province's financial services regulator, the Financial Services Regulatory Authority (FSRA), along with the approval of the Minister of Finance, has introduced a pivotal second amendment to the Unfair or Deceptive Acts or Practices (UDAP) Rule, set to come into effect on February 14, 2024.
This amendment aims to offer stronger protection for consumers who hold segregated fund contracts, specifically in terms of deferred sales charges.
The amendment is a response to concerns over the fairness of deferred sales charges, which are fees consumers pay if they withdraw money from an individual segregated fund contract before a predetermined period expires. These charges have been a point of contention, potentially hindering investors' access to their funds without incurring significant costs.
According to Huston Loke, executive vice president, Market Conduct at FSRA, this regulatory enhancement is a victory for investors in Ontario. The new rule is designed to provide consumers with either the ability to invest without the worry of deferred sales charges or the necessary information to make informed decisions about their investments in segregated funds.
The initiative follows a public release issued by the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) in February 2022, which recommended a halt on the sale of individual segregated fund contracts with deferred sales charges by June 1, 2023.
The first amendment to the UDAP Rule, enforcing a ban on these charges for new contracts, was effectively implemented on the recommended date.
