Canadian regulator aims to improve transparency on segregated-fund sales

Share

Insurance regulators are looking to improve disclosure documents for the sale of segregated funds, particularly in explaining to investors the costs and performance of their insurance investments.

The Canadian Council of Insurance Regulators (CCIR) is reviewing the regulatory framework of segregated funds to identify whether changes are necessary, particularly in light of recent regulatory reforms – the Client Relationship Model initiative – affecting similar investment products such as mutual funds and exchanged-traded funds.

In the fall, the CCIR intends to publish a position paper outlining its recommendations and expectations and will refer to issues such as the delivery of the Fund Facts document for subsequent transactions, risk-classification methodology, oversight of sales, needs-based analysis, updating of client records and know-your-product due-diligence requirements.

"Ensuring that customers have the information needed to understand not only how their segregated funds are performing, but also their full costs is of the utmost importance to us," Anatol Monid, chair of the Segregated Funds Working Group for the CCIR, said in a statement on Tuesday.

Over all, net assets in segregated funds have reached $116.8-billion as of June, 2017, according to the July 2017 Insurance Advisory Service report by Strategic Insight.

Segregated funds are similar to mutual-fund investments with a built-in insurance contract. Policy holders are given a guarantee on a portion of their principal investment, while at the same time being able to invest their dollars in an investment portfolio made up of underlying mutual funds.

The CCIR will also publish a prototype disclosure document, identifying minimum required information on performance as well as on fees and charges. The prototype document is expected to be released in 2018.