Regulators seek feedback on upfront commissions paid for segregated funds and individual variable insurance contracts

Published September 20, 2022

The Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO) – the two national organizations for Canadian insurance regulators – are seeking input on a discussion paper that examines upfront compensation paid for the sale and servicing of segregated funds and individual variable insurance contracts.

CCIR and CISRO are concerned that upfront commissions in segregated funds may pose a potential risk for conflicts of interest where customers may be relying on an advisor to sell them a suitable product while the advisor is being paid by the product manufacturer for the sale.

The Canadian Securities Administrators, the umbrella organization of Canada’s provincial and territorial securities regulators, placed a ban on upfront commissions in mutual funds including deferred sales charges (DSC) effective June 1, 2022. The ban was put in place to protect consumers from unfair treatment in the sale of financial products. In the same vein, insurance regulators then urged insurers to refrain from new DSC sales in segregated fund contracts with the transition to end these sales by June 1, 2023.

Since segregated funds and mutual funds share some similar characteristics with the potential to financially harm consumers, CCIR and CISRO have opened public consultation on a discussion paper to determine the impacts of upfront compensation in the sale of segregated funds and individual variable insurance contracts. The purpose of the discussion paper is to ensure the fair treatment of consumers while keeping the regulatory regimes in the sale of these insurance products harmonized within the insurance and financial industry.  

Feedback on the discussion paper can be provided to the CCIR Secretariat at ccir-ccrra@fsrao.ca until November 7, 2022.

For more information about the consultation, visit the CCIR website.