Understanding Compliance in Wholesale Financial Services: A Guide for Managers

1. How “Compliance” Fits Sandra Dolson Wholesale Compliance Manager SLF Canada

2. Environment • Significant misconduct incidents / allegation in financial services (e.g. Earl Jones, Milo Brost) • Regulators have lower risk tolerance……raising the bar on control functions and compliance risk management • Both provincial and federal laws apply to distribution activities • Rule based vs principle based - trend is for less regulation • Sometimes the industry imposes compliance initiatives on itself - the alternative is for regulators to impose it

3. Once upon a time …..

4. Compliance is…….. • about trust that the public places in you. • what protects this trust • what is looked to by the regulators to prove that we are protecting this trust.

5. Risk Assessment Checklist

6. Risk Assessment Checklist – con’d

7. Privacy • Obligation • Protect your clients’ personal information • To comply with federal and provincial privacy laws • Risk • Reputational • Regulatory • Monetary • Control • Privacy Policy – Do you provide a copy of your privacy policy to your clients? Do you provide the carrier’s privacy policy? • Internal Policies (i.e. secure communication to clients via e-mail or fax, phone, office space, laptop security, working from home etc.) • Privacy training

8. Anti-Money Laundering & Anti-Terrorist Financing • Obligation • Comply with Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) • Risk • Imprisonment from 6 months to 5 years • Fines from $500,000 to $2,000,000 • Administrative monetary penalties, or • All three of the above. • Control • Compliance Regime as required by AML/ATF • Verify the identity of your clients, and keep records • Report Suspicious Transactions • Risk assessment checklist of compliance regime

9. Managing Conflicts of Interest • Obligation • Protect your clients’ personal information • Disclosure of conflicts or potential conflicts • Product must be suitable for the client’s needs • You must comply with industry guidelines/standards • Risk • Unable to demonstrate appropriate sales practices • Lack of consumer trust • Lack of industry compliance could lead to regulated disclosure • Control • The “Approach” – as recommended by CLHIA, Advocis, CAILBA, etc. • Determine your client’s needs and objectives

10. Advisor Disclosure • Obligation • You must comply with industry guidelines/standards • Must be provided prior to the sales transaction • The consumer must have clear information about: - the companies you represent and your relationship with the companies - how you are compensated - additional compensation you may receive (ie travel incentives) - conflicts of interest - consumers right to ask for more info - any industry-related license(s) you hold • Risk • Lack of consumer trust and/or confidence • Lack of industry compliance could lead to regulated disclosure • Control • The “Approach” – as recommended by CLHIA, Advocis, CAILBA, etc • Written documentation of disclosure

11. Product Suitability • Obligation • Disclose all information needed so client has a good understanding of the product you are recommending and impact of proposed replacement of original policy • Advice should meet the client’s need and situation to help your client make an informed and confident purchase decision • Risk • Lack of consumer trust and/or confidence • Lack of industry compliance could lead to regulated disclosure • Control • Follow ‘The Approach’ as recommended by CLHIA, Advocis, CAILBA, etc. • Refer to product information on carrier’s websites

12. Policy Replacement • Obligation • You must comply with the provincial regulation • Disclose all information needed so the client has a good understanding of the product you are recommending and the impact of proposed replacement of original policy • Risk • Lack of consumer trust and/or confidence • Lack of compliance with the provincial regulation • Control • Follow the provincial replacement disclosure requirements • Ensure the client needs are met and the client’s best interest come foremost

13. Record Keeping • Obligation • Files must be current, correct, complete, consistent & contemporaneous • Risk • If there are incorrect notes, all other notes may become questionable • Control • Have a consistent process for documenting your client interactions. • Make sure all members of your business use the same method for documentation

14. Education & Training • Obligation • Continue your education as you work in the industry • Licensing requirement • Risk • License suspension • Control • attend education sessions regularly to keep current • have employees trained so they understand why you have the practices your business follows

15. Errors & Omissions Insurance • Obligation • Have appropriate coverage for your business • Licensing requirement in most provinces • Carrier requirement as part of your contract • Risk • Not having the coverage when most needed • License revoked • Control • Understand the policy you have in force • As your needs change, ensure you policy is appropriate

16. Awareness of Responsibilities • Obligation • To Understand laws, regulations and industry guidelines • Risk • Culmination of the previous “Risks” on previous slides • Control • Comply with all insurance and other applicable laws, regulations and industry guidelines including policies and directives established from time to time by a carrier • Become a member of a professional organization (i.e. Advocis)

17. Control Checklist

18. Control Checklist

19. Do you understand your responsibilities?