Ontario’s top financial-services watchdog on rules, innovation

Anyone who is not involved in mortgage, auto insurance, retirement or credit and trust business may not know what the Ontario Financial Services Regulatory Authority (FSRA) is doing and who is running it. But almost everyone has read stories of questionable practice in these areas.

CEO Mark White heads the FSRA, a relatively new Crown agency tasked with overseeing financial services in Ontario that are not stocks or bonds. However, there is also a need to encourage innovation in the Ontario financial sector.

This may seem like a strange mix of responsibilities for the FSRA. The Star spoke to White about why it actually makes sense for the regulator to think about innovation.

The FSRA was established about three years ago and you have just submitted a progress report and an outline of your plans in the field. How do you plan to further regulate the sector?

Our vision is to ensure that we achieve financial security, equity and choice for the people of Ontario when they use non-security financial services. We are going to do this by being a dynamic, principle-based and results-oriented regulator.

That’s a lot of words. That means we’re not just there with a list of ticks. We carefully consider what we are trying to achieve in all the different areas we regulate. As for pensions, you need to make sure that there is a pension, and the money is well invested and managed. In credit unions it is a safe place for people where they can put their money and that they will be treated according to high standards of conduct.

Our job is to work not only through the checklist, but also to really achieve the desired results and work with regulated organizations.

You talked about creating jobs and promoting innovation. As a regulator, isn’t your work more related to law enforcement?

Great question. If you check out section three of the FSRA Act, we have a very long list of goals. Most of them are traditional – security and good faith of credit unions, good administration of pensions, protection against fraud and fraud. The list goes on. But we also have a balanced mandate. The Ontario legislature has asked us to think about how we promote strong, sustainable, competitive and innovative financial services sectors.

Honestly, the easiest way to maintain stability in the market is not to make it so innovative, and maybe not even so competitive. But then consumers won’t get a choice, and Ontario’s economy will suffer. You see all the events in the field of technology – there are huge opportunities for how new products and services will be delivered, how and what new products and services will be. I think it is very intentional that we are instructed never to sacrifice the public interest with all these other important regulatory goals, but to give up trying to make sure that these sectors are strong, sustainable, competitive and innovative.

How to achieve this balance? I think it’s hard – you have to innovate for technologies that can undermine public confidence.

It’s hard abstractly, but in specific factual cases, when you do your job, it actually becomes clear pretty quickly. You never sacrifice other public interest goals to support innovation. If someone wants to test something, say, under the new car insurance exemption powers that have been given to us – if we can’t be comfortable, we can put options around that test on disclosure or managing certain issues that consumers may be in. hurt, then we won’t let that go forward. We will work with the innovator to try to figure out how they can do this in a way that makes us comfortable that it is in the public interest.

Are there any innovations in the Ontario market that stand out?

There are a variety of small innovations in what existing players do, but there may be larger innovations. For example, user-based car insurance is something that, in my opinion, is of great importance because it tells drivers that they will be charged depending on how they drive. There are incredibly high relationships between risk and certain driving behaviors, and modern technology allows us to monitor how risky you are as a driver, and give you feedback on how you can reduce your risk to become a safer driver.

Previously, one of our previous regulators had a rule that user-based insurers could only give someone a discount. Companies were hesitant to offer this because it meant all good drivers got reduced fees, but companies were unable to get a refund for all the bad drivers who came on user-based insurance. This is a technological improvement. This was made possible by smartphones and chips that you couldn’t put in a vehicle, and it really has the potential to revolutionize the way car insurance is charged.

Ottawa has talked about regulating cryptocurrencies in protest of consumers. Are you also looking at it?

We have considered cryptocurrencies in all our sectors. For pensions, this can be an investment. For credit unions it may be that customers want services in the crypto. Banks want to give loans in crypto, not in Canadian or US dollars. Do insurance companies and mortgage brokers want to accept crypto payments? But, frankly, most of them are quite inactive.

One big problem I would point out is the preservation of crypto-assets. You are probably familiar with Quadriga. One of the biggest problems was that there was no safekeeping of assets – no one was convinced that if something happened to management or Quadriga computer systems, they could be restored. This is a really important issue for us.

One of our sectors, although not a very large sector, is the credit and trust corporations sector. We are working with other regulators on how to secure a route to Ontario. Who is the custodian of these crypto-assets? This is a key issue because most custodians are not businesses in Ontario. It’s a crypto platform that does business here, but the custodian is in a different jurisdiction.

You need to develop a relationship with New York, the Cayman Islands or London, where this custodian is regulated. This is a really important part of the crypto-puzzle, and I would say it’s probably the one we’re most focused on right now. In fact we are trying to prepare some instructions that would basically explain to custodians if we believe they should come to us and register under the Credit and Trust Corporation Act.

How do you deal with a business that is behaving badly? What are your priorities in regulation and enforcement?

We try to use different methods of supervision, but it is not enough to set out the rules and guidelines and say what you want. You need to be prepared to actively monitor them. If you don’t get the right results, you should be able to investigate and enforce.

We have identified some troubled portfolios of complex syndicated mortgages, and we have been able to intervene – usually quietly – to improve investor performance so that they are better protected. Another good example is car insurance, where insurers have to “take everyone” – they offer insurance to anyone who meets the criteria. We have identified many practices in the market where this is not the case.

We have now demanded that insurance companies act. They need to be accountable to us, and they need to have a remediation plan. And they know we’re serious because we’ve put together recommendations on application options, and we’ve taken action against insurance companies before. We are actively monitoring this, and we will continue to dig and find out what the problems are.

This interview has been edited for length and clarity.

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