RIBO Principal Broker Responsibilities Review & Consultation

Introduction

Ontario’s regulator for insurance brokers, the Registered Insurance Brokers of Ontario (“RIBO”), has a core public protection mandate. As a self regulatory organization, RIBO enforces legislative and regulatory requirements as well as Code of Conduct principles with a view to ensuring that customers of its licensees are treated fairly in all personal and commercial insurance transactions, anywhere in the province of Ontario. RIBO actively reviews these requirements to determine if they align with current regulatory best practices.

Under the Registered Insurance Brokers Act (RIB Act), Regulations and Bylaws, Principal Brokers (PBs), sometimes referred to as Designated Individuals or DIs, are ultimately accountable for ensuring compliance by brokerages and licensees employed therein. This includes compliance with the RIBO Code of Conduct as well as all other regulatory requirements. As brokerages have become larger, often with locations across the province, the challenges of effective oversight have grown. Increased online/ digital activities by brokerages also add to these challenges. That said, effective use of technology often supports the oversight activities of Principal Brokers, allowing the adoption of policies and procedures that were unavailable even a few years ago.

This paper aims to discuss the important role of the PB in ensuring brokerage regulatory compliance. It also seeks comment from stakeholders as to how RIBO might better support PBs in that regard, and by so doing, benefit the consumers we serve.

Background

The role of a PB comes with great accountability and responsibility, as they undertake to use their best efforts to ensure all RIBO requirements are being met. To fulfill those responsibilities, they must have full authority to act in the name of, and on behalf of their brokerage firm(s). It is important to understand that, in accepting and assuming the responsibilities, they may be held personally responsible for improper acts of the firm and/or an individual broker within the firm. This may occur where the PB does not demonstrate that reasonable efforts were made to ensure adequate supervision of employee brokers and compliance with RIBO requirements.

In addition, under RIB Act, Regulations and Bylaws, all PBs are held to the same standard regardless of the number of brokerages and/ or individual licensees they represent. The focus for both RIBO and PBs is on ensuring consumer protection irrespective of the brokerage business model – bricks and mortar, online or everything in between.

Legislative Requirements

It is a statutory requirement for every Brokerage Firm to appoint a PB who is responsible for the direction and supervision of the firm and its employees.

In addition to requiring brokerages to appoint a PB, under Regulation 991 (made under the RIB Act), these PBs must meet specific and ongoing regulatory criteria. PBs are required to hold an unrestricted license, meet specific continuing education criteria, and remain in good standing. PBs must also be an officer or director of the corporation (or a partner or sole proprietor, as appropriate). PBs are permitted to appoint one or more Deputy PBs to act in his/her place. Deputy PBs must meet the same eligibility requirements of PBs. Of note, not all brokerages choose to appoint a Deputy PB or look to appoint an individual to the position of Supervising Broker for their firm. The specific Regulation and Bylaw provisions that apply to PBs may be found in the Appendix.

Other Jurisdictions

The concept of PB (or equivalent^[1]) is found throughout much of Canada, with the same general purposes as within RIBO. Typically, there are education and experience requirements for those seeking registration in that role. There is also some limited regulation in place that makes those individuals responsible for the management and supervision of the brokerage firm. Of note, is the absence of a framework or procedures that would restrict the number of agencies for which an individual could act as a PB or equivalent, other than a duty to provide supervision.

“Plan of Supervision”

A Plan of Supervision outlines the process the PB undertakes to ensure compliance with RIBO requirements. While such a Plan is not formally mandated and does not require RIBO approval, the Principal Broker Handbook includes a discussion of “elements of supervision”. Utilizing a principles-based approach, i.e., focusing on desired outcomes rather than specific rules, the elements expected to be addressed are:

1. Regular visits to each branch location by the PB and/or by Deputy PB.
2. How and by whom are each of the branch locations monitored and the level of supervision for new and existing brokers acting under supervision.
3. Whether written guidelines, policies and procedures are provided to each branch location.
4. The type of binder control that exist and how trust funds are being controlled for each branch location.
5. How the books and records of each branch location are being maintained.
6. The kind of follow-up system that exist for each branch location.

When conducting investigations into allegations of misconduct, RIBO seeks to determine if the PB has a meaningful oversight process in place and whether that process is being followed. In effect, RIBO expects a Plan of Supervision to be in place but does not require it to be filed, unless it is a condition for licensing or in relation to sentencing.

Principal Broker Handbook

In 2007, RIBO developed a comprehensive “Principal Broker Handbook”. Developed by the Professional Conduct Committee, RIBO Council and staff, the Handbook was designed to include all obligations and expectations for PBs, as well as brokers more generally. A hard copy of the binder was sent out to all PBs, who were required to sign back an acknowledgement of receipt. Sometime later, the Handbook was brought online and remains available as a resource. The Handbook has been updated as recently as 2019 but does not specifically address PBs serving for multiple firms. In addition, better guidance relating to insurtech or online-focused brokerages is being considered.

Note as well that the quarterly RIBO Bulletins at the time focused heavily on PB supervision requirements and expectations. RIBO also participated in a series of roadshows across the province with a presentation aimed primarily at PBs, focusing on supervision expectations and recommended best practices.

Serving as a Principal Broker for Multiple Firms

It was not uncommon for the PB of a RIBO registered brokerage to be an owner or one of the directing minds of the business entity, whether a sole practitioner, partnership or corporation. Further, a PB was typically associated with a single brokerage, or multiple brokerages with common ownership.

By necessity, a practice developed where an unaffiliated but otherwise qualified individual was allowed by RIBO to temporarily step in to act as a PB where the existing PB, for whatever reason, was unable to fulfil that role. This was typically the result of illness, death or a penalty imposed by the Discipline Committee. This allowed time for another internal person to obtain the necessary qualifications.[2]

Over time, some PBs began to offer this service to brokerages as a business model. In a ‘multi-firm PB’ scenario, the ‘outside’ individual satisfied the registration requirements and assumed the responsibilities of a PB. The brokerage could choose not to have anyone ‘in house’ in that capacity while still able to comply with RIBO licensing requirements.

Some stakeholders have expressed concern that there are currently no regulatory restrictions or guidelines relating to how many brokerages and/ or individual licensees a single PB is allowed to supervise. Further, they have expressed concern about whether a single PB may provide meaningful oversight when they are responsible for multiple firms with wide ranging geographic presence.

There is limited evidence that this practice is directly resulting in compliance breaches within brokerages. To date, RIBO audits suggest no direct link between compliance concerns and PBs overseeing multiple firms. There is, nevertheless, a heightened risk of consumer protection issues where PB oversight is weak. A PB in all instances is expected to have conducted a compliance risk analysis within the brokerage(s) and to adopt practices aligned with those risks.

Options and Considerations

In reviewing existing concerns from stakeholders, RIBO may consider various options in support of enhancing consumer protection:

Request for Comments and Deadline for Written Submissions

In considering the options discussed above, below is a set of consultation questions for your review and feedback.

Responses to these questions will be reviewed internally by RIBO staff and by the Legislation Committee of Council with a view to developing a proposal for Council’s review and approval.

The consultation period will run from March 25, 2021 to April 30, 2021. Please provide your written submissions by April 16, 2021 to: communications@ribo.com

If you have any questions about this consultation or how your submission may be used or disclosed, please contact RIBO at: communications@ribo.com

Discussion Questions

Appendix

Regulation 991, Excerpts referring to PBs

7.2 (1) A sole proprietorship, partnership or corporation which holds or wishes to hold a certificate of registration as an insurance broker shall designate an individual who is an insurance broker to be the principal broker of the business.  O. Reg. 72/96, s. 3.

(2) A member qualifies to be designated as a principal broker if the member,

(a) is not in default of paying any fee due under the Act or the by-laws of the Corporation;

(b) is not, at the time the notification referred to in subsection (3) is made, the subject of a complaint referred to the Discipline Committee or the subject of disciplinary proceedings before the Discipline Committee;

(c) is not the subject of an outstanding order of the Discipline Committee;

(d) is not in a class of membership which restricts him or her to acting under supervision;

(e) is the sole proprietor or an employee of a sole proprietorship, is a partner or is an officer or director of the corporation, as appropriate; and

(f) directs and supervises the sole proprietorship, partnership or corporation in acting as an insurance broker and has the authority to act in its name and on its behalf regarding applications or reports required under this Act or the by-laws of the Corporation.  O. Reg. 72/96, s. 3.

(3) A member shall not be designated as a principal broker until the member has notified the Corporation in writing that he or she meets the criteria described in subsection (2) and the Corporation has acknowledged the notice in writing.  O. Reg. 72/96, s. 3.

(4) In order to maintain his or her status as a principal broker, the member shall satisfy such educational requirements as are established by the Council within the time periods established by the Council.  O. Reg. 72/96, s. 3.

(5) The principal broker may appoint one or more deputies to perform such duties as may be delegated to him or her in writing by the principal broker.  O. Reg. 72/96, s. 3.

(6) This section, except subsection (5), applies to a deputy principal broker in the same way it applies to a principal broker.  O. Reg. 72/96, s. 3.

Section 15 of Regulation 991 also describes the following as an act of misconduct:

13. A registered insurance broker who is a director, officer or principal broker of a corporation that is a member or who is a partner or principal broker of a partnership that is a member or who is the principal broker of a sole proprietorship that is a member has knowingly concurred in the misconduct of the sole proprietorship, partnership or corporation.

14. Providing false or misleading information to the Corporation.

15. Acting as a principal broker as described in section 7.2 when the member has failed to comply with the educational requirements established by the Council under that section.

16. If a principal broker believes on reasonable and probable grounds that a member under the principal broker’s direction, regardless of the member’s registration class, has committed an act of misconduct, failure of the principal broker to report the potential misconduct. R.R.O. 1990, Reg. 991, s. 15 (1); O. Reg. 72/96, s. 4; O. Reg. 410/04, s. 5; O. Reg. 125/18, s. 2.

Excerpt from RIBO By Laws, Updated 2018

Legislative amendments in 2018 gave RIBO the authority to better enforce the PB requirements that are contained in the Bylaws.

With respect to the obligations of a PB, RIBO By-laws currently state:

The provision of direction and supervision by the principal broker shall include but not be limited to the following responsibilities:

• to ensure that all registered insurance brokers who are employees or partners comply with the Act, regulations and by-laws;

• to ensure that all registered insurance brokers who are employees or partners are provided with and use all information respecting insurance necessary for them to act in accordance with the Code of Conduct and without misconduct or incompetence as defined or described in the Act and/or regulations;

• to ensure that all registered insurance brokers who are employees or partners know and act in accordance with the Code of Conduct set forth in the regulations;

• to ensure that all trust accounts and books, records and accounts are maintained in accordance with the regulations.

• to ensure that all errors and omissions insurance, and/or other forms of financial guarantee, and all fidelity insurance are maintained in accordance with the regulations.

• to ensure that all required filings are made and prescribed fees and assessments are paid in accordance with the regulations;

• to ensure that no director, partner or employee who is not a registered insurance broker acts as an insurance broker; and

• to ensure that procedures are established and followed such that the requirements of sub- paragraphs (i) through (vii) are met.

In discharging these responsibilities, the principal broker shall be required to exercise reasonable diligence only.

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[1] Alberta and Saskatchewan refer to a “Designated Registrant” or “DR”, Manitoba refers to an “Operating Agent” or “OA”, British Columbia refers to a “Nominee”.

[2] As of February 2021, 86 % of RIBO individual registrants’ licensees are restricted to “acting under supervision”.  To remove that restriction, they must pass the Level 2 Technical exam. To act as a Principal Broker, they must pass the Technical exam as well as the Level 2 Management exam