Regulators require fine-setting abilities, says legal expert

Regulators need more tools. This was the message legal insurance specialist, Vivien Bercovici, partner at Heenan Blaikie, told a room full of P&C delegates during a panel discussion on “market (mis)conduct” at the National Insurance Conference of Canada, that ended Friday Oct. 2, 2009.

According to Bercovici, only a handful of regulators across Canada have the ability to use adminstrative monetary penalties (AMPs)—a “necessary tool” for regulators to deter non-compliance and penalize non-compliance.

“There is quite a variance in the 14 jurisdictions [across this country],” said Bercovici.

As a tool, administrative monetary penalties (AMPs) are used to enforce statutory and regulatory breaches by allowing  regulators to tailor the penalty to fit the breach, said Bercovici.

“Globally, regulators and the insurance industry are using AMPs to gain traction,” said Bercovici. She continued by saying that other industries, particularly the securities sector, have come to rely on this regulatory remedy.

Bercovici explained that the growing use and reliance on this tool is due, in part, to the complex and wide ranging regulatory and statutory breaches that can occur.

At present, in all jurisdictions in Canada, the insurance statues give regulators the ability to respond to breaches by exercising regulatory power. For example, cease and desist orders are issued for companies in breach of specific regulations. Then, regulators can either enter into private, non-disclosed negotiations with the company or, in more serious cases, proceed with criminal charges. Within these two extremes, however, regulators have no discretionary or flexible tool, such as AMPs.

“At one end of the continuum you have negotiations and at the other criminal charges,” said Bercovici. “In the middle are administrative monetary penalty systems,” and certain jurisdictions in Canada, such as Ontario, cannot currently use AMPs.

Bercovici suggests that governmental powers need to enable provincial regulators the use of more discretionary tools, like AMPs, so that penalties can be administered that commensurate with the seriousness of the breach.

“Aside from being a revenue generator for the regulators, [AMPs] are also a deterrent message,” said Bercovici. “A tool that penalizes a breach with a monetary fine [and] has a punitive effect,” both financially and reputationally.

AMPs would also provide the market, and players within the P&C industry, with more clarity and certainty about how a regulator may respond to certain statutory and regulatory breaches, and other market conduct, said Bercovici.

Originally published in Canadian Insurance Business Magazine in October 2009