(June 21, 2005) Ontario’s insurance regulator says a recently completed investigation uncovered virtually no evidence of segregated fund trading abuses, such as market timing, frequent trading or delayed trading. Moreover, the Financial Services Commission of Ontario (FSCO) says the province’s insurance companies have effective controls in place to prevent such problems.
FSCO began investigating seg funds after the Ontario Securities Commission conducted a review of the mutual fund industry.
In May 2004, FSCO sent a questionnaire to all life insurance companies in the province offering segment funds. The regulator then narrowed the study to the 10 largest companies, representing 90% of the market.
In the first stage of the investigation, the regulator “assessed the controls and procedures used by life insurance companies to prevent, detect and correct potential commercial abuses.”
In phase two, FSCO reviewed the turnover rates of 653 segregated funds to check for trading abuses.
Of the segment funds examined, 156 had turnover above the established criteria. However, FSCO obtained and reviewed explanations from the life insurance companies and determined that there were legitimate reasons for trading activity in each of these segregated funds, except in one case (Market Timing), where corrective action was quickly taken.
This single case involved an individual policyholder trading his own investment and lasted just a month before he was identified by the company’s internal controls and stopped, FSCO says.
Generally, insurance companies receive a glowing review in the regulator’s 22-page report.
“All examined life insurance companies have written policies and procedures included in internal instructions, policy agreements, information folders and other documents,” the report reads. “To prevent transaction delays, life insurance companies using FundSERV, an independent funds transaction processing system, have programmed limits for electronic transactions and manual cut-off times for faxed or mailed transactions. Market timing and frequent trading controls and deterrents include imposing fees on transactions that exceed a certain number per year or occur within a certain number of days of the original transaction.
In recent months, all life insurance companies have audited their internal procedures and systems to detect the presence of improper market transactions, FSCO adds. “The conclusions were that there were sufficient controls in place to prevent trade delays.”
Submitted by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com
(21/06/05)
