FINANCIAL SERVICES TRIBUNAL

Citation: Qin v. Ontario (Superintendent Financial Services), 2015 ONFST 22 Decision No. I0616-2014-1 Date: 2015/07/17

IN THE MATTER OF the Insurance Act, R.S.O. 1990, c. I.8, (the “Act”) in particular sections 441.1, 441.2 and 441.3, and of the Financial Services Commission of Ontario Act, 1997, S.O. 1999, c. 28 (“FSCO Act”);

AND IN THE MATTER OF a Notice of Proposal to Impose an Administrative Monetary Penalty, dated July 25, 2014 issued by the Superintendent of Financial Services (“Superintendent”) against Liwen Qin;

AND IN THE MATTER OF a Hearing in accordance with subsection 441.3(5) of the Act.

B E T W E E N:

LIWEN QIN

APPLICANT

and

SUPERINTENDENT OF FINANCIAL SERVICES

RESPONDENT

BEFORE:

Florence A. Holden Chair (Acting) of the Tribunal and Chair of the Panel

APPEARANCES:

For the Applicant – Wansheng Zhang

For the Superintendent of Financial Services – Stephen Scharbach

Date HearD: July 7, 2015

REASONS FOR DECISION

I. INTRODUCTION

1This matter comes before us as a result of a Request for Hearing filed by the Applicant in response to a Notice of Proposal (“NOP”) dated July 25, 2014 to Impose an Administrative Monetary Penalty (“AMP”) in the amount of $1,000 on the Applicant. The Superintendent seeks to impose the penalty due to the alleged failure of Ms. Qin, as a licensed insurance agent, to fulfill her statutory obligation to give the Superintendent requested information about her activities related to the business of insurance pursuant to section 442.3(1)(4) of the Act, specifically her failure to respond to a market conduct questionnaire of licensed life insurance agents conducted by the Superintendent in 2013.

2Having heard the evidence of both parties and considered all the evidence and submissions before me, I order the Superintendent, pursuant to section 441.3(6) of the Act, to carry out the NOP for an AMP as amended in an amount of $500. The reasons for my decision follow.

II. BACKGROUND

3As noted in our Notta¹ decision, administrative monetary penalties under the Act were introduced into law effective January 1, 2013 to allow the Financial Services Commission of Ontario (“FSCO”), the regulator, to address contraventions in the law more efficiently, to promote compliance and to prevent financial benefit to violators. AMPs can be imposed for breaches of order, undertakings and licence conditions, as well as for contraventions of statutory provisions. This case is one of a large number of similar fact cases before the Tribunal.

4Background to the development, purpose and circulation of the questionnaire to selected insurance agents was set out in an affidavit of Mr. Anatol Monid, the Interim Executive Director of the Licensing and Market Conduct Division of FSCO. His affidavit was similar to that described in the Notta decision, paragraphs 3-7 and need not be replicated herein, except to note that the purpose of the mandatory questionnaire was intended to assist FSCO, using evidence-based results, in assessing the process insurance agents used in making recommendations and selling life insurance policies and products at the point of sale. I accept Mr. Monid’s contention that a life insurance agent who recommends an insurance product that fails to match the consumer’s individual life circumstances, needs and affordability, fails to serve the public properly. Part of FSCO’s purposes under the FSCO Act in the regulation of the insurance industry is to “provide regulatory services that protect the public interest and enhance public confidence in the regulated sectors”.² The questionnaire is meant to assist the Superintendent in fulfilling FSCO’s legislated obligations to the public, by developing a comprehensive regulatory approach that ensures life agents offer suitable insurance products.

III. THE ISSUES

5The following three issues will be determined by this Tribunal:

a. Did Ms. Qin fail to provide the Superintendent with the information requested via a questionnaire initially sent on October 15, 2013, contrary to section 442.3(1)(4) of the Act?

b. Is the imposition of the proposed AMP appropriate to serve one or both of the purposes set out in section 441.2(1) of the Act?

c. What is the appropriate amount of the AMP taking into account the criteria contained in subsection 4(2) of Ontario Regulation 408/12?

6At the start of the hearing, counsel for the Superintendent agreed that a fourth issue identified in the notice of hearing in this proceeding (similar to that of previous cases), namely “If the contact information for Ms. Qin was not current, did Ms. Qin act recklessly or negligently by not providing an effective means by which to communicate with the Superintendent contrary to section 5.1 of the Ontario Regulation 347/04?” was not relevant to these proceedings as a separate issue. This additional issue did not of itself form the basis of the alleged contravention and proposed penalty, and consequently did not form a separate issue before the Tribunal.

7There were no other preliminary matters and the parties had previously accepted the jurisdiction of the Tribunal.

IV. THE FACTS

8Based on an agreed statement of facts and agreed book of documents filed by the parties, and the testimony of the Applicant Ms. Qin, I find the following key facts:

a. At all relevant times, Ms. Qin held a life insurance and accident and sickness agent licence (“life agent”) issued under the Insurance Act by the Superintendent of Financial Services. She first applied for a licence on December 6, 2012 and that licence was issued for a two year period

b. Ms. Qin testified that she was working for an insurer from January 2013 to August 2013, during which she was engaged in the business of insurance. She conceded that she was trying to sell insurance products but was unsuccessful in placing any business in this period. I accept her evidence that at the time the questionnaire was sent, Ms. Qin was not engaged in practice as a life agent.

c. On September 27, 2013, the Superintendent sent an email to all licensed agents, including Ms. Qin, informing them that FSCO would be launching the online questionnaire on October 15, 2013, and that they may be selected as part of the sample to complete it. Agents were informed that selected agents would be notified via email and, that if selected, completion of the questionnaire is mandatory.

d. That September 27, 2013 email, and all of the emails described below were sent to Ms. Qin using the email address for her as it appeared in the Superintendent’s records. All such emails were received by Ms. Qin, as she acknowledged, although it appears from her testimony that she did not read them. She indicated in testimony that she was not paying any attention to matters related to her life licence since she was not working in the industry by the fall of 2013. However, her email address did not change throughout the period.

e. Ms. Qin was randomly selected to complete the questionnaire and the Superintendent sent to Ms. Qin several communications in an effort to get her to respond. Those communications included:

i. An email requesting completion of the questionnaire sent on October 15, 2013 which included an internet link to the questionnaire. The email stated that the deadline for completion was November 15, 2013, and that responding to the questionnaire was mandatory pursuant to sections 442.1 and 442.3 of the Act. Ms. Qin did not respond.

ii. Two reminder e-mails sent before the deadline passed. The first was sent on October 28 and the second on November 4, 2013; both reminded Ms. Qin of the request and the deadline and included the link to the questionnaire. Ms. Qin did not respond.

iii. A further reminder email sent on November 18, 2013 after the deadline passed extending the deadline. That email also reminded Ms. Qin that the questionnaire was due by November 15, 2013, and FSCO had received no response. The deadline for the questionnaire was extended to November 19, 2013, but if no response was received by that date regulatory action may be taken. Ms. Qin did not respond.

iv. A registered letter dated December 2, 2103 sent to Ms. Qin at the address on FSCO’s records, stating that the questionnaire had not been completed and that the Superintendent was considering the imposition of a penalty. Ms. Qin was requested to provide an explanation by December 17, 2013. This letter was returned to FSCO as not claimed. Ms. Qin did not respond.

v. A second registered letter giving a further opportunity to respond was sent on March 9, 2014 to Ms. Qin giving her a further opportunity to respond to the questionnaire by March 26, 2014. That letter advised that failure to respond by March 26, 2014 would result in regulatory action. That letter was returned to FSCO as “unclaimed” and Ms. Qin did not respond.

f. Ms. Quin apparently moved from the address indicated on FSCO’s files in August 2013, but did not update her postal information on file with FSCO until her December 2, 2014 licence re-application.

g. The Superintendent conceded that no attempts were made to reach Ms. Qin by phone, but nothing turns on this fact in my view.

h. On July 25, 2014, the Superintendent issued a notice of proposal to impose an AMP on Ms. Qin for her failure to respond to the Superintendent’s requests for information. That NOP was sent to the mailing address on FSCO’s records, but was again returned to FSCO as unclaimed.

i. In September 2014, FSCO conducted a search of driver’s licence records maintained by the Ontario Ministry of Transportation which revealed Ms. Qin’s current mailing address. The NOP was sent to that address by registered mail and was successfully delivered to Ms. Qin on October 23, 2014.

j. Ms. Qin filed a request for hearing in this matter on November 4, 2014.

k. Ms. Qin joined another insurance company as an employee in January 2015 for approximately three months. During that time, she also obtained a general insurance licence. She indicated that her new employer wanted her to maintain her life licence and so she reapplied for her life licence in December 2014. On cross-examination she revealed that she did in fact try to sell life insurance to prospective clients, along with auto insurance while so employed.

l. She made an application to surrender her licence in June, 2015.

V. STATUTORY FRAMEWORK AND ANALYSIS

9As noted in earlier cases³, life insurance agents have voluntarily chosen to participate in a business that requires a licence and involves regulation. They agree to subject themselves to a regulatory regime. In order to perform his regulatory functions, the Superintendent must be able to question agents and insurers with respect to their business activities.

10The ability of the Superintendent to issue the questionnaire and require the agent to respond follows from sections 442.1 and 442.3 of the Act, read together with s. 441.1, which read in part as follows:

Section 442.1:

(1) The Superintendent or a person designated by the Superintendent may direct an enquiry to any of the following persons about contracts, settlements or adjustments under contracts, the financial affairs of an insurer, the acts and practices of an insurer, agent, or adjuster or such other matters as may be specified by the Superintendent: …

4. An agent or adjuster who holds or held a licence under this Act;…

(5) A person to whom an inquiry is directed shall answer promptly, explicitly, and completely and shall do so in the manner and within the period specified by the Superintendent or the designate.

Section 442.3 (1) and (3) state:

(1) Upon the request of the Superintendent or a person designated by the Superintendent, a person to whom an inquiry may be directed under section 442.1 shall give the Superintendent or designate full information, and shall provide records, about the following matter: . . .

4. Activities related to the business of a person who holds or held a licence under this Act….

(3) A person to whom a request is directed under this section shall answer promptly, explicitly and completely and shall do so in the manner and within the period specified by the Superintendent or the designate.

11Based on the above findings of fact, and on the agreement of the parties, on the first issue, namely: Did Ms. Qin fail to provide the Superintendent with the information requested via a questionnaire initially sent on October 15, 2013, contrary to section 442.3(1)(4) of the Act?, the answer is yes.

12As noted in prior decisions, using the filed contact information is a reasonable and credible use of that information for service purposes related to the questionnaire. Ms. Qin’s obligation arose when the Superintendent or his delegate directed her to respond to the questionnaire on October 15, 2013, using the email address she had provided to FSCO. There was no requirement for FSCO to prove personal service on the agent, or to try to contact her by phone. FSCO similarly reasonably relied on Ms. Qin’s mailing address as filed on her licence application. As noted above, the Superintendent did not invoke Section 5.1 of Ontario Regulation 547/04 which provides: “An agent licensed under this Regulation shall, if the agent’s mailing address, e-mail address, telephone or fax number changes, provide the Superintendent with the new address or number within five days after the change is effective.” as a separate ground of contravention.

13The second issue before me is: Is the imposition of the proposed AMP appropriate to serve one or both of the purposes set out in section 441.2(1) of the Act? I find the answer to be yes.

14Subsection 441.2(1) of the Act states that an administrative monetary penalty may be imposed for either of the following purposes:

1. To promote compliance with the requirements established under the Act.

2. To prevent a person or entity from deriving, directly or indirectly, any economic benefit as a result of contravening or failing to comply with a requirement established under this act.

15It remains open on the facts of each individual case to impose no penalty in exceptional circumstances.⁴

16However, in this case, I accept the Superintendent’s submission that the imposition of a monetary penalty in this case will promote compliance with the Act in general, and with the obligation to respond to the Superintendent’s requests for information in particular, by demonstrating to Ms. Qin and other similarly situated licensees that non-compliance with statutory requirements will attract a negative monetary consequence. A finding that an AMP may fulfil the purpose of s.441.2(1)(1) of the Act is sufficient in my view to impose an AMP on Ms. Qin.

17The third issue before me is: What is the appropriate amount of the AMP taking into account the criteria contained in subsection 4(2) of Ontario Regulation 408/12?

18The maximum general administrative monetary penalty that may be imposed by the Superintendent on an individual in these circumstances is $100,000 for a failure to comply under s.442.1 and 442.3 of the Act as listed in Schedule 1 to Regulation 408/12. The proposed penalty in this case was $1,000.

19In determining the amount of the penalty up to that maximum, the Superintendent and consequently the Tribunal in a hearing de novo such as this one, is required by Ontario Regulation 408/12 to consider only 5 specified criteria. They are:

a. The degree to which the contravention or failure was intentional, reckless or negligent.

b. The extent of the harm or potential harm to others resulting from the contravention or failure.

c. The extent to which the person or entity tried to mitigate any loss or to take any other remedial action.

d. The extent to which the person or entity derived or reasonably might have expected to derive, directly or indirectly, any economic benefit from the contravention or failure.

e. Any other contraventions or failures to comply with a requirement established under the Act or any other financial services legislation of Ontario or with any jurisdiction during the preceding five years by the person.

20After reviewing the evidence and these criteria, I have made the following further findings:

a. On the first criteria, I find Ms. Qin was reckless or negligent, but that her actions were not intentional. I accept her testimony that during the relevant period in the fall of 2013 she was not engaged in the industry and simply did not open or read the emails. In this respect her actions are less egregious than those of earlier cases, namely Piripakaran⁵ and Molenda⁶.

b. On the second criteria, no direct harm to clients was adduced, in fact she had no clients in the fall of 2013. We agree with the submissions of Mr. Scharbach that indirect harm to others may result in these circumstances. As noted in Notta and Molenda, failure to respond to a request by the Superintendent or his delegate results in additional costs of regulation, which costs are ultimately passed on to the industry and likely the public. As well, such actions, as noted above, frustrate the Superintendent’s ability to effectively fulfill his legislated mandate to ensure that life agents identify and recommend suitable insurance products to the public.

c. On the third issue, I find that Ms. Qin took no steps to mitigate or take remedial action until after the hearing process had commenced, and did not surrender her licence until June 2015.

d. On the fourth issue, I find that Ms. Qin received no economic benefit from the contravention of the Act. She was not an active life agent during the relevant period.

e. On the fifth issue, I find that there was no evidence of any other previous contraventions under this Act or other financial services legislation. While Mr. Scharbach asked that the Tribunal take into account Ms. Qin’s failure to provide an updated mailing address within 5 days, I give it little weight in the circumstances as it was not a separate contravention for which the Superintendent sought to impose a penalty.

21Based on all of these findings, I find a general administrative monetary penalty in the amount of $500 would be reasonable and appropriate in all the circumstances and so substitute my decision for that of the Superintendent in this regard. This amount of penalty is still substantial enough in my view to meet the purposes of the Act to ensure compliance.

VI. ORDER

22I hereby order the Superintendent to impose an administrative monetary penalty in the amount of $500 as against the Applicant, Ms. Qin.

Dated at Toronto, this 17th day of July, 2015.

“F. Holden” Florence A. Holden

Footnotes

1. 1Notta v. Ontario (Superintendent Financial Services), FST Decision No. I0559-2014-1, paragraph 2.
2. 2Financial Services Commission of Ontario Act, 1997, subsection 3(a).
3. 3Notta, ibid. paragraph 12 citing White v. Ontario (Superintendent Financial Services), 2014 ONFST 9.
4. 4Notta, ibid., paragraph 28.
5. 5Pirapakaran v. Ontario (Superintendent Financial Services), 2015 ONFST 20, 2015ONFST20, para 29.
6. 6Molenda v. Ontario (Superintendent Financial Services), 2015 ONFST 18, 2015ONFST18, para 25(a).