The Quebec Effect illustrates the pitfall of a regulatory environment that is applied selectively to different individuals and organizations; a situation which is becoming a standard in the application of justice in Canada and particularly in Quebec.
“Selective justice is a strong reality particularly in Quebec. Just today I listened to the news and I saw Montreal municipal employees breaking the law during their protest making a bonfire in front of a government building and nobody got paper sprayed or arrested. If this had been students or simple citizens, this would have been an entirely different story. This selective justice is very much present in the financial industry, particularly in the insurance industry, and it constitutes the principal threat towards consumer protection. I have called this threat the “Quebec Effect” stated Richard Proteau, President of the Financial Services Consumer Alliance, a newly formed organization created to protect the rights of consumers in the financial industry.
The Quebec Effect was demonstrated through the research conducted by FSCA. This Effect results in more infractions in Quebec in one month compared to the rest of the country in one year. Is this because Quebec has the best and strongest laws in regards to the financial industry? Evidences have proven the contrary. The conclusion reached from this research is that the Quebec regulator named the AMF has allowed insurers to operate and use commercial practices that constitute violations of the law. This means any licensed advisors having a contract with these insurers and following these practices are committing infractions.
Why has the AMF allowed this to happen?
“Because the companies involved such as Manulife want to use commercial practices that are the same across the country. Financial services fall under provincial jurisdiction and therefore laws vary between provinces particularly with Quebec,” answered Richard Proteau. “Quebec is years ahead of the other provinces. Only in Quebec, financial advisors must follow a code of ethics when dealing with consumers. In the other provinces, it’s a choice of the advisor. Therefore Quebec has the strongest laws but instead of applying them, the AMF is turning a blind eye to companies that want to operate in Quebec usually by using Ontario laws. I find this to be cowardly. Distinct society is what they believe in Quebec. If you want to be different, you should have the conviction to stand up for these differences. The same applies to a lesser extent to the other provinces which have laws that are different than Ontario. If provinces want to retain their jurisdiction over financial services, then the regulators must apply the law of their province or let the federal government take over this jurisdiction by having one regulator and one law. For the consumers, we are only protected if the law is applied and really we don’t care if there are one or many regulators for the moment they do their job instead of being blind to the infractions committed by these companies. Finally, when you add this to a justice court system where the law can be applied selectively, this becomes the stuff of a nightmare. Universal Life for example will be sold as an investment by some advisors influenced by the marketing of insurers and it will be ok and they will get a trophy while for others who are doing the same thing, it will be illegal and they will be regarded as having put the industry in danger. However in both cases the final conclusion is always the same. It’s the consumers who are being taken advantage of. This is an intolerable situation.”
There are many examples of the unwillingness of the provincial regulators to regulate the insurance companies. One of the most flagrant examples is when an association of independent advisors in Quebec hired a lawyer to review the legality of the commercial practices imposed onto them by insurers. The conclusion of this legal review was that most of the commercial practices imposed by insurers were conflicts of interest. This did not come as a surprise. Most of these practices had been banned from the general insurance and mutual fund industry. Why would the life insurance industry be different? When the AMF was contacted to address this, its president at the time which was St-Gelais who is now the king amongst bureaucrats in Quebec answered:
“IT IS NOT THE ROLE OF THE AMF TO VALIDATE THE LEGALITY OF THE COMMERCIAL PRACTICES EMPLOYED BY THE INDUSTRY…” Jean St-Gelais, April 2007
A second example is segregated funds. The mutual funds industry is getting to be over regulated if we listen to advisors licensed to sell this type of product. The FSCA should be happy with these regulations but we are not. There is a huge loophole. Advisors can literally opt out of these regulations by cancelling their mutual funds license and instead sell segregated funds which are now exactly the same in terms of risk and management expenses because there are no more insurance elements to these seg funds anymore. With seg funds anything is permitted. No need to know your client; no need for disclosure; no need for risk assessment; everything goes. Why is this happening? Why a commercial practice deemed to be harmful to consumers is considered illegal in mutual funds and not seg funds? Regulators when questioned refuse to answer or their answer is astounding: “We do not regulate insurers as there are no needs since they self regulate themselves.”
“This is why I have so far engaged the AMF in many legal duals. I am now proceeding with a lawsuit against the AMF but the goal is not to obtain justice. This is impossible when considering the bias that judges have towards the AMF which has empowered employees of this regulator to engage in variety of questioning and fraudulent activities. This lawsuit provides me the opportunity to subpoena Yan Paquette a previous employee of the AMF and one current employee named Marie Pettigrew in order to ask three simple questions. Why did you hide a fraud committed by an insurer and who told you to do it? Why were the proofs of this fraud destroyed by the AMF? I will get the answer as to why regulators such as the AMF refuse to regulate insurers by not applying the law,” declared Richard Proteau. These employees will have to commit perjury if they want to deny the truth of my accusations or admit that they indeed protected and are still protecting insurers in a fraudulent act which is now surfacing across Canada.”
FSCA believes the answer to these two questions is crucial in moving toward a regulatory environment that actually protects consumers and not the bottom line of insurers. A wedge must be driven between employees of the AMF and the insurers when we consider the latest statement of an employee of Manulife, Guy Couture, in the Insurance Journal who made public threats against the career of advisors who decide to help their clients in setting up a life settlement which is a legal option in Quebec. Couture gave the impression that the AMF and Revenue Quebec could be used to sanction advisors who would for example help terminally ill policy owners get an advance on their death benefit through a loan settlement. It is clear the insurers would prefer that the terminally ill policy owners cancel their policies to get its cash value since they would not have to pay the death benefit; very profitable but highly unethical. Obviously FSCA considers this to be an unacceptable exploitation of consumers who are facing hard times. As a result, FSCA expected the AMF to refute Couture’s allegations but instead the AMF decided to remain silent reinforcing Couture’ statement.
“The life insurance industry is not well at all. The only medicine is multiple class actions and the FSCA is ready to proceed with two of these in a very near future. It is sad for me to announce that in one of these class actions, the regulators and provincial governments will be included as defendants.” In making this declaration, Richard Proteau added “When laws are a convenience for some and an obligation for others, there cannot be a just society; there cannot be a lawful society; conditions necessary for consumers to have confidence in the free market.”