Achieving Harmony

Danielle Boulet, the newly appointed chair of the Canadian Council of Insurance Regulators (CCIR), has a unique cross-cultural professional experience that appears well suited to harmonize aspects of the different financial regulatory regimes in Canada.

Boulet spent the early part of her career, from 1990 to 2000, at the National Bank of Canada, where she ultimately became the vice president compliance and operational risk management officer in 1999-2000. In her many roles at the National Bank of Canada, she had extensive contact with many aspects of the bank’s operations in New York. Among other things, she helped establish the bank’s U. S. compliance department and reorganized its U. S. internal audit department.

It therefore seemed a natural progression in her professional career to start doing compliance work for organizations based in New York, including Credit Agricole Indosuez from 2000- 03 and Dexia Credit Local from 2003-04.

In 2005-06, also based in New York, she oversaw the anti-money laundering unit of Banco Chile. There, she managed a number of other financial departments related to financial oversight and investigation. In addition, she acted as a liaison between Banco Chile and U. S. regulatory authorities such as the Federal Reserve, OCC and Florida State Banking.

“Basically I was dealing with regulators and this is what I was doing for the 16 years that I was in the United States,” she said, summarizing her experiences. “I was working for different financial institutions and some of them had almost terminal problems with regulators.”

But while you can take Boulet out of Quebec, you can’t really take Quebec out of Boulet. She said as much as she liked Quebec, she never really imagined she would be able to return to her home province. But when the opportunity arose, it was a high-profile position as superintendent of solvency for the province’s financial regulator, the Autorit des marchs financiers (AMF).

Boulet’s experience at the AMF draws not only upon her professional expertise in banking, but also her experience in the insurance industry as well. “Insurance was always in the background,” Boulet says of her career experience. “If you look at a conglomerate such as Dexia, which was a financial holding company in the States, I dealt with insurance brokers and insurance companies, so I was always exposed to insurance. My background serves my current situation.”

Clearly her experience in the area was much sought after, because she was appointed to become the chair of Canada’s insurance market conduct regulator, the CCIR. It is perhaps no surprise, given her strong background in solvency, that the CCIR has been forging a closer relationship with the country’s solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI).

“We’re talking about harmonizing with the provinces, but also with OSFI, the federal regulator,” she said. “At CCIR, the provinces and territories are members, but OSFI is also part of CCIR as an associate member… We need to plan [together] and make sure we are all going in the same direction.”

Certainly now is a busy time for financial regulators, as Canada finishes up the second quarter of a global recession with no obvious end date in sight. “Right now, the timing [to be in the business of regulation] couldn’t be better, with everything that’s happening in the market,” she said. “It keeps us on our toes. It forces us to think a little bit outside of the box, because none of us have seen or witnessed what’s going on right now in the market. It is exciting and it is challenging.”

In these times, the Canadian insurance industry is debating whether companies can expect to see more or less rules-based regulation as a consequence of the questionable use of credit derivatives in the United States, which precipitated the recession.

Some predict regulators will rely more often on predictable rules-based regulation as a means to steer companies through the current financial crisis. Others say regulators will shy away from rules-based regulation since it is perceived to have contributed to the current global crisis in the first place.

Boulet said “you can never say never” when it comes to regulators using rule-based methods. But as a more general course, regulators remain focused on transitioning to principles-based regulation — even in these times of financial crisis. Under principles-based regulation, the burden of regulation falls upon those companies that practice riskier market behaviours.

“I agree that in a moment of panic, it would be tempting to go back to rules,” Boulet said. “It’s tempting because you feel much, much more in control as a regulator, but it’s a false impression. We are strong believers in principles-based regulation.”

Boulet says her next immediate course of action is to fulfill the organization’s mandate to harmonize some of the provincial regulations governing the country’s insurance industry. Harmonization includes re-examining the industry’s forms and templates for submitting company data to the regulators.

The Minimum Capital Test (MCT) also is the subject of harmonization discussions to “ensure it remains a risk-based test appropriate for the P&C industry, she said. “The changes to the accounting rules may necessitate changes to the MCT, so they [a CCIR committee looking into the issue] will work on it and bring it to the attention of the general CCIR.”

The CCIR also wants to “facilitate informed consumer decision-making,” which entails a discussion about disclosure. This discussion comes at a time when the country’s guarantee fund, the Property and Casualty Insurance Compensation Corporation (PACICC) — which pays out claims to shareholders in the event of an insurance company insolvency — is calling for improved financial disclosure from provincially-regulated companies.

A CCIR committee is looking into PACICC’s concerns, Boulet said. But this particular aspect of the broader issue of disclosure is a tricky one to resolve. And it’s not because provincial regulators are unwilling to require more and better disclosure.

“I know here in Quebec, we have an issue and it’s a legal issue,” she said. “Each province has its own framework or statute that cannot be [changed] unless you have some kind of legal or provincial [legislative] change. Some provinces have agreed [to look at having more open disclosure], and others can’t for various reasons. It’s not because they aren’t willing, it’s because they can’t.”

Ultimately, as Boulet points out, the CCIR is “an association of the willing.” The council does not have a binding authority to enforce decisions upon its members. “We have no authority to force our views on jurisdictions or governments, but we’ve been very effective in bringing issue to governments and getting the industry to buy into our recommended courses of action,” she said.

Certainly, though, Boulet’s professional experience with so many regulatory regimes through North America puts her in a good position to understand and appreciate the various local means to perform common regulatory tasks.

The key, she says, is in being able to get these various regimes to talk to each other for the purpose of achieving a common sense of purpose. “I believe that the basis for harmonization is communication and sharing, and trying to avoid the silo effect,” she says. “The legal environment is maybe different from one province to another, but there’s a thread that has to be [found] in order for us to be able to exchange [ideas] and support each other to facilitate the business across all provinces… We are looking at what each [of the provincial regulators] is doing, to try to bring to all provinces the best of each system.”