Work on a possible fiduciary duty for investment advice will continue, and a decision on embedded commissions for mutual funds looms, according to a draft of the Ontario Securities Commission’s (OSC) statement of priorities for the coming year.
The commission Thursday published its 2015-2016 Draft Statement of Priorities, which puts retail investor protection at the top of the list. The draft indicates that regulators expect investor reliance on financial advice to continue growing for a variety of reasons, including the aging of the investor population, the growth of the exempt market that is expected to attract novice investors, and the emergence of robo advice — which will, in turn, keep investor protection a top priority for the OSC.
“As a result, issues related to market conduct, firms’ compliance cultures and how advisors meet the interests of their clients will continue to remain important areas of focus,” the OSC says. “Better alignment of the interests of firms and investors can be achieved by improving standards of financial advice, raising competency and increasing transparency regarding financial advice.”
While the OSC isn’t committing to introducing a fiduciary duty, or to banning trailer fees, it is planning to continue work on both possibilities. In the year ahead, the OSC says that it is planning to “develop and evaluate regulatory provisions to create a best interest duty”; to similarly consider possible reforms to the registration rules to improve the advisor-client relationship; and, to analyze advisor compensation practices, which may generate regulatory action to resolve any issues that conflict with existing regulatory requirements.
As for mutual fund fee structures, the OSC says that it will reach a decision on embedded commissions, and other sorts of compensation structures, in the year ahead.
At the same time, the regulator also expects to finalize rules to introduce new prospectus exemptions, including a crowdfunding exemption and an offering memorandum (OM) exemption. Along with this, it also intends to step up oversight of the exempt market, and to improve compliance among dealers in this market segment.
On the trading side, the OSC expects to introduce changes to the order protection rule (OPR), and to address other market structure issues, including trading fee structures and market data fees.
A decision on its proposed whistleblower policy is also promised in the year ahead. And, the OSC indicates that it will continue its efforts to encourage greater gender diversity in upper management and on the boards of public issuers. Enhanced regulation and expanded oversight of the over-the-counter (OTC) derivatives markets is also expected; as are efforts to enhance transparency in the fixed-income market.
In terms of the OSC’s finances, the regulator is forecasting revenues to increase by 13.9% in the current fiscal year (which ends March 31, 2016) from actual revenues in 2014-2015, under its new fee model. And, expenses are forecast to increase
12.6% on the same basis. Still, the OSC expects to generate a $6.6 million surplus in 2015-2016, in addition to the $11.2 million surplus generated last year. It forecasts a smaller surplus in 2016-2017, and a deficit in 2017-2018, as revenues are expected to stay flat and expenses continue to rise.
Comments on the draft priorities are due June 1, and the final version will be submitted to the Ontario finance minister by the end of June. “Our work has broad implications for the capital markets and investors in this province, and we continue to focus on the most critical regulatory issues,” said Howard Wetston, chairman and CEO of the OSC. “It is important that we prioritise our work, take the time to receive input from investors and industry, and fully consider all of the potential impacts of our key areas of focus.”