The Ontario Securities Commission’s (OSC) Investor Advisory Panel (IAP), is highlighting long-standing issues with conduct standards and dispute resolution in the Canadian investment industry, while also bracing for possible fallout from the shifting geopolitical environment.
In its latest annual report, which details its activities over the past year, the investor advocacy group flagged likely top investor protection issues for the year ahead — including the impact of the Client Focused Reforms (CFRs), planned reforms for the Ombudsman for Banking Services and Investments (OBSI), and the regulators’ recent efforts to boost capital raising.
“New initiatives to promote capital formation should be assessed to determine whether they will lead to new or heightened risks for retail investors, and the OSC should ensure that measures are taken to mitigate against such risks,” the IAP said in its report.
The panel indicated its concern about the growing popularity of alternative investment products that don’t easily fit into the existing regulatory framework, and in the growth of private markets, which provide less investor protection than the public markets.
The IAP also highlighted the ongoing fallout from the CFRs, which were adopted in 2021 in an effort to enhance conduct standards, while also expanding KYC and KYP obligations.
In its report, the panel suggested that the industry could benefit from added guidance on complying with the CFRs, but also noted that its concerns go beyond the industry’s compliance with the requirements, and to whether the CFRs have been in investors’ best interests overall — and whether they’ve had any negative fallout for investors.
“The panel has ongoing concerns that the CFRs may have had unintended consequences that affect retail investors, such as resulting in a limited product shelf, and inconsistent compliance practices within the industry to the KYP and enhanced suitability obligations,” it said.
The IAP noted that it has concerns about firms adopting more-restricted product shelves, and it called on the OSC to “investigate steps that can be taken to enhance competition where it is lacking or limited” — adding that efforts to boost competition should be developed with investor protection at the forefront too.
The panel also called out the lack of progress on the promised introduction of binding authority for the industry dispute resolution service, OBSI — noting that regulators’ latest plan is to consult on its proposals in the second half of this year.
“While the panel recognizes that finalizing the framework has been proposed as a key priority for the OSC in the next fiscal year, we remain deeply concerned about the ongoing delays in finalizing the regulatory framework,” it said. In the absence of binding authority, investors remain largely at the industry’s mercy when dealing with disputes, it added.
“Investors and capital markets would benefit from the proposed framework taking effect as expeditiously as possible,” it said. “If proclamation is withheld until all of the jurisdictions have granted OBSI binding authority, there is more than likely to be a considerable delay in advancing investor redress and bolstering confidence in the capital markets.”
Alongside its long-standing domestic issues, the IAP also highlighted its concerns about the possible impact of recent international developments, and their potential implications for Canadian investors.
Indeed, recent efforts by Canadian regulators to foster capital formation have pointed to the need to make domestic capital markets more efficient and cost-effective, amid the shifting economic and financial environment. Evolving U.S. policy is also weighing on the regulators’ approach to climate and diversity issues, and is promising a starkly different approach to the crypto sector.
“We will continue to focus on the evolving geopolitical landscape and the themes outlined in our annual report so as to be well-positioned to identify and advise the OSC on additional unexpected challenges that may arise for both retail investors and the capital markets,” said IAP chair, Jim Sinclair, in a release.