compliance / Mind_And_I

Enforcement sanctions collected by the Ontario Securities Commission (OSC) can be returned to harmed investors, spent on investor education and used to pay whistleblowers, among a limited set of authorized uses. The Ontario government is proposing to expand those options.

Earlier this month, the Ministry of Finance proposed a new regulation that would allow enforcement money to be spent on funding the activities of the OSC’s Office of Economic Growth and Innovation, and to boost the commission’s technology, data acquisition and analytics capabilities.

The Office of Economic Growth was created in 2020 as the government expanded the regulator’s mandate beyond investor protection and into encouraging capital formation and competition.

Under the proposal, both new and existing money collected from enforcement could be used in the new spending categories.

According to the OSC’s latest financial statements (for the year ended March 31, 2023), the balance of funds collected in enforcement settlements and sanction orders was $123.7 million. The regulator’s collection rate on settlements and sanction orders during the year was 30.3%, down from 35.6% in fiscal 2022.

During the previous fiscal year, the regulator’s board authorized $7 million in expenditures from its accumulated enforcement sanctions, including $481,092 in payments to whistleblowers and $1.66 million for investor education and advocacy organizations.

It also spent $4.6 million for the OSC to recover “investor education and knowledge enhancement” costs. These included $2.1 million in salaries and benefits, $1.9 million on professional services, $931,349 in media campaigns, $567,728 in IT costs, and $138,154 to finance the Investor Advisory Panel’s costs.

Less than $150,000 was paid to harmed investors.

According to a notice spelling out the government’s proposal to expand the uses of sanctions money, the change would allow the OSC to use the sanctions money on initiatives “to better fulfill its mandate.”

The notice also indicated that the proposal would prevent the accumulation of a large balance.

It suggested the new approach would reduce the burden on industry players by “avoiding fee increases that otherwise would have been imposed to achieve the same outcomes.”

Additionally, the proposal indicated the change would address one of the criticisms in the latest auditor general’s review of the OSC — namely, that it lacked the necessary technology and analytical tools to ensure efficient market oversight and compliance.

Enhancing technology and data capabilities would “help strengthen the OSC’s oversight and early detection of securities violations to protect investors through timely and impactful enforcement action,” the notice said.

Any new spending initiatives under the proposed regulation would be subject to the oversight of the regulator’s board, the proposal noted.

“It is contemplated that the OSC board would establish internal controls governing technology/data capabilities expenditures to ensure that enforcement money is appropriately used for the proposed new purpose, and do not constitute expenditures that are ongoing,” it said, adding that the same kinds of controls would be developed for innovation office spending.

The proposal is out for comment until Sept. 18.