The Ontario Securities Commission has published its statement of priorities for the current fiscal year, highlighting its response to the financial crisis through a renewed focus on investor protection, macroprudential risks, evolving markets, and compliance.

In the statement, the OSC observes that, “Recent market events highlight the potential adverse outcomes that can result from regulatory coverage focused on specific industry segments or entities rather than financial markets as a whole.” It notes that fragmented regulation fails to recognize the interconnectedness of financial markets.

In response, it says, “We need to examine opportunities to better align our disclosure regime and compliance and enforcement approaches internally, in concert with recognized self-regulatory organizations and other entities, as well as more broadly to improve the ability of the regulatory system to recognize and address risks that emerge as a consequence of the convergence of financial markets and products.”

It also points to changing markets, the evolution of innovative financial instruments, and the emergence of multiple marketplaces as notable issues for regulators. And, it suggests that the downturn has led to cost cutting by firms, including compliance and internal control systems.

“As a result, we need to apply our own resources in the interests of investor protection. Increased reliance on risk assessment tools for allocating our resources most effectively will be part of the solution. We will continue to focus on things that really matter. At the same time we will continue to actively encourage market participants to be vigilant and proactive in preventing, detecting and correcting compliance issues as they have primary responsibility for compliance and control systems,” it says.

The commission also notes the importance of attracting investor input to its rulemaking efforts, noting that it will review its internal processes “for adequately addressing investor concerns during the development of securities regulation”.

Among the specific initiatives it has planned for the coming year, the OSC says that it will:

> finalize registration reform;

> continue to address issues related to asset backed commercial paper and the proposed regulatory regime for credit rating agencies;

> complete consultations with the industry with respect to implementing a trade-through rule;

> establish an Investor Secretariat to address retail investor issues, modernize investment fund rules; and

> publish rules for point-of-sale disclosure for mutual funds and segregated funds, among other things.

Additionally, the commission notes that due to current market conditions it decided to maintain regulatory fees at current rates for one year, which will likely leave it with a $22 million shortfall over the next fiscal year (to be offset by its existing surplus). “Over the next year, the OSC will further review issues related to the fee model so we can return to fully recovering our costs in ways that remain fair and transparent to market participants,” it says.

“Downturns have historically exposed questionable practices and occur often at times when investors can be most vulnerable. Potential poor financial health of issuers and registrants pose major, if unquantifiable, compliance and enforcement risks,” it adds. “In developing our 2009-2010 budget the commission has carefully balanced the need for cost restraint in these challenging times with its duty to take appropriate steps as necessary to pursue its mandate of providing protection to investors and fostering fair and efficient capital markets.”

Comments on the final statement of priorities are due by June 1.

IE