For the first time, the Ontario Securities Commission is publishing the risk-based criteria used by staff throughout the Commission to determine whether to conduct detailed reviews of market participants and their activities.

The OSC expects that the release of this information will increase the transparency of important regulatory functions and educate market participants about how we evaluate their activities.

The risk criteria are designed to identify and target the most likely instances of non-compliance with securities laws. When an initial review indicates that a sufficient number of the criteria are met, staff will assess the situation as high risk, and proceed to review or investigate it more thoroughly.

“A risk-based approach is a means of focusing our staff’s attention on the most important matters,” said David Brown, chair of the OSC. “With finite resources, we can’t attempt to do everything and do it well. A selective approach allows us to apply greater scrutiny to the situations most likely to have an adverse impact on the capital markets, while reducing the regulatory burden on those market participants who pose a lower risk.”

Staff currently uses a risk review process for four purposes:

  1. to select prospectuses and other offering documents (not including those issued by investment funds) for more detailed review;
  2. to select reporting issuers (not including investment funds) for a continuous disclosure review;
  3. to determine the frequency of compliance reviews of advisers and fund managers; and
  4. to determine which enforcement matters will be pursued through full investigations.



Besides shedding light on the OSC’s techniques for allocating its resources, the publication of the selection criteria will educate market participants about how staff evaluates their activity in the market. OSC staff will select some market participants for detailed review on a random basis, and others based on their discretion or judgement.

After developing their risk criteria, Compliance staff surveyed each of the approximately 400 advisers and fund managers in Ontario on various aspects of their operations, and used the results to assign a risk ranking to each firm. Beginning in April, 2003, staff will meet with senior management of each market participant assessed as “high risk” to discuss the basis for the ranking. Senior management of market participants assessed as medium and low risk will be advised of their rankings on completion of compliance field reviews.

Complete descriptions of the risk review process and selection criteria are included in OSC Staff Notice 11-719 – A Risk-based Approach for More Effective Regulation, available on the OSC website at www.osc.gov.on.ca.