rules and regulations

Regulatory actions by the Ontario Securities Commission (OSC) against investment dealers, fund managers and other registrants continued their multi-year decline in fiscal 2022. But the regulator highlighted worrying compliance trends in the latest annual report from its Compliance and Registrant Regulation (CRR) branch.

According to the report, the OSC took 66 regulatory actions — such as denying registration, issuing suspensions, and imposing terms and conditions — in fiscal 2022 (the 12-month period ended March 31), down from 73 in fiscal 2021. Actions have fallen every year since fiscal 2018, when the figure was 135.

The most serious regulatory action is a referral to enforcement, and there were only three such instances in 2022, down from four in 2021.

“This coming year, we plan to prioritize compliance reviews to assess the effectiveness of firms’ implementation of the client-focused reforms (CFRs), as well as high-risk firms and crypto asset trading platforms,” said Debra Foubert, director of CRR with the OSC, in a release.

As the OSC assesses CFR compliance, the regulator said firms have fallen short of the conflict of interest requirements.

Specifically, the OSC found that certain firms did not identify existing or foreseeable material conflicts of interest; did not address material conflicts of interest in the best interests of the client; did not provide clients with required disclosure of conflicts; and did not adequately update their policies and procedures to incorporate the conflicts requirements.

The CRR report also highlighted the OSC’s concerns with registered firms employing limited compliance staff — specifically, firms with at least $25 million in assets under management and at most one full-time compliance employee.

The OSC is currently conducting a “compliance sweep” of such entities and has already identified several concerns, the report said. These include inadequate written policies and procedures; inadequate cyber security internal controls; trade confirmations and investment performance reports missing required information; and statements being delivered to clients without the firm’s letterhead or legal name.

The OSC is still carrying out its compliance reviews using electronic means, and it will “keep registrants updated as to when in-person activity will resume,” the report said. The OSC currently oversees 1,142 firms and 68,626 individuals.