The Ontario Securities Commission’s compliance team has issued a report detailing the results of its latest reviews of the market players it regulates directly, investment counsel and portfolio managers, fund managers and limited market dealers.

The report summarizes its activities from April 1, 2006 to March 31, 2007; including: compliance initiatives, new and proposed rules, the compliance process, fund manager reviews, LMD reviews, common ICPM deficiencies, significant ICPM deficiencies, how it addresses the deficiencies, and its new process of seeking input from market participants through surveys.

In late 2006, it conducted focused reviews of the marketing practices of a sample of ICPMs. It promises to publish an industry report that summarizes the findings of this review.

It also conducted a review of compliance with certain parts of the Mutual Fund Sales Practices rule, namely the section dealing with marketing and educational practices sponsored by fund companies. Earlier this year, it issued a notice summarizing the results of that review.

In the year ahead, it is planning focused reviews of a sample of newly registered ICPMs. It will also conduct two sweeps in the next fiscal year, although it has not yet finalized the topics. One sweep will focus on fund managers and the other will focus on ICPMs.

The report says that the compliance team is planning to update its risk assessment models for ICPMs and fund managers. It may send a revised risk assessment questionnaire to these firms in the near future.

During its reviews of fund managers last year, it identified deficiencies in a variety of areas, primarily: marketing, oversight of service providers, and written policies and procedures.

Its latest reviews of LMDs continued to find deficiencies similar to some of those noted during its LMD sweep, conducted in 2005.

As for ICPMs, compared to previous years, the OSC says it appears that ICPMs have fallen behind in the following areas: maintenance of books and records, fairness policy, and KYC and suitability information.

“The increase in these areas is likely because the majority of our reviews in 2007 focused on smaller ICPMs. It is more common to find issues such as inadequate books and records in small firms. Some small ICPMs had generic fairness policies and did not have a process in place to collect and document KYC information. As a result, the increase in these common deficiencies may not generally reflect industry practices,” it notes.

The field reviews of ICPMs in fiscal 2007 resulted in an average of 17 deficiencies per review. An average of six or 35% of these deficiencies were identified as significant, it reported.

Marketing still remains the top significant deficiency, including: improperly constructed performance composites, inappropriate use of benchmarks, linking performance returns of other funds, and exaggerated claims. KYC and suitability information was the second biggest area of significant deficiencies, followed by capital calculations

It found that some ICPMs did not prepare monthly capital calculations. Some ICPMs were capital deficient in a number of instances during the review period and they did not notify the OSC immediately, it noted. “To address this issue, we imposed terms and conditions on these registrants and required them to file monthly unaudited financial statements and capital calculations with the Compliance team. We will closely monitor these ICPMs to ensure compliance,” it said, adding that it will continue to monitor and to focus on these areas in regular compliance reviews.