The Ontario Securities Commission has developed a risk assessment model for investment counsel/portfolio managers and fund managers to assist in focusing compliance field review efforts at high-risk firms.

The risk model was developed by the OSC Compliance Team in conjunction with an external consultant using national and international research, and a review of the business risks faced by market participants.

The model analyzes the major risk factors affecting the business operations of both fund managers and advisors. In determining the risk score, OSC staff take into account both the risk factors affecting a firm’s business operations and its ability to identify and mitigate these risks by establishing appropriate internal control procedures.

A risk ranking is assigned to each market participant based on the overall risk score. The risk ranking is defined as High, Medium or Low. The risk ranking determines the extent and frequency of compliance field reviews.

In order to determine the risk ranking for each firm, a risk assessment questionnaire was sent to all market participants in two phases. In November 2001, questionnaires were sent to 20 companies. Phase II consisted of sending questionnaires on April 1, 2002 to the remainder of the population which included approximately 375 investment counsel/portfolio managers and fund managers. As at July 31, completed questionnaires were received from 96% of market participants.

The OSC is currently analyzing the questionnaire responses and assigning risk scores to market participants. It anticipates completion of the analysis of the questionnaires by December. The risk model will be fully implemented by April 2003.