In the wake of a new report highlighting numerous compliance deficiencies at scholarship plan dealers, the Ontario Securities Commission says that it is contemplating new rules to govern the scholarship plan industry.

The OSC issued a report today detailing the problems it found through a national compliance review of the industry and a focused follow-up co review conducted in March and April. The report documents a number of deficiencies in areas such as business practices, sales practices and disclosure practices.

The regulator says that the problems it found are so serious and widespread that it is likely going to have to implement new rules for the industry.

As a result of the deficiencies, the OSC has placed terms and conditions on five scholarship plan dealers. The regulator says it uncovered deficiencies during its follow-up compliance reviews at the firms even after giving the dealers adequate time to make the changes that were promised.

Three firms are required to file written progress reports with the OSC setting out their progress in correcting deficiencies identified in the reviews.

Two other firms face heavier conditions:

  • they cannot register new salespeople;
  • theycannot establish new branches; and
  • they can’t use any business names or trade names which the firms have not identified to the OSC, nor can they operate out of any business location unless they have provided notice of the location to the OSC.

These conditions will remain in force until the deficiencies are corrected.

Apart from these conditions placed on registrations, and the possibility of new rulemaking, the OSC warns that it may take enforcement action.

The OSC says, in many cases, the deficiencies identified by review had been previously brought to the attention of the dealers by other regulators and had not been corrected.

The Alberta Securities Commission conducted reviews of scholarship plan dealers and issued an industry report on common deficiencies in October 2002. The OSC says that many of the deficiencies outlined in that report were still prevalent during the 2003 review, “indicating that the industry had still not taken appropriate action to remedy these concerns”.

“Through a combination of specific terms and conditions on the registration of scholarship plan dealers, that we will be monitoring very closely, and the release of a report giving the industry guidance on how to comply with their regulatory requirements, we are hoping to eliminate the weaknesses we have identified and better protect people who invest in these products,” said Marrianne Bridge, manager of compliance at the OSC, in a news release.

“We are also considering issuing new rules to better regulate the industry, and we do not rule out enforcement action if compliance is not swiftly and thoroughly improved,” Bridge added.

For the industry education, the OSC report provides suggested practices for each deficiency identified, including requirements under existing legislation and recommended best practices.

The Industry Report on Scholarship Plan Dealers is available on the OSC’s Web site.