The Ontario securities Commission (OSC) has recently brought a series of compliance actions against a handful of scholarship plan dealers.

In the past several weeks, the OSC has issued a succession of temporary orders against these dealers, imposing restrictions on their ability to do new business while they bring their compliance systems up to code.

In each case, the orders, imposing conditions on the firms’ registrations, have been rendered without a hearing into any specific allegations against the firms.

Instead, the OSC has issued temporary orders, indicating that the time required for a hearing could be “prejudicial to the public interest.” All of the firms have agreed to the restrictions.

The apparent compliance crackdown began in late July, when the OSC issued the first of this batch of orders against both Richmond Hill, Ont.-based Global RESP Corp., which distributes the Global Educational Plan Trust, and Global Growth Assets Inc., which is the plan’s investment manager. The OSC also has imposed terms and conditions on these firms’ registrations.

Among the conditions, the firms are required to retain independent compliance consultants, approved by the OSC, to help the firms implement plans to strengthen their compliance systems and rectify deficiencies uncovered by the OSC in a compliance review that was carried out in the summer of 2011.

Global RESP also has to retain an independent monitor before it can take any new clients; this monitor is required to contact new clients to confirm the accuracy of their “know your client” (KYC) information. If the monitor finds an investment is unsuitable, that investment will be unwound at no cost to the client.

The temporary order (which initially had been slated to expire after 15 days) has since been extended by the OSC. On Aug. 10, the OSC ordered that the conditions that were initially imposed are to remain in effect until further notice. According to that order, the independent compliance consultant and the independent monitor both have been hired and have begun their work.

The OSC also has set Nov. 8 as the date for the firms to update the OSC regarding the review.

Since that first temporary order was issued, the OSC has issued similar orders against a couple of other scholarship plan dealers – Heritage Education Funds Inc. (HEFI), and Knowledge First Financial Inc. (KFFI) – that cite the results of recent OSC compliance reviews as the reason for the orders but don’t make any specific allegations against the firms.

One notable aspect of all these orders is that in the case of Global RESP/Global Growth, the OSC’s order also had indicated that an investigation is ongoing; this is not the case with the orders involving HEFI and KFFI.

Progress in both of the latter cases was due to be reviewed by the OSC on Aug. 21.

The OSC has declined to comment on this series of temporary orders, but this chain of compliance actions comes years after regulators first had flagged widespread deficiencies among scholarship plan dealers in general.

In 2003, several members of the Canadian Securities Administrators (CSA) had carried out a national compliance review of scholarship plan dealers.

That CSA review had reported that regulators had found: “significant weaknesses” in trade-suitability reviews; a large proportion of files with incomplete KYC information; no evidence of new account approval processes, or procedures to update KYC information; and insufficient fee disclosure.

The CSA report also had noted that many of the deficiencies it had discovered “are directly linked to the weaknesses in the compliance structure” at these firms.

According to the CSA report, many of the issues it had found had already been flagged by regulators in previous reviews, indicating that the scholarship plan sector was not responding to regulators’ concerns. IE

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