On August 10, the Compliance and Registrant Regulation Branch (CRR) of the Ontario Securities Commission (OSC) released a Summary Report to provide registrants with information on education and outreach - regulatory oversight activities and guidance - impact of upcoming initiatives - registrant conduct activities.
Below are some of the key highlights of the Report.
COVID-19 Survey: In July 2020, a OSC’s CRR survey was conducted to better understand the initial impacts of the COVID-19 pandemic on registrants’ operations. Over 700 survey responses were received and showed that registrants adapted well during the pandemic.
2020 Risk Assessment Questionnaire (RAQ): The Report indicated that the CRR issued a RAQ in June 2020 to over 1,000 registered firms to obtain information about their business operations. This is to support the OSC’s risk-based approach to select firms for compliance reviews or targeted reviews. The next RAQ will be issued in April 2022.
Presence review, outlining registrants’ compliance deficiencies:
Representatives servicing clients without required registration (PM / EMD): The Report indicates that it is mainly the case for registered firms based outside of Canada.
Inadequate disclosure when using benchmarks: benchmarks are presented without adequate accompanying disclosure for a client to draw correct conclusions from the comparisons with the performance of the firms’ investment strategies.
Prohibited representations: prohibited representations implying that the OSC had passed upon the financial standing, fitness or conduct of the firm. Resulting in the registration of the firm being improperly marketed. Suggesting the firm or an individual employed by the firm is holding out as being registered through the use of misleading titles.
Outside business activities (OBAs): The Report finds that the majority of the OBAs focuses on providing banking, insurance, or financial planning services outside of the representatives’ sponsoring firms. A significant number of OBAs also focus on non-financial services such as restaurants, retail stores or investment properties.
Complaint handling processes: A number of issues were identified in the report, including a failure to clearly set out a client’s right to immediately access the Ombudsman for Banking Services and Investments (OBSI) if they are not satisfied with the firm’s response. A joint letter of the OSC and SROs was issued requesting firms to revise their websites and applicable documents (e.g., brochure, relationship disclosure document, account agreement) in accordance with securities laws.
Net Asset Value adjustments: errors made by third-party fund administrators, control failures within the firm, inadequate communication between PMs and fund administrators, mispricing of illiquid or hard-to-value securities, incorrect recording of corporate actions, incorrect accounting between different classes and series of units within an investment fund. The Report indicates that while most of the errors were identified and rectified in a timely manner, they are still instances where inadequate controls resulted in the error remaining undetected for an extended period of time (e.g. greater than one month).
Registration & commission filings: when wholesaling securities is considered registerable activity, missed notice of ownership of changes are examples of concerns addressed in this section.
The OSC’s CRR Branch gives some details on some ongoing and upcoming policies initiatives related to the Burden Reduction, Crypto-Assets Trading Platforms, Client Focus Reform and Exemption from Underwriting Conflicts Disclosure Requirements.
The Report also provides and reminds the steps registrants should take to ensure compliance with their regulatory requirements.
The Report is of particular interest for OSC’s registrants, particularly investment fund managers, portfolio managers, exempt market dealers, and scholarship plan dealers.
NB: The CRR Branch of the OSC is responsible for the registration and ongoing regulation of firms and individuals who are in the business of trading in, or advising on, securities or commodity futures and firms that manage investment funds in Ontario