Ontario Securities Commission Identifies Priority Areas for 2018-2019 and Reports on Prior Year
Each year the Ontario Securities Commission (the “OSC”) outlines its priorities for the upcoming year and reports on the success of the previous year’s priorities. These priority areas identify where the OSC intends to focus its resources and actions. Related to this, the OSC has released its 2018-2019 Statement of Priorities (the “Statement of Priorities”) and the 2017-2018 Statement of Priorities Report Card (the “Priorities Report Card”). There was significant overlap between the two periods, with 13 of the priorities from 2017-2018 being carried over in the Statement of Priorities and only two new priorities being added. The priorities identified for 2018-2019 are discussed below.
Deliver strong investor protection
1. Regulatory reforms that address the best interests of the client: This priority is aimed at improving the relationship between clients and registrants by introducing reforms that promote the best interest of client (known as the “best interest standard”). In 2017 and 2018, the OSC (among others) took steps to address this, which included obtaining input from stakeholders and publishing CSA Staff Notice 33-319 – Status Report on CSA Consultation Paper (CP) 33-404 Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives Toward Their Clients. For the upcoming year, the OSC plans to publish amendments to National Instrument 31-103 – Registration Requirements, Exemptions & Ongoing Registrant Obligations (“NI 31-103”) and develop plans to advance remaining reforms. Proposed amendments to NI 31-103 are currently open for comment (see our blog post here discussing these proposed amendments).
2. Address embedded commissions: This initiative intends to level the playing field for investors by addressing embedded commissions that may incentivise advisors to recommend certain funds that benefit the advisor over the investor. In the past year, the OSC, in conjunction with the Canadian Securities Administrators (the “CSA”), conducted roundtables for stakeholder input on Consultation Paper 81-408 – Consultation on the Option of Discontinuing Embedded Commissions (“CP 81-408”). For the 2018-2019 year, the OSC plans to advance CP 81-408.
3. Advance retail investor protection, engagement and education: Emphasis on the importance of delivering policy, education and research initiatives through the OSC Investor Office, particularly addressed at senior citizens, is addressed in both the Priorities Report Card and the Statement of Priorities. In 2018, the OSC published OSC Staff Notice 11-779 – Seniors Strategy, which addresses the investment issues of older investors. The OSC, through the OSC Investor Office, plans to continue the OSC Seniors Strategy as well as other education and outreach programs.
Deliver effective compliance, supervision and enforcement
4. Compliance with regulation: The OSC continues to prioritize protecting investors by upholding strong standards of compliance with regulation. Compliance initiatives are targeted through the use of data and reviews to focus on high risk areas. In 2017, a notable accomplishment under this initiative was the publishing of Multilateral Instrument 91-102 – Prohibition of Binary Options. The OSC has indicated in its Statement of Priorities that it will continue to conduct targeted compliance reviews focused on new registrants and high risk, problematic, and large/high impact firms.
5. Enforcement initiatives: Efforts under this initiative involve a focus on deterrence through timely and consequential enforcement actions. Highlights of the last fiscal year include managing more than 185 whistleblower tips under the OSC Whistleblower Program and a review of the use of restrictive agreements by registrants that attempted to preclude whistleblowing. The OSC plans to continue to leverage the Joint Serious Offences Team to identify serious breaches, focus prosecution efforts on serious, and raise awareness of the OSC Whistleblower Program.
Deliver responsive regulation
6. Innovation (including Fintech): There continues to be innovation transforming the financial services industry and the OSC has acknowledged that regulation needs to keep up with digital innovation. OSC LaunchPad continues to be a key initiative under this priority to assist Fintech businesses with navigating the regulatory framework. The OSC will carry on its activities from the past year by focussing on engaging with the Fintech community, including through its OSC Fintech Advisory Committee. Some highlights from the past year include publishing CSA Staff Notice 46-307 – Cryptocurrency Offerings and CSA Staff Notice 46-308 – Securities Law Implications for Offerings of Tokens, which provide additional guidance on the securities law requirements that may apply to cryptocurrency offerings. See our previous blog posts on the guidance issued in 2018 here and the 2017 guidance here.
7. Investor protection for syndicated mortgage investments: The OSC is working with the Ontario government and the Financial Services Commission of Ontario to implement changes to the oversight of syndicated mortgages. On March 8, 2018, amendments to National Instrument 45-106 – Prospectus Exemptions and NI 31-103 were published for comment with the aim of harmonizing the regulatory approach taken across CSA jurisdictions and to introduce additional investor protections in this area. The OSC and CSA are working towards finalizing these amendments by March 2019.
8. Reduce regulatory burden: In April 2017, the CSA published Consultation Paper 51-404 – Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers and followed that in March 2018 with Staff Notice 51-353 – Update on Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers (see our previous post here summarizing the key areas of focus identified by the OSC). For the 2018-2019 year, the OSC is continuing to focus its efforts on reducing regulatory burdens while balancing investor protection.
9. Disclosure of women on boards and in executive officer positions (new priority): In 2017, the CSA posted its third annual review of gender diversity under the disclosure rules pursuant to National Instrument 58-101 – Disclosure of Corporate Governance Practices. This review indicated there has been slow progress over the previous three years in terms of gender diversity, with the overall percentage of board seats occupied by women sitting at 14%. For a detailed summary of this review, see our previous post here. As a result of the continued underrepresentation of women on boards and in executive officer positions, the OSC is going to assess the effectiveness of the current requirements and consider whether changes to the current regime are warranted.
10. Monitor and assess impacts of recent regulatory initiatives: The OSC will evaluate the impact of recently implemented regulatory reforms to see whether expected results are being achieved. Specifically, the OSC will evaluate the Client Relationship Model (CRM2) and Point of Sale (POS) initiatives in participation with the CSA to see whether these projects have achieved their objective of enhancing investors’ understanding of the costs and fees associated with investment products.
Promote financial stability through effective oversight
11. Systemic risk oversight: This priority focuses on enhancing the identification and monitoring of emerging risks and understanding the key components of systemic risk. In 2017, both National Instrument 94-101 – Mandatory Central Counterparty Clearing of Derivatives as well as National Instrument 94-102 – Derivatives: Customer Clearing and Protection of Customer Collateral and Positions came into force. The OSC plans to address this priority in a variety of ways for the upcoming fiscal year, including enhancing the over-the-counter derivatives regulatory regime by publishing new rules surrounding derivatives and conducting compliance reviews.
12. Promote cybersecurity resilience: The OSC recognizes that cyberattacks, including data breaches, have the potential to disrupt our markets and market participants. The OSC plans to promote cyber resilience by collaborating with market participants and regulators and improving coordination in the case of cyberattack by finalizing a market protocol.
Be an innovative, accountable and efficient organization
13. Develop a strategic OSC workforce approach focused on skill recruitment and development (new priority): This priority recognizes the need to develop the skills and experience of OSC staff to address current and emerging needs, which includes delivering targeted talent development programs, expanding staffing approaches and strengthening its succession planning.
14. Enhance OSC business capabilities: The OSC plans to enhance its business capabilities by developing and implementing a comprehensive data strategy and enhancing its current e-filings portal.
15. Transition of the OSC to the proposed Capital Markets Regulatory Authority (“CMRA”): In the Statement of Priorities, the OSC expressed its support for the CMRA and that it views it as an opportunity to improve investor protection, create more efficient rulemaking, and promote a globally competitive market in Canada. The CMRA is an initiative of the governments of British Columbia, New Brunswick, Ontario, Prince Edward Island, Saskatchewan, Yukon and Canada designed to streamline the capital markets regulatory framework. For the upcoming year, the OSC will continue to work with participating jurisdictions and the proposed CMRA to develop a harmonized regulatory approach.