OSC Annual Summary Report for Dealers, Advisers and Investment Fund Managers
On July 11, 2017, the OSC published its summary report for dealers, advisers and investment fund managers. The report provides key information to registrants to help them comply with registration and compliance requirements. Current trends in registration, common deficiencies in compliance reviews, and new and proposed rules and policy initiatives impacting registrants are discussed in the report. In particular, the report outlines OSC staff’s ongoing concerns with Know Your Client and suitability obligations, firms’ gatekeeper role in the registration regime and staff’s increased activity to address registrant conduct matters.
The report also outlines areas where the OSC intends to focus its compliance reviews over the coming year. These include firms with a significant number of senior investors as clients; compliance with new prospectus exemptions; expenses charged by a fund manager to its funds; and funds that have large holdings in illiquid securities and their valuation procedures. Staff also plan to continue reviewing high-risk firms identified through the 2016 Risk Assessment Questionnaire.
OSC staff note that they continue to deal with the excessive fee issue in integrated organizations and scrutinize other types of fee arrangements which may be unfair to clients in their compliance reviews. They also indicate that as a result of focused compliance reviews on sales practices, they are considering publishing additional guidance.
OSC Statement of Priorities for Financial Year to End March 31, 2018
On June 29, 2017, the OSC published its 2017-2018 Statement of Priorities, which sets out the 15 priority areas where the OSC intends to focus its resources and actions over the coming fiscal year, as well as the expected outcomes. The OSC published its draft 2017-2018 Statement of Priorities in March for comment. The final 2017-2018 Statement of Priorities includes an additional priority related to the work required to transfer regulatory oversight of syndicated mortgages to the OSC.
Among the highlights from the Statement of Priorities:
- The OSC identifies that the CSA is united on moving forward with targeted reforms and that Ontario and New Brunswick are committed to bringing forward a Best Interest Standard. The OSC will continue to work to define and introduce a regulatory best interest standard in Ontario and work with the CSA to introduce targeted, harmonized reforms to strengthen the standard of conduct and make the client-registrant relationship more centered on the interests of the client. The OSC will also examine the impact that advisor titles and proficiency standards have on investor protection as part of this priority.
- The OSC believes that investors must be able to understand the true costs of their investments, the costs of buying and holding their investments, and the cost of the advice they receive. The OSC states that the current embedded fee model is poorly understood by investors and embedded fees raise conflicts that could incentivize advisors to recommend funds that benefit the advisor ahead of the investor. The OSC remains committed to achieving an evidence-based resolution to the use of embedded compensation structures. Following further dialogue with stakeholders, the OSC will develop and present policy options and recommendations to the Commission and CSA Chairs later this year.
- The OSC will continue to strive to foster an innovation-friendly market where entrepreneurs can flourish in a regulated industry and essential investor protections are in place. The OSC will examine opportunities to apply the learnings gained through this approach in its dealings with other market participants. The OSC states that that regulatory rules must protect investors, but they must also make sense for all businesses, including emerging ones.
- The OSC will continue to provide guidance to market participants including reporting on the results of the cybersecurity roundtable and registrant survey.
The OSC also published its Report on the Statement of Priorities for Fiscal 2016-2017, which details its performance against the priorities set out in the 2016-2017 Statement of Priorities.