This year’s compliance summary from OSC contains a detailed list of mistakes firms typically make.
Based on compliance reviews, the OSC’s CCR Branch breaks down the deficiencies found at all firms, including exempt market dealers, portfolio managers and investment fund managers. Some of those deficiencies are:
- failure to adequately fill out and update KYC documents;
- not including enough information on client statements (i.e., not providing enough information about the party that holds a security and how that security is held); and
- using inappropriate disclaimers on client statements.
Firms are also failing to control the use of misleading titles by registrants, says OSC. And, behind the scenes, they’re falling short of adequately knowing the registrant applicants they sponsor, submitting termination filings and details on time where a registrant has been terminated, and responding to regulators quickly enough.
Common repeat deficiencies from past years, says OSC, include firms not having adequate written policies and procedures, using misleading marketing material, and firms not properly disclosing outside business activities and referral arrangements.
What’s important to the OSC?
As far as industry concerns go, the OSC points to the importance of protecting senior clients and vulnerable investors. In the coming year, it plans to focus in on firms that “have a significant number of senior investors as clients.”
As the report notes, seniors represent “the fastest-growing demographic in Canada.” So, says OSC, “We continue to be concerned about the provision of investment advisory services or sales of products to this investors segment.”
Another issue the regulator identifies is the risk of one-person firms having no succession plans, which can lead to “failing to meet requirements of applicable securities legislation” in the face of emergencies that cause business interruptions.
Changes on the horizon
Much of the OSC’s summary notice focuses on key policy initiatives in the works.
Topping the list is CSA’s 33-404 proposals, but the regulator also points to the review of compensation and incentive practices in the industry. Along with CSA, IIROC and MFDA have “each published their own notices outlining findings of their recent work in the area of compensation arrangements and incentive practices,” says OSC, which adds it may issue its own guidance regarding compensation conflicts of interest.
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The report also mentions CSA’s crackdown on embedded fees and its proposed amendments to registration rules for dealers, advisers, and investment fund managers, and developments related to derivatives and syndicated mortgages.
Absent from the report was any mention of the Ontario government’s plan to revamp advisor regulation. Ontario’s Finance Department says it’s working closely with regulators and SROs on possible reforms, but reports delivered to the department from an appointed expert committee suggest the province shouldn’t wait for organizations like CSA to act.
When asked about the Ontario reforms, the OSC said in a email, “We will work with the government, on responding to the recommendations of the Expert Committee, in any way they require.”