Thanks to a surge in settlements last year, the Ontario Securities Commission (OSC) enjoyed a rarity among Canadian securities regulators — a near-perfect record in enforcement collections.
The regulator collected 94.6% of the enforcement sanctions handed out in the fiscal year ended March 31, according to its management discussion and analysis report. The OSC imposed $41.3 million in sanctions, and collected $39.1 million.
In the previous year, the regulator collected just 35.9% of the sanctions ordered through enforcement proceedings.
The big jump is due to the prevalence of settlements. In fiscal 2020, the vast majority of the enforcement sanctions — almost $40 million worth — was ordered in cases that were settled, and the regulator collected 97.7% of those funds.
It had no luck collecting the sanctions imposed in contested hearings, yet this only amounted to $1.35 million.
In the previous year, almost $78 million was ordered in contested hearings, and the OSC only collected about $9,000 worth. Roughly $45.4 million was collected from settlements in fiscal 2019, out of $48.5 million assessed.
“Historically, collection rates from market participants have been much higher than from respondents sanctioned on matters related to fraud — where assets are typically non-existent or inaccessible,” the regulator noted.
“The enforcement collections rate more than doubled in 2020 as a result of the increase in settlements as compared with contested hearings,” it said.
The OSC noted that an external collections firm was hired in 2018, on a contingency basis, to collect unpaid sanctions.
“The firm has been successful in commencing legal actions and pursuing legal remedies resulting in the payment of amounts owing to the commission,” it said.
As a result of its collections in fiscal 2020, the OSC now has $118.4 million in designated funds available, up from $84.4 million in 2019.
These funds can be used to finance whistleblower payments, to fund investor education, and to return money to harmed investors.
“The recent growth in the designated fund and allocations from this fund have been an area of focus for the commission,” the report said. “We expect to publish additional details regarding the commission’s allocations process by fiscal year-end.”
In its financials, the OSC noted that the Covid-19 outbreak had a minimal impact on its results for fiscal 2020, as it occurred so close to the end of the fiscal year.
Its budget for 2021 initially forecast a 9.8% increase in costs from its actual results for 2020, but that budget was completed before the pandemic struck.
“If capital market volatility continues throughout fiscal 2021, there may be an impact on the OSC’s fiscal 2021 priorities and financial results,” it said.
“Participation fees account for 84% of our revenues, which are directly impacted by capital market conditions. If capital market downturns persist throughout 2021, it is expected that revenues will also decline,” it said.