OSC accused of bypassing investor protection

Investor advocate firm Kenmar Associates has issued a scathing rebuke of the Ontario Securities Commission’s (OSC) regulatory agenda for the year ahead.

Last week, the OSC announced it would not be publishing a detailed statement of priorities for the coming fiscal year in light of Covid-19. Instead, the commission invited feedback on existing initiatives — notably, its effort to reduce the regulatory burden for industry participants.

That plan didn’t sit well with Kenmar president Ken Kivenko, who wrote in a submission that he was “taken aback” that investor protection wasn’t a priority for the commission in the wake of the market turmoil wreaked by Covid-19.

“We acknowledge that the OSC has done fantastic work in reducing the ‘burden’ experienced by registrants in complying with securities laws,” Kivenko wrote. “Unfortunately, we cannot identify where any progress has been made in protecting retail investors.”

In a statement released last week, the OSC said it planned to adjust its priorities this year based, in part, on the outcome of Ontario’s Capital Markets Modernization Taskforce— a project that Kivenko said has “little or no retail investor involvement or engagement.”

In his submission, Kivenko offered numerous priorities for the OSC to consider, such as banning deferred sales charge (DSC) mutual funds — something securities regulators in the rest of the country have already agreed to do.

“The Commission stands alone in continuing to consult on how to retain the toxic DSC mutual fund,” Kivenko wrote. “We recommend that the Commission abandon its consultation and, with all other members of the CSA, ban DSC mutual funds.”

Kivenko also noted that the OSC’s recent move to make it easier for dealer firms to have reps’ restrictions lifted, combined with more advisors working from home without the direct oversight of compliance staff, “creates risks for investors.” He sought assurances that reps’ cybersecurity controls while working from home are “robust” to protect clients’ privacy.

Among numerous other measures, Kivenko called for a ban on discount brokerages selling mutual funds with trailing commissions and asked the OSC to crack down on misleading titles used by dealing representatives. He also seconded the Canadian Foundation for Advancement of Investor Rights’ plea to provide relief to subscribers in group RESPs.

Additionally, Kivenko urged the OSC to make finding a permanent chair a “top priority.” Grant Vingoe stepped in as acting chairlast month.

“We are impressed with the speed at which the Commission has provided industry relief, granted exemptions and extended reporting deadlines,” Kivenko wrote. “We certainly wish that the Commission would move with such speed when it comes to dealing with investor protection issues.”