In keeping with its regular practice, the Ontario Securities Commission (the “OSC“) has opened a 30 day window ending December 16 to request comments on the Statement of Priorities for the financial year to end March 31, 2022.
The 2021-2022 Statement of Priorities sets out four strategic goals discussed below and reflects the impacts and lessons learned from the COVID-19 pandemic and accommodates changes due to the recommendations from the Capital Markets Modernization Taskforce.
Goal: Facilitate Financial Innovation
In 2020, the OSC created the Office of Economic Growth and Innovation (“Innovation Office“). Its mandate includes leading the OSC’s efforts in reducing regulatory burden, which was detailed in the report “Reducing Regulatory Burden in Ontario’s Capital Market1 (the “Report“).
The Innovation Office will monitor innovation and economic growth initiatives and report on its progress with the anticipated outcome of an increase in innovative novel businesses, entrepreneurs and start-ups.
The multi-year plan centers on active engagement with stakeholders, innovation hubs and similar groups within domestic and global regulatory organizations that can support innovation and facilitate capital formation, transaction and service efficiency and fairness. The Innovation Office will foster, promote and, in some cases, test innovative business models and methodologies.
The work of the OSC’s Launchpad will be expanded through deeper engagement with businesses and additional support to foster a stronger innovation ecosystem in the province. The Innovation Office will: (i) provide more tools to businesses seeking to test novel products and services; (ii) research, identify, and test new innovative methods, services and products that fulfill the OSC’s mandate to enhance capital markets efficiency; and (iii) offer insights and information into securities law requirements including information for start-ups on whether and how securities regulations may apply to their business.
Fintech businesses can expect help and flexibility in navigating regulatory obligations through the approval of conditional exemptive relief applications in coordination, where applicable, with CSA Sandbox and enhanced guidance in complying with requirements within new business models.
Goal: Promote Confidence in Ontario’s Capital Markets
- Continue Implementation of Client Focused Reforms. Reforms to NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations will come into effect in 2021. Amendments relating to conflicts come into effect on June 30, 2021, and the remaining changes will take effect on December 31, 2021. Under the amendments, registrants will be required to: (i) address material conflicts of interest in the best interest of the client; (ii) put the client’s interest first when making a suitability determination; and (iii) do more to clarify for clients what they should expect from registrants.
- Implement Mutual Fund Embedded Commissions Policies and Ontario Regulatory Response to Deferred Sales Charges (“DSC“). The OSC will monitor mutual fund sales trends, new products and services to assess whether activities are in line with the policy objectives of the mutual fund embedded commissions’ policies which ban certain commissions that are imbedded in some mutual fund purchases. The OSC will work to finalize the Ontario regulatory response to the use of the DSC option in the sale of mutual funds, including the publication of the final rule.
- Improve the Retail and Investor Experience and Protection. OSC efforts will focus on engaging stakeholders, identifying appropriate areas for improvement and making changes that will help investors have positive experiences and be better informed when making investment decisions. These efforts are intended to lead to greater investor protection and help reduce the impact of fraud.
- Continue to Expand Systemic Risk Oversight. To continue to enhance its systemic risk oversight capabilities, the OSC will: (i) conduct compliance reviews of reporting counterparties on over-the-counter (“OTC“) derivatives issues; (ii) design and implement a framework for analyzing OTC derivatives data for systemic risk oversight and market conduct purposes; and (iii) implement annual surveys of private and public investment funds about their portfolio exposure in order to assess relevant systemic risks, with a focus on aggregated asset classes and leverage information.
- Bring Timely and Impactful Enforcement Actions. In an effort to combat the increasing complexity of securities fraud and misconduct, the OSC plans to implement new surveillance and analysis tools, including working with the Canadian Securities Administrators (“CSA“) to implement the next phases of the Market Analysis Platform and enhancing the profile of the OSC Whistleblower Program.
- Continue Consultation on the Current Self-Regulatory Organization (“SRO“) Framework. The OSC will publish its recommended SRO framework for comment.
- Strengthen Investor Redress Through the Ombudsman for Banking Services and Investments (“OBSI“), Through Policy and Oversight Activities. To achieve better results for investors regarding redress and dispute resolution, the OSC will continue its efforts to strengthen OBSI in its role as the independent dispute resolution service. The OSC plans to accomplish this by providing analysis of the proposal for OBSI binding decisions in Ontario within increased claim limits and by engaging with its CSA partners on strengthening OBSI.
Goal: Reduce Regulatory Burden
In coordination with the CSA, the OSC is pursuing opportunities to reduce undue burden and to make its interface with market participants easier and less costly.
The OSC has committed to completing the burden-reducing items identified in the Report, providing regular updates on its progress, and engaging stakeholders in further study on matters previously identified for follow-up.
The OSC expects to see:
- enhanced use of technology, greater transparency and increased flexibility in meeting requirements of the regulatory process;
- improved coordination of internal reviews and with other regulatory bodies;
- reduced duplication of requirements and form filing;
- clearer communication from OSC Staff;
- rules and guidance that are easier to read and understand; and
- better organized website that makes locating information easier.
Goal: Strengthen OSC’s Organizational Foundation
- Continue the Redevelopment of the CSA National Systems. The OSC will support the CSA’s initiative to develop and launch SEDAR+ (which will replace SEDAR, SEDI, NRD and other national systems). This includes ensuring OSC systems, processes, workflows and policies are in place for phase I of the SEDAR+ launch.
- Modernize its Technology Platform. The OSC created the Digital Solutions Branch, which is tasked with leading the implementation of its enterprise-wide data strategy. The OSC will operationalize the branch and projects including (i) replacing certain legacy systems with new cloud-based systems; (ii) the ongoing development of derivative trades database, with expanded data sets and analytics; and (iii) the continued implementation of the Information Security Program, which seeks to improve systemic risk oversight capabilities and cybersecurity posture.
- Foster Inclusion and Diversity. The OSC will implement an inclusion and diversity strategy to remove barriers to inclusion and achieve an equitable experience for all its employees. The regulator expects to update policies and practices pertaining to recruitment, talent development, secondment, promotion and its code of conduct.
- Continue to Monitor and Adapt to the Impact of COVD-19. The OSC will adjust work policies and practices to support effective and efficient delivery of regulation and business operations. This will be achieved through flexible work arrangements and resources to support OSC Staff’s physical and mental well-being.
1 The Report is available at: https://www.osc.gov.on.ca/documents/en/20191119_reducing-regulatory-burden-in-ontario-capital-markets.pdf
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