Canada: Risk-Based Pension Regulation In Ontario

Last Updated: November 27 2011
Article by Mark Newton

Originally published in November 2011

On September 21, 2011, the Financial Services Commission of Ontario (FSCO) released its Risk-Based Regulation Framework Document on the FSCO website. The document describes a broad-based framework for the risk-based regulation of pension plans in Ontario.

This represents an enhanced form of risk monitoring by FSCO. Pension plan sponsors and administrators with pension plans registered in Ontario should review FSCO's Framework. It may be prudent in appropriate cases, for pension plan governing bodies, to adjust pension plan governance policies, procedures and objectives to better match FSCO's risk-based supervisory model.

Background on FSCO's plan to move towards risk-based regulation

The trend toward risk-based regulation in Ontario mirrors what is being done in other jurisdictions as regulators recognize that pure compliance approaches are limited. Based on key recommendations from the report of the Ontario Expert Commission on Pensions, A Fine Balance – Safe Pensions, Affordable Plans, Fair Rules, as well as its own assessments, FSCO is taking steps to establish monitoring programs that will be proactive in identifying plans that may be at risk of failure or severe under-funding.

The proposed Framework will consider a broad universe of risk factors in areas such as administration, governance, and sponsor related risks. The goal is that the Framework will provide a base level of regulation across all pension plans which will include monitoring of key risk indicators, improved dialogue with stakeholders, and promotion of best-practices. Above this base level monitoring, the Framework will focus FSCO resources on pension plans that exhibit the greatest amount of risk.

The Proposed Framework

The Framework consists of five components. At its core is the Regulatory Response Model which describes the application of risk-based supervision and proportionate responses based on risk. The Response Model is informed by four other components, also discussed below: Risk Indicators, Regulatory Powers, available and potential Data Sources, and finally the proposed Business Processes for Quality Control and Framework Maintenance.

1. The Regulatory Response Model

At the core of the Framework lies the Regulatory Response Model. This model proposes to prioritize regulatory work according to the probability and the impact of risk in each plan or transaction.

Following a detailed review, plans will be classified into one of four "risk quadrants" which act as an internal guide for the effective allocation of staff resources and the regulatory actions taken by FSCO.

(a) Intervention Quadrant

Plans showing both a high probability and high impact of risk will be categorized in the "Intervention" quadrant and thereby attracting the highest level of intervention from FSCO. Examples of events giving rise to an "Intervention" categorization include:

  • Failure to remit contributions over an extended period of time
  • Chronic and significant underfunding
  • Significant member complaints
  • Plans with significant sponsor risk

The Framework proposes that in the event of a plan or transaction being categorized as needing intervention, FSCO would commence regular interactions with plan administrators, including site examinations, so as to mitigate risk through proactive measures. In severe cases, FSCO would take action or commence legal proceedings pursuant to the Ontario Pension Benefits Act.

(b) Proactive Supervision Quadrant

Plans showing high impact risk but low probability risk will be classified as needing "Proactive Supervision." The FSCO Framework Document suggests that very large plans may fall into this category due to the potential for adverse impact on a large number of members. Plans classified in this category will be subject to ongoing monitoring by FSCO which would include periodic management reporting, ongoing media monitoring and possible interactions with the plan.

(c) Monitor Quadrant

Plans showing low impact risk but high probability (i.e. frequency) risk will be classified in the "Monitor" quadrant. Plans fitting into this quadrant would be both small plans with clear risk indicators (e.g. solvency issues) and large plans where the immediate issue is not a large impact (e.g. consistently late filings). In response to "Monitor" plans, FSCO proposes to monitor and flag the plans if identified risks persist. In such circumstance, an enhanced review or communication with the plan administrator may follow.

(d) Educate Quadrant

Finally, plans with both a low impact and probability of risk will be classified in the "Educate" quadrant. This category will generally include plans, other than very large plans, with little or no risk indicators. For these plans, FSCO proposes to simply provide general education to plan administrators as well as guidance notes and bestpractices.

2. Risk Universe & Risk Indicators & the Detailed Risk Assessment

The Risk Universe categories are meant to broadly capture the risks inherent in pension plans. From these, Risk Indicators (see below) will be developed and tracked for all plans. The risk universe includes the following categories:

  • Funding Risk – shortfalls in plan funding
  • Investment Risk – exposure to changes in the value of plan assets, especially:
    • Market Risk (exposure to changes in market price);
    • Matching Risk (mismatch between assets and liabilities), and;
    • Credit Risk (counterparty failing to meet obligations)
  • Administration Risk – inefficient or insufficiently effective processes or organization in the administration of the plan
  • Governance Risk – lack of or poor governance practices
  • Sponsor/Industry Risk – sponsor insolvency or potential adverse financial impact due to industry-wide events

The Framework proposes to develop Risk Indicators that are both consistent with the Risk Universe but also can be quantified/measured using risk-based metrics. This will allow the Risk Indicator Tool (RIT) to provide an initial preliminary assessment within the Regulatory Response Model. The RIT will highlight potential key risk areas for further analysis and prioritize FSCO's resources.

FSCO's plan is to initially implement the RIT using information currently available but over time the tool will be expanded and refined to identify measures that accurately and most-effectively identify high risk plans.

Based on results of the RIT, the Framework contemplates that detailed risk assessments will be performed on plans identified as needing further attention. These detailed assessments are expected to provide a full evaluation of the risks faced by a pension plan. In addition, the detailed risk assessment will classify the pension plan into one of the four quadrants referred to above which will then guide FSCO's regulatory action, if any.

Any material concerns arising from the detailed risk assessment would be communicated to plan administrators and possibly other stakeholders, in an effort to commence a constructive dialogue that will resolve any risk concerns.

3. Regulatory Powers and Tools

The Framework document describes that while traditional regulatory tools are set out in legislation, it is always open to the regulators to try and influence behaviour through moral suasion (e.g. stakeholder communications, educational materials, guidance on industry best practices). Nonetheless, the Framework is designed to be consistent with the powers of FSCO under the Ontario Pension Benefits Act.

The regulatory powers and tools listed in the Framework are meant to include a spectrum of education, monitoring and finally deterrence initiatives. Education activities include hosting conferences, publishing best practice guidelines, and FSCO studies, among others. As part of its monitoring tools, the Framework suggests the use of external audits, review of periodic filings as well as desk reviews with follow-up. In the most severe situations the Framework proposes FSCO investigations combined with regulatory orders or prosecution/litigation to stop plans and their administrators from breaches of the Ontario Pension Benefits Act.

In addition to the tools and regulatory powers currently available to FSCO, the Framework proposes adopting several new tools prevalent in other jurisdictions. Suggested changes include increasing plan and transaction reporting requirements, the ability for FSCO to issue Governance and Risk Management reviews by external auditors, and giving FSCO the ability to issue administrative penalties. These and other changes would require legislative changes.

4. Data Sources

The Framework proposes three types of data sources that can be enhanced to implement the Risk-Based Regulation Framework: (a) Existing data that can be used in an enhanced manner, (b) New data that can be collected absent legislative change, and (c) New data that could be provided following legislative change.

(a) Existing data that can be used in an enhanced manner

  • Complaint information (categorized by severity), unremitted contributions, late filings and applications, examinations (particularly for information on administration and governance), and audit reports.

(b) New data to be collected absent legislative change

  • Industry sponsor intelligence – establish an intelligence process that will monitor both industry risks (e.g. forward looking reports on industry, backward looking reports on industry specific insolvency rates) and sponsor risks (i.e. focus on sponsors identified as highrisk and monitor news alerts and credit ratings of those sponsors).
  • External scans and monitoring emerging trends and risks – ongoing interactions with industry, participation in forums and communications with peer regulators, and scanning external information and reports.
  • Additional data concerning plans and service providers – FSCO would require information on who provides the plans with investment and actuarial services.

(c) Potential new data following legislative change

  • Notifiable events – predefined events requiring reporting by the plan administrators (e.g. breaches of bank covenants, senior management convictions, and sponsors moving outside the jurisdiction).
  • Whistleblower reports – reports of legislative breaches made by sponsors, administrators or plan advisors.
  • Governance / Risk Management Information – details of the pension plans' governance arrangement.
  • Other information – related party transactions, conflicts of interest and investment holdings outside quantitative limits.

5. Business Processes for Quality Control and Framework Maintenance

The key component proposed by the Framework is the Risk Indicator Tool. The RIT will act as a trigger mechanism to identify and prioritize plans according to risk scores calculated using the Risk Indicators discussed above. The RIT would be automated and to the extent possible, provide real-time priority risk calculations that would direct FSCO resources to plans needing Tier 1 and Tier 2 reviews. The RIT is meant to provide a baseline review and ongoing monitoring of all plans.

Based on the priority list from the RIT a Tier 1 review will be conducted to both validate the results from the RIT and provide a preliminary report as to the plan's exposure to risk. At this point the plan would be assigned to one of the four risk quadrants and guide FSCO staff as to their regulatory response.

If the plan is categorized in the "Intervention" quadrant, it would become the subject of a Tier 2 review. This review would include a detailed assessment to confirm the risk classification. If the risk classification is confirmed, the plan would become case-managed by a dedicated team of FSCO staff. The role of this team is to conduct ongoing monitoring which may include recommendations for specific orders from the Superintendent, periodic and random risk assessments and other interactions with plan administrators.

Medium Term Strategy

Because the proposed Framework is a dramatic change from the current way FSCO regulates pension plans, it is expected that full implementation will take some time. However, the Framework document proposes that over the next three years the principal activities FSCO plans to carry out are:

  • Enhance and streamline existing risk-based processes
    • Integrating the monitoring and review of funding and investment risks
    • Introduce and implement e-filings to facilitate collection of data
    • Strengthen on-site examinations by identifying instances of poor governance
    • Promote industry-wide knowledge and understanding of best practices
  • Enhance stakeholders' understanding of FSCO's risk-based approach through education and communication of the regulator's expectations.
    • Consultations during the period of transition which would include collaboration to develop a comprehensive risk-based approach, providing information about the new regulatory approach, and communication with a broad public audience to ensure the limits of the risk-based approach are understood.
    • Ongoing education through periodic reports on the application of the risk-based approach, thematic reviews on areas of concern, developing guidelines in regards to plan governance, and reaching out to more stakeholders through forums, conferences and the internet.
  • Establish quality control and maintenance processes to ensure the risk-based approach is being applied in a valid and reliable manner.
    • Measure the effectiveness of risk indicators that contribute to the RIT
    • Revisiting and updating the Framework with new or altered criteria and data sources
    • Coordinating the identification of emerging or increasing risks
    • Liaising with relevant IT groups to ensure the system is appropriately supported by technology

Plan sponsors and administrators should review their governance framework to determine whether it is consistent with FSCO's approach. The questions a sponsor or administrator with a pension plan registered in Ontario should be asking are whether the types of risks identified by FSCO are being properly monitored and what steps are anticipated to mitigate risk in cases where material risks are identified.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions