Canada: OSC Staff Notice 11-767 - Notice Of Statement Of Priorities For Financial Year To End March 31, 2013

Last Updated: August 31 2012
Article by Will Shaw

On June 28, 2012, the Ontario Securities Commission released OSC Staff Notice 11-767 (PDF) Notice of  Statement of Priorities for financial year to end March 31, 2013 (Statement of Priorities).

Key Regulatory Priorities

The Statement of Priorities identifies the following key regulatory priorities for 2012-2013:

  1. Deliver Responsive Regulation
  2. Deliver Effective Enforcement and Compliance 
  3. Deliver Strong Investor Protection 
  4. Run a Modern, Accountable and Efficient Organization
  5. Support and Promote Financial Stability

This Bulletin will provide a general overview of priorities 1 to 3 identified above.  For initiatives within these priorities relevant specifically to the investment fund industry please see our Bulletin dated July 9, 2012.

Deliver Responsive Regulation

The OSC plans to deliver responsive regulation by: (i) proactively pursuing regulatory standards that discourage regulatory arbitrage, maintain or improve market confidence, reduce financial crime and safeguard investors; and (ii) expanding its research and analytical capabilities as they relate to policy making and operational decisions in order to better inform policy development.  In furtherance of these goals, the OSC will undertake the following key initiatives:

  • Facilitate shareholder empowerment in director elections by "advocating" for the elimination of slate voting, the adoption of majority voting and enhanced disclosure of voting results from shareholder meetings
  • Improve the proxy voting system by:
    • conducting an empirical analysis to review concerns raised about the accountability, transparency and efficiency of the proxy voting system;
    • facilitating discussions amongst market participants on improving the functioning of the proxy system; and
    • working with the Canadian Securities Administrators to review the role of proxy advisers and soliciting feedback from issuers, investors and other market participants
  • Develop and publish a consultation paper addressing issues associated with market data in a multi-marketplace environment
  • Undertake comparative research on capital raising regimes in other jurisdictions
  • Consider and consult on alternate capital raising exemptions in Ontario in addition to the accredited investor and $150,000 exemption
  • Undertake research and analysis of increasingly complex financial products and investment strategies and collaborate closely with other regulators and exchanges to ensure regulatory approaches towards investment products are consistent and opportunities for regulatory arbitrage minimized.

Deliver Effective Enforcement and Compliance

Delivering effective enforcement and compliance is a cornerstone of the OSC's mandate to provide protection to investors while fostering fair and efficient capital markets and confidence in our capital markets. The OSC will focus on actively preventing non-compliance by issuers and registrants instead of reacting to non-compliance after the fact.  To address these issues, the OSC will: 

  • Work with other regulators, oversight bodies, exchanges, emerging markets issuers, auditors, underwriters and investors to address the principal concerns identified in the Emerging Markets Issuer Review completed in 2011-2012, outlined in OSC Staff Notice 51-719 dated March 20, 2012. This will include:
    • developing and/or enhancing guidance and practices for boards, auditors and underwriters to address the principal concerns described in the Staff Notice; and
    • examining listing requirements applicable to Emerging Market issuers
  • Conduct more targeted compliance reviews and desk reviews of registrants by focussing on "high risk areas", know your client and suitability obligations, new registrants and major issues of concern that have been identified through compliance reviews
  • Conduct compliance reviews of website and marketing disclosures by smaller issuers
  • Reduce timelines for completing investigations and initiating regulatory proceedings to promote vigorous and timely enforcement action
  • Continue to work with national and international enforcement regulators to develop a comprehensive response to emerging market issues
  • Increase the use of stronger enforcement mechanisms and increase quasi-criminal prosecutions
  • Further develop and implement a more effective, risk-based and proactive approach to both issuer regulation and compliance oversight
  • Conduct educational seminars and publish a variety of practice directives and guidance to small and medium enterprises to provide direction on understanding the OSC's expectations regarding filings, and to alert them to issues the OSC is focussing on in its review programs.

Deliver Strong Investor Protection

The OSC has identified the following initiatives for delivering strong investor protection:

  • Create an Office of the Investor to establish a stronger investor focus and understanding at the OSC
  • Re-evaluate the adviser-client relationship to consider whether an explicit statutory fiduciary duty or other standards should apply to all advisers and dealers in Ontario
  • Make application under s.128 of the Securities Act (Ontario) to compensate investors, where appropriate
  • Ensure investors get the information necessary for making sound investment decisions by:
    • applying high standards of disclosure in prospectuses and continuous disclosure reviews;
    • developing alternative, tailored disclosure documents; and
    • publishing rules requiring dealers/advisers to provide their investors with reports on the ongoing costs and performance of their investments
  • Continue to work with Ombudsman for Banking Services and Investments and the Canadian Securities Administrators to support a sustainable and robust system of informal dispute resolution for investors.

Given the availability of complex products, increasing reliance on the exempt market for distribution, and potential intermediary conflicts of interest in the distribution of products, the OSC has identified the a further need to assist and protect investors by:

  • Examining the exempt market to determine how and why individual investors participate in direct investments and in structured investments sold through exempt market dealers
  • Re-considering the current regulatory requirements governing shareholders' rights plans in order to reflect recent market and governance developments.

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