After many speaking engagements where we discussed the need for
comprehensive, firm-specific derivatives policies and procedures,
on June 29, 2015, the Ontario Securities Commission announced its
intention to review compliance with derivative trade reporting
requirements during fiscal 2015/16. OSC Staff Notice 91-704 –
Compliance Review Plan for OSC Rule 91-507 Trade
Repositories and Derivatives Data Reporting (the
Notice) provides that the initial compliance
reviews will focus on those "derivatives dealers" that
are "most active" in the market and their compliance with
the derivative data reporting requirements in Ontario Rule 91-507
(the Ontario Rule).
WARNING: On first blush, this review seems to be limited, since
the notice makes reference to "derivatives dealers" and
those that are "most active". As you may be aware, there
are no registered derivatives dealers in Ontario, as this
registration category only exists in Québec under the
Derivatives Act (Québec). We believe that the compliance
review will be of firms that carry on the business of entering
into, or trading in, over-the-counter derivatives, which includes
firms that are typically out of scope of the Canadian securities
regulators (financial institutions, money services businesses and
those in the commodity risk sector).
In addition, "most active" may be contrued in two ways
– the review may focus on large institutional derivatives
market participants with high notional value transactions or the
review may target participants that cater to retail and mid-market
corporate clients that have a high volume of transactions.
As it is likely that the compliance net will be cast far and
wide, all market participants should be prepared for this OSC
The compliance reviews will be carried out by a joint team from
the OSC's Derivatives and Compliance and Registrant Regulation
Branches. To the extent appropriate, the compliance team will also
co-ordinate with other regulators that have oversight over the
applicable market participants. A derivatives dealer that receives
notice of a compliance review will be required to provide OSC staff
with its books and records, including policies and procedures, to
the extent that they relate to the dealer's trade reporting
obligations. OSC staff may attend on a dealer's premises to
review internal processes and to compare internal trade records to
the corresponding reported derivatives data. OSC staff will also
interview senior management and key employees.
The main points that the OSC will seek to verify are that:
reportable transactions (i.e., those that are determined to be
derivatives under NI 91-506 Derivatives: Product
Determination) have been reported
reporting is completed within the required timelines
the reporting counterparties are determined in accordance with
the requirements set out in the Ontario Rule
reported data is accurate and complete
life cycle and valuation data is reported and updated within
the required timeframes and
a legal entity identifier for each transaction counterparty is
reported in accordance with the OSC's stated expectations.
Following the compliance review, each dealer will receive a
written report setting out any issue identified during the review
process. The OSC will also publish anonymized key findings and
trends once a sufficient number of reviews have been completed.
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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