Navigating An OSC Compliance Review: Practical Strategies For Ontario Registrants

For firms and individuals registered in Ontario's capital markets, undergoing a compliance review by the Ontario Securities Commission (OSC) is a routine part of operating in a regulated environment. These reviews assess whether registrants are meeting their legal and regulatory obligations. A firm that prepares thoughtfully can make the process more efficient, minimize the risk of serious deficiencies, and avoid escalation to the Registrant Conduct team or, in more significant cases, OSC Enforcement.

Knowing what may trigger a compliance review, how to prepare effectively, and how to respond afterward can make a meaningful difference in protecting your registration and maintaining good regulatory standing. This article highlights the key elements of the OSC compliance review process, common pitfalls, and best practices to ensure a smooth experience.

Overview of the OSC Compliance Review Process

The Registration, Inspections and Examinations (RIE) Branch (formerly the Compliance and Registrant Regulation Branch) of the OSC oversees registered firms, including investment dealers, exempt market dealers, portfolio managers, and investment fund managers.

Firms may be selected for review through several mechanisms:

• Routine Risk-Based Reviews – periodic reviews based on factors such as size, complexity, and past compliance history.
• Thematic Reviews – targeted sweeps focused on industry-wide regulatory concerns (e.g., conflicts of interest, cybersecurity, disclosure practices).
• For-Cause Reviews – prompted by complaints, referrals, or regulatory red flags such as financial instability or suspected misconduct.
• New Registrant Reviews – initial audits of newly registered firms to evaluate their compliance framework.

A typical OSC review generally follows these steps:

1. Notification: The Chief Compliance Officer (CCO) receives notice of the upcoming review.
2. Request for Books and Records: Firms provide documents such as client files, trade records, compliance manuals, and financial information.
3. Opening Interview: OSC staff meet with senior management, including the UDP and CCO, to discuss the firm's operations.
4. Fieldwork and Testing: OSC staff conduct interviews and test policies, records, and transactions for compliance.
5. Exit Meeting: Preliminary findings and potential compliance deficiencies are shared.
6. Compliance Report: A written report outlining deficiencies is issued.
7. Response and Follow-Up: Registrants typically have 30 days to respond, after which the OSC may request additional documentation or conduct further reviews.

If significant issues remain unaddressed, the matter may be referred to the Registrant Conduct Team, potentially leading to terms and conditions, suspension, or enforcement proceedings.

How to Prepare for an OSC Compliance Review

1. Conduct a Self-Review

A proactive internal compliance audit can help firms spot and address weaknesses early. Reviewing OSC's Summary Report for Dealers, Advisers and Investment Fund Managers is a good starting point. Key areas to assess include:

• KYC and KYP obligations
• Conflict of interest policies and disclosures
• Trade supervision and record-keeping
• Cybersecurity and data protection
• Marketing and disclosure materials

2. Keep Records Organized and Accessible

Many deficiencies stem from incomplete or poorly organized documentation. Firms should ensure that records required under NI 31-103—such as client agreements and KYC documentation, trade records and suitability assessments, internal compliance manuals and supervisory policies, and internal audit reports and regulatory filings—are up to date and easily retrievable. A well-documented compliance program demonstrates a firm's commitment to regulatory best practices.

3. Train Key Personnel

OSC staff often interview individuals across the firm. Employees should understand their regulatory obligations, including proper documentation of client interactions and suitability determinations, handling of conflicts of interest and disclosure obligations, and trade reporting and compliance with securities law. Ongoing training helps ensure they are prepared to respond confidently.

4. Appoint a Central Point of Contact

Designating a single liaison (typically the CCO) helps ensure efficient communication, coordinated document production, and timely responses throughout the review.

Common Compliance Pitfalls

Registrants often face OSC scrutiny due to:

• Outdated compliance policies
• Inadequate supervision of trading activity
• Weak cybersecurity controls
• Inconsistent conflict of interest disclosure practices

Identifying and addressing these issues in advance can reduce the likelihood of significant deficiencies and follow-up action.

Responding After an OSC Compliance Review

Following the exit meeting, the OSC issues a formal compliance report. When deficiencies are identified, firms should:

1. Prepare a Formal Written Remediation Plan within 30 days for significant deficiencies, outlining corrective measures and timelines.
2. Address All Compliance Issues Promptly, including major and minor deficiencies, to demonstrate a good faith approach.
3. Communicate Early with OSC if more time is needed to complete remediation.

Timely, proactive remediation helps maintain credibility and may prevent escalation.

Conclusion: Proactive Compliance Pays Off

An OSC compliance review should be viewed not only as a regulatory checkpoint but also as an opportunity to enhance internal controls and strengthen compliance culture. Firms that prepare thoroughly, keep records in good order, and invest in training are better positioned to navigate the process effectively and maintain regulatory confidence.

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.