On October 10, 2023, the Financial Services Regulatory Authority of Ontario (FSRA) launched a public consultation on its proposed 2024-2025 Statement of Priorities (SoP) and budget. The objective of the consultation is to obtain feedback from stakeholders, including consumers, credit union members, pension plan beneficiaries, investors and others and is a part of FSRA's ongoing commitment to transparency and accountability.
FSRA has noted that the proposed SoP was shaped by certain environmental factors facing Ontarians today, including various economic, technological, and other emerging issues. Such issues include inflationary pressures, the impact of increased interest rates, the use of automation and artificial intelligence and its associated risks for consumers, environmental, social and governance investing by regulated entities, the need for regulated entities to better serve vulnerable persons, and the increase in alternative and private lending, including private mortgage transactions.
FSRA lists among its proposed priorities for fiscal year 2024-2025:
- Advancing the consumer interest across various sectors regulated by FSRA;
- Enabling innovation;
- Modernizing systems and processes;
- Protecting consumers who invest in segregated fund contracts;
- Promoting strong conduct culture in mortgage brokering;
- Enhancing professional competence of licensed individuals in mortgage brokering; and
- Ensuring the effectiveness of the title protection framework for financial planners/financial advisors.
Highlights of the proposed priorities for mortgage brokers and administrators include enhancing protection of vulnerable consumers. FSRA also intends to develop rules and guidance to support the effectiveness of principal brokers (the chief compliance officer of the mortgage brokerage), commence supervision of mortgage brokers and administrators against regulatory expectations outlined in the mortgage suitability guidance and mortgage administrator financial filing guidance, and implement a risk-based conduct intervention approach to address deficient firms. FSRA will publish its final guidance on how it evaluates the suitability of a mortgage broker to hold a license and how brokers should conduct suitability assessments, and will implement an enhanced competency and continuing education framework for brokers and agents. The later is seen as critical to mitigate the risks associated with an environment of increased interest rates and inflation leading to consumers increasingly using private lenders for mortgages.
Behind the Scenes: Shorter Consultation Periods Proposed
The Ministry of Finance in Ontario (Ministry) released a consultation last month that would impact the time the public is afforded to comment on proposed rules released by either the Ontario Securities Commission (OSC) or the Financial Services Regulatory Authority of Ontario (FSRA). These regulators must currently provide for a minimum 90-day comment period, but the Ministry has proposed this be shortened to 60 days for "simple, straightforward" rules. The OSC and FSRA would still be able to have a longer consultation period for more complex rules. Comments will be accepted on the proposed legislative amendments until December 4.
Compliance Unplugged: OSC Proposes Amendments to Fee Rules for NonCompliant Firms and Restricted Dealers
The Ontario Securities Commission (OSC) has proposed amendments to OSC Rule 13-502 Fees and OSC Rule 13-503 (Commodity Futures Act) Fees in order to charge new fees for (i) restricted dealers and (ii) firms that are permitted to carry on business under terms and conditions imposed by the OSC.
Restricted dealers would be subject to the following new fees:
- $24,500 at the time of OSC registration as an additional fee; and
- An additional exemptive relief application fee of $24,500 for restricted dealers operating as a marketplace.
These new fees are intended to address the costs the regulator faces when onboarding restricted dealers as compared to most other existing market participants.
The definition of "registered firm" is also proposed to be expanded to included individuals or companies required to be registered as dealers, advisers or investment fund managers under Ontario securities law (or dealers or advisers under the Commodity Futures Act), thus requiring non-compliant firms to pay the same participation fees as a registered firm. Comments on the proposal are due by February 7, 2024. The amendments are proposed to become effective as of July 2, 2024.
CSA and CIRO Responses on Short Selling Consultation – Reality TV Check
The Canadian Investment Regulatory Organization (CIRO) and the Canadian Securities Administrators (CSA) recently released Staff Notice 23-332 Summary of Comments and Responses to CSA/IIROC Staff Notice 23-329 Short Selling in Canada (the Staff Notice).
The Staff Notice describes the comments received in connection with the consultation, and concluded that there was no consensus amongst the commentators on the regime for short selling, with some people arguing for major changes, others for only minor amendments while one commentator suggested short selling should be banned altogether. No changes to regulatory provisions are currently being proposed, however the regulators noted they would continue to review whether any changes are required.
Proposals from CIRO can be expected in early 2024 with respect to its current requirement to have a reasonable expectation to settle a short sale on the settlement date. CIRO and the CSA also intend to study potential mandatory close-out or buy-in requirements. As referenced in the Staff Notice, a "buy-in" is started by a buyer who has not received the securities purchased on the date for settlement where they purchase securities in the market to cover the delivery failure, and the seller who failed to deliver is responsible for any increase in price between the failed trade and the buy-in trade. A "close-out" occurs when a dealer fails to deliver securities sold on the date for settlement and must close out the failed position by borrowing securities or purchasing them in the open market. The regulators indicated more than once that the upcoming transition to a T+1 settlement date would need to be considered prior to or at the same time as any changes to the short selling rules.
Must See TV: Annual Filing Exempt Trade Reports Deadline Quickly Approaching
It is never too early to think about filing exempt trade reports for investment fund issuers that file on an annual basis. Investment funds that have relied on specified prospectus exemptions under National Instrument 45-106 Prospectus Exemptions, being the accredited investor exemption, the minimum investment of $150,000 (for non-individual purchasers) and the exemption for additional investment in investment funds, must file by no later than January 30, 2024. As in past years, the process of completing the forms and calculating the fees can be quite time consuming and should be started well in advance of the deadlines. This is particularly true in 2024 as many filers may not have a completed SEDAR+ profile which must be created and verified in order to complete the filings, and the profile also takes a significant amount of time to set up. We would be pleased to help you with this process – please contact us as soon as possible if you anticipate requiring assistance.
AUM Law Spoke at the PMAC AML and ATF Training Session
Don't change that dial; on November 29 AUM Law's Chris Tooley participated as a speaker for the third year in a row at the Anti-Money Laundering and Anti-Terrorist Financing Training Session hosted by PMAC. Chris covered core concepts around money laundering and terrorist financing, client identification, what information you must collect from clients, record keeping, and suspicious transactions.
Proud Repeat Sponsor of the PMAC National Conference
We are proud to have sponsored the Portfolio Management Association of Canada (PMAC) Annual Conference, alongside Borden Ladner Gervais (BLG) on November 14 at the Fairmont Royal York in Toronto.
2023 CCLS Education Sub-Committee Event
AUM is equally happy to have sponsored the Conduct, Compliance and Legal Section (CCLS) Education Sub-committee of the Canadian Investment Regulatory Organization (CIRO) event, alongside Borden Ladner Gervais (BLG) on November 30.
Canada's Annual AIMA's Regulatory Forum
AUM Law's founder Kevin Cohen had the pleasure of moderating the annual AIMA Canada Regulatory Forum, which discusses a number of current topics impacting compliance, registration and investment funds, as well as questions for the regulators on November 30.
BLG Resource Corner
- Understanding the Canadian Investment Regulatory Organization (CIRO): A quick primer
- OSC issues new summary report with guidance for investment fund and structured product issuers
- Understanding what the derivatives business conduct rule means for your business
- Navigating the currents of ESG expectations: Survey Report on ESG perceptions and practices of Canadian Fund Managers
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