For registered firms and individuals operating in Ontario's capital markets, an OSC compliance review is an inevitable part of doing business. The Ontario Securities Commission (OSC) conducts these reviews to ensure registrants comply with securities laws and regulatory requirements. A well-prepared firm can streamline the process, reduce the risk of significant deficiencies, and avoid escalation to Registrant Conduct or, in more serious cases, OSC enforcement actions.
Understanding what triggers an OSC compliance review, how to prepare effectively, and what steps to take after a review can make all the difference in protecting your registration and maintaining regulatory standing. This guide outlines the key aspects of the OSC compliance review process, common pitfalls, and best practices to ensure a smooth experience.
Understanding the OSC Compliance Review Process
TheRegistration, Inspections and Examinations Division (RIE) Branch (formerly Compliance and Registrant Regulation (CRR)) of the OSC oversees registered firms, including investment dealers, exempt market dealers, portfolio managers, and investment fund managers. The OSC selects firms for compliance reviews based on several factors, including:
- Routine Risk-Based Reviews – Firms are periodically assessed based on risk factors such as size, complexity, and past compliance history.
- Thematic Reviews – The OSC may conduct targeted sweeps focusing on industry-wide regulatory concerns, such as conflicts of interest, cybersecurity, or disclosure practices.
- For-Cause Reviews – These arise from complaints, enforcement referrals, or regulatory red flags, such as misconduct allegations or financial instability.
- New Registrant Reviews – Newly registered firms are subject to an initial OSC compliance audit to assess whether they have established adequate compliance frameworks.
The compliance review process typically includes:
- Notification – The Chief Compliance Officer (CCO) is contacted with details of the review.
- Books and Records Request – The firm must submit documents such as client files, trade records, internal policies, and financial reports.
- Opening Interview – OSC staff meets with senior management, including the Ultimate Designated Person (UDP) and CCO, to discuss the firm's operations.
- Fieldwork and Testing – The OSC conducts interviews, policy reviews, and trade testing to assess compliance with Ontario securities law.
- Exit Meeting – The OSC shares preliminary findings and potential compliance deficiencies.
- Issuance of Compliance Report – The OSC formally outlines deficiencies, with significant deficiencies requiring a written remediation plan.
- Registrant Response and Follow-Up – Firms have 30 days to respond, after which the OSC may request additional documentation or conduct further reviews.
If deficiencies are not properly addressed, the OSC may escalate the matter to the Registrant Conduct Team, potentially leading to registration restrictions, suspension, or referral to enforcement.
How to Prepare for an OSC Compliance Review
Conduct an Internal Compliance Audit
Before an OSC review, registrants should perform a self-assessment of their compliance systems. Reviewing previous OSC guidance, including the Summary Report for Dealers, Advisers, and Investment Fund Managers, can help identify common compliance pitfalls. Key areas of focus should include:
- Know Your Client (KYC) and Know Your Product (KYP) obligations
- Conflicts of interest management and disclosure policies
- Trade supervision and record-keeping compliance
- Cybersecurity measures and client data protection
- Marketing materials and representations to investors
Identifying and addressing potential weaknesses before the OSC review can help mitigate regulatory concerns.
Ensure Books and Records Are Organized and Up to Date
Many OSC deficiencies stem from incomplete or disorganized records. Firms should ensure all required documentation is readily accessible and compliant with record-keeping regulations under National Instrument 31-103. This includes:
- Client agreements and KYC documentation
- Trade records and suitability assessments
- Compliance manuals and supervisory policies
- Internal audit reports and regulatory filings
A well-documented compliance program demonstrates a firm's commitment to regulatory best practices.
Train Key Staff on Compliance Responsibilities
An OSC review will likely involve interviews with key personnel, including trading staff, portfolio managers, and compliance officers. Firms should ensure employees understand their regulatory obligations, including:
- Proper documentation of client interactions and suitability determinations
- Handling of conflicts of interest and disclosure obligations
- Trade reporting and compliance with securities law
Providing ongoing compliance training can help staff respond confidently to OSC inquiries.
Appoint a Single Point of Contact for the OSC Review
Designating a primary liaison, usually the CCO, ensures that OSC communications are managed efficiently. This individual should be responsible for:
- Coordinating document production
- Scheduling interviews with key personnel
- Addressing OSC inquiries in a timely and professional manner
A centralized response prevents miscommunications and ensures a cohesive approach to compliance.
Common Compliance Pitfalls to Avoid
Registrants often face OSC scrutiny due to:
- Failure to update compliance policies – Firms must regularly review and adapt policies to meet new regulatory requirements.
- Inadequate trade supervision – The OSC expects firms to have robust supervisory procedures for monitoring transactions.
- Weak cybersecurity and data protection – Inadequate IT security controls can raise OSC concerns about safeguarding client data.
- Inconsistent conflict of interest disclosures – Failure to disclose material conflicts can trigger enforcement action.
Being proactive in addressing these issues reduces the likelihood of significant deficiencies.
What to Do After an OSC Compliance Review
After the exit meeting, the OSC will issue a compliance report. If deficiencies are identified, registrants must:
- Prepare a Formal Remediation Plan – Significant deficiencies require a written response within 30 days, detailing corrective measures and implementation timelines.
- Address All Compliance Issues Promptly – Firms should proactively resolve both major and minor deficiencies to demonstrate good faith compliance efforts.
- Communicate Effectively with the OSC – If additional time is needed to address deficiencies, registrants should engage with the OSC early to discuss their remediation approach.
Failure to properly remediate deficiencies can lead to further regulatory scrutiny or escalation to Registrant Conduct.
Final Thoughts: The Importance of Proactive Compliance
An OSC compliance review is not merely a regulatory hurdle—it is an opportunity to strengthen internal controls and improve compliance culture. Firms that proactively prepare, maintain detailed records, and engage in ongoing compliance training are more likely to navigate the process smoothly.
At CMB Registrant Services, we assist registrants with OSC compliance audits, responding to deficiency reports, and handling regulatory escalations. If you need guidance on preparing for an OSC review, contact us today. A strategic approach to compliance can help safeguard your firm's registration, reputation, and business continuity.
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.
