Securities registrants in Ontario must comply with Ontario Securities Commission (OSC) requirements to maintain their registration and operate in the capital markets. When concerns arise, whether due to regulatory issues, financial instability, or questions of integrity, OSC Staff may escalate the matter to the Director for possible regulatory action.
There are two common pathways that lead to escalation and the involvement of the Director of the Registration, Inspections and Examinations (RIE) Division:
- Applications for Registration – If an initial or renewal application raises suitability concerns, OSC Staff may recommend that the Director impose terms and conditions or refuse the application altogether.
- Compliance Reviews – When deficiencies identified in a compliance review are serious, repeated, or go unaddressed, Staff may recommend that the registrant's licence be restricted, suspended, or revoked.
In either case, before the Director makes a decision, the registrant is entitled to an Opportunity to be Heard (OTBH)—a chance to respond to the recommendation, present evidence, and argue why the proposed regulatory action is unwarranted.
What Triggers an Escalation?
Whether through a registration application or an unfavourable compliance review, certain factors increase the likelihood that OSC Staff will make a recommendation to the Director that may impact a registrant's ability to become, or remain, registered. These include:
- Integrity Concerns: Allegations of misrepresentation, undisclosed conflicts of interest, improper handling of client assets, or failure to disclose material facts may lead OSC Staff to conclude that a firm or individual is not fit for registration.
- Financial Solvency Issues: Financial distress or insolvency risk may trigger scrutiny to protect investors and market integrity.
- Repeated or Serious Non-Compliance: A pattern of non-compliance, or failure to remediate past deficiencies may lead to escalation following a compliance review.
- Failure to Respond to OSC Concerns: A registrant's failure to adequately respond to a compliance report or provide requested information can lead to a loss of confidence by the OSC in the registrant's ability or willingness to meet regulatory obligations.
These issues can arise during the application process or at any point during a registrant's lifecycle. Where OSC Staff determine that the concerns are sufficiently serious, they may recommend that the Director impose restrictions, or revoke or deny registration entirely. Before any decision is made, registrants have the right to respond through the OTBH process.
OSC's Authority to Refuse, Suspend, or Restrict Registration
The Securities Act (Ontario) grants the Director broad authority to determine whether an individual or firm is suitable for registration or whether any registration is objectionable.
At the application stage, under sections 26 and 27, the Director must register an applicant, whether for initial registration, reinstatement, or an amendment, unless it appears that the applicant is not suitable for registration, or the registration would be otherwise objectionable.
In assessing suitability, the Director considers whether the applicant meets regulatory requirements for proficiency, solvency, and integrity, along with any other relevant factors. Where concerns arise, the Director may refuse the application entirely or impose terms and conditions on the registration (e.g., restricting the scope of business activities).
In these cases, applicants have the right to make submissions through the OTBH process before a final decision is made.
Once registered, section 28 allows the Director to revoke, suspend, or impose terms and conditions at any time during the period of registration if the registrant is no longer suitable, has failed to comply with Ontario securities law, or the registration has otherwise become objectionable.
This post-registration authority often arises following a compliance review or a failure to address identified deficiencies. As with applications, registrants facing action under section 28 are entitled to respond through the OTBH process before any final decision is taken
Potential Outcomes of an Opportunity to be Heard
After the OTBH process, the Director may:
- Take No Action – If the registrant successfully rebuts the OSC's concerns, no further regulatory steps are taken.
- Impose of Terms and Conditions – These may include business restrictions, external compliance oversight, or additional capital requirements.
- Refuse, Suspend, or Revoke a Registration – In serious cases, the Director may refuse a registration application or suspend or revoke an existing registration, effectively preventing the individual or firm from operating in Ontario's capital markets.
If the Director imposes terms and conditions, or suspends or revokes a registration, the registrant may appeal the decision to the Capital Markets Tribunal for further review.
Why Early Legal Intervention Matters
For registrants facing terms and conditions or a suspension or revocation, the impact can be severe, ranging from reputational damage to the loss of business operations. However, a strong, well-documented response demonstrating regulatory compliance and remedial efforts can, in some cases, prevent severe restrictions.
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.
