Le 14 septembre 2020, la Commission des valeurs mobilières de l'Ontario (la « CVMO ») a publié un rapport sommaire (le « rapport ») préparé par la direction de la réglementation des personnes et compagnies inscrites et de la conformité (la « direction »), qui donne un aperçu de leurs travaux au cours de l'exercice 2019-2020, à l'instar des rapports des années précédentes.
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On September 14, 2020, the Ontario Securities Commission (OSC) published a summary report (Report) prepared by the Compliance and Registrant Regulation Branch (CRR), which provides an overview of their work during the 2019-2020 fiscal year, similar to reports from previous years.
The four-part Report outlines the following:
- Information on educational resources and outreach opportunities available to current and prospective registrants;
- An overview of key findings and outcomes from compliance reviews and related guidance on compliance expectations;
- A discussion of upcoming initiatives and a summary of new and proposed rules and other regulatory initiatives that may impact registrants; and
- A summary of registrant conduct activities, including examples of the types of regulatory actions that should be taken to address non-compliance.
Report Highlights
Flexibility During COVID-19: Compliance reviews have been conducted remotely through telephone or video conferencing with documents being sent through a secure file transfer system. Registrants are encouraged to seek relief measures for any ongoing challenges due to the pandemic.
Fintech and Crypto-assets:
OSC LaunchPad continues to support fintech businesses through the
newly created Office of Economic Growth and Innovation. Earlier
this year, Canadian Securities Administrators (CSA) published Staff Notice 21-327
to guide entities facilitating transactions relating to
crypto-assets and outlining circumstances where securities
legislation is applicable. The development of a regulatory approach
for crypto-asset trading platforms continues taking into
consideration feedback submitted by various stakeholders. The
Report also notes that while the current focus is on crypto-asset
related businesses, emerging industry trends include cross-border
testing of financial products and services, technology-facilitated
regulatory compliance services (RegTech), technology-facilitated
regulatory supervisions services (SupTech), artificial
intelligence, machine learning and open data. In cooperation with
international regulators, the OSC participated in the Global
Financial Innovation Network cross-border testing pilot that
allowed innovative firms to trial and scale new technologies in
jurisdictions, the results of which can be found here.
Selection for Compliance Review
With an emphasis on know-your-client (KYC) and suitability
obligations, the OSC conducted a suitability sweep of registered
firms. Other categories of firms selected for review included those
with sizable assets under management considered to be high-impact
firms, and high-risk firms based on the 2018 risk assessment
questionnaire or identified through the “Registration as
First Compliance Review” program. Desk reviews were conducted
of foreign firms that relied on international exemptions and of
firms that reported financial losses on 2017 and 2018 annual
audited statements. Investment fund managers (IFMs) that had
recently acquired or purchased assets of another IFM were selected
for review, as well as IFMs that are also registered as members of
Investment Industry Regulatory Organization of Canada or the Mutual
Funds Dealers Association of Canada.
Reliance on International Exemptions
The OSC conducted a desk review of 60 firms based in the United
States relying on certain exemptions from the registration
requirements found in National Instrument 31-103 Registration
Requirements, Exemptions and Ongoing Registrant Obligations
(NI 31-103) (20 firms in each of the IFM, portfolio manager and
exempt market dealer categories). The OSC used the review to gain a
better understanding of why such firms rely on an exemption and to
assess their compliance. The OSC found that certain firms: (i) did
not file up to date forms with the OSC, and (ii) did not always
provide clients with the required disclosure (or maintain evidence
that the disclosure had been provided). The review also noted some
instances of confusion between the international adviser exemption
in section 8.26 and the international sub-adviser exemption in
section 8.26.1 of NI 31-103. The Report reiterates the OSC's
expectation that a non-Canadian firm relying on the international
exemptions implement policies and procedures to verify, on a
regular basis, that the firm continues to properly rely on the
exemptions and that, in particular, the required disclosure is
provided to Canadian clients.
Compliance Deficiencies
Deficiencies were found in registration and commission
filings, compliance systems, financial condition and custody, KYP
and suitability, conflicts of interest and referral arrangements,
and client disclosure and reporting. While the OSC noted a general
improvement from past suitability sweeps, the regulator found
inadequate collection and documentation of up-to-date KYC
information, a failure to consider all components of the client
profile when assessing the suitability of investments, inadequate
assessment of concentration risk in client profiles, and
inappropriate use of client-directed trade instructions. OSC
guidance included the following:
- KYC documentation should be updated at least annually, or at the time the client experiences a material life change
- Dealers that do not have regular contact with clients must have up-to-date KYC information at the time of each new trade
- Concentration risk should be assessed using the client's total holdings in illiquid securities and not solely on the products distributed by the dealer
- Client-directed trade instructions are not a substitute for conducting a suitability assessment
Additional Category Permitted Clients
Of interest to international dealers and advisers is Re J.P. Morgan
Securities LLC in which the OSC approved a novel
application for relief when trading and advising with
“Additional Category Permitted Clients” on an exempt
basis. In an application filed by a United States broker-dealer,
the class of clients was expanded to include spouses of individual
permitted clients and certain family trusts. The OSC encourages
pre-filings for registered firms that wish to apply for similar
relief.
Initiatives Impacting Registrants
On May 27, 2020 the OSC provided a status update on its regulatory burden reduction initiatives. CRR staff completed 21 of the 30 initiatives discussed in the update and the status of the remaining nine initiatives are discussed in the Report.
Significant amendments to National Instrument 31-103 and its accompanying companion policy known as the Client Focused Reforms have been adopted in all Canadian jurisdictions and are relevant to all categories of registered dealers and advisers, with some application to IFMs. Registrants will need to review and amend their compliance systems to ensure they are in line with the Client Focused Reforms which require that the client's interest always comes first in the client-registrant relationship. Due to potential challenges presented by COVID-19, the phased implementation plan was extended from December 31, 2020 to June 30, 2021 to give registrants more time to comply with the conflicts of interest and referral arrangement requirements. Registrants have until December 31, 2021 to implement the remaining changes to KYC, know your product, suitability determination, relationship disclosure information, misleading communications and compliance training requirements. A CFRs Implementation Committee has been formed to support the transition process and published a list of frequently asked questions on the CFRs Implementation Committee webpage.
Final amendments to National Instrument 45-106 Prospectus Exemptions, NI 31-103 and their companion policies to harmonize the regulatory framework for syndicated mortgages in Canada were published on August 6, 2020. The effective date is March 1, 2021 and will result in a registration requirement for certain firms distributing syndicated mortgages.
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