The OSC Compliance and Registrant Regulation Branch's Annual Summary Report for Dealers, Advisers and Investment Fund Managers was published today. The report summarizes new and proposed rules and initiatives impacting registrants and reviews current trends in respect of compliance deficiencies and registration issues.
Of particular interest are the OSC's findings in respect of its compliance review process. Specifically, during fiscal 2013, compliance reviews resulted in 38% of registered firms reviewed requiring enhanced compliance (as compared to 34% in 2012), while 52% of registered firms reviewed requiring "significantly enhanced compliance" (as compared to 47% in 2012).
Deficiencies identified during the review process in respect of all registrants included: (i) non-compliance with KYC, KYP, suitability and accredited investor requirements; (ii) inadequate compliance systems and ultimate designated persons and chief compliance officers not meeting their responsibilities; (iii) inadequate or lack of annual compliance reports; (iv) failures to provide notice of ownership changes or asset acquisitions; (v) inaccurate calculations of excess working capital; (vi) insufficient working capital and failure to report capital deficiency; (vii) financial statements not prepared in accordance with NI 52-107; (viii) inadequate relationship disclosure information; and (ix) incorrect calculation of capital market participation fees.
Specific deficiencies identified in respect of EMDs included (i) conflicts of interest when selling securities of related or connected issuers; (ii) inadequate disclosure of conflicts of interest; and (iii) inadequate risk disclosure information. With respect to portfolio managers, reviews found (i) inadequate personal trading policies; (ii) inadequate investment management agreements; and (iii) inadequate supervision of advising representatives and research analysts. The OSC also conducted a "sweep review" of newly-registered PMs in Ontario, which identified deficiencies in respect of, among other things, misleading marketing practices and inadequate relationship information to clients.
In respect of investment fund managers, deficiencies included (i) inappropriate expenses charged to funds; (ii) inadequate disclosure in offering memoranda; (iii) inadequate oversight of outsourced functions and service providers; and (iv) non-delivery of net asset value adjustments.
The report ultimately provides suggested practices to assist firms in addressing the deficiencies identified. The OSC recommends that registrants use the report as a self-assessment tool to strengthen their compliance with applicable regulations and make changes as necessary. For more information, see OSC Staff Notice 33-742.