OSC Notice 11-771 - Request for Comments Regarding Statement of Priorities for Financial Year to End March 31, 2016
OSC Notice 11-771 - Request for Comments Regarding Statement of Priorities for Financial Year to End March 31, 2016
ONTARIO SECURITIES COMMISSION NOTICE 11-771 – STATEMENT OF PRIORITIES
REQUEST FOR COMMENTS REGARDING STATEMENT OF PRIORITIES FOR
FINANCIAL YEAR TO END MARCH 31, 2016
The Securities Act requires the Commission to deliver to the Minister and publish in its Bulletin each year a statement of the Chairman setting out the proposed priorities of the Commission for its current fiscal year in connection with the administration of the Act, the regulations and rules, together with a summary of the reasons for the adoption of the priorities.
This Statement of Priorities is a subset of our overall OSC Business Plan which is aligned with our OSC Strategic Plan. The document sets out the priority actions that the OSC will take in 2015-2016 to address each of the goals and its related priorities. While the proposed priorities will potentially impact more than one organizational goal, each priority is identified only under the specific goal where the greatest impact is expected. In certain cases, the process required to properly assess the issues, including consultations with market participants, and to develop and implement appropriate regulatory solutions, may take more than one year to complete.
In an effort to obtain feedback and specific advice on our proposed priorities, the Commission is publishing a draft Statement of Priorities which follows this Request for Comments. The Commission will consider the feedback, and make any necessary revisions prior to finalizing and publishing its 2015-2016 Statement of Priorities. Shortly after the conclusion of our 2014-2015 fiscal year the OSC will publish a report on its progress against its 2014-2015 priorities on our website.
Comments
Interested parties are invited to make written submissions by June 1, 2015 to:
[Editor's Note: 2015-2016 OSC Draft Statement of Priorities -- Request for Comments is reproduced on the following internally numbered pages. Bulletin pagination resumes at the end of the Draft Statement.]
2015-2016 Draft OSC Statement of Priorities Request for Comments
Introduction
We are pleased to present the OSC Chair's proposed Statement of Priorities (SoP) for the Commission for the year commencing April 1, 2015. The Securities Act (Ontario) requires the Ontario Securities Commission (OSC) to publish the SoP in its Bulletin and to deliver it to the Minister by June 30 of each year. This SoP also supports the OSC's commitment to delivering its regulatory services effectively and with accountability.
This SoP sets out the OSC's strategic goals and the specific initiatives that the OSC will pursue in support of each of these goals in 2015-2016. The SoP also describes the environmental factors that the OSC has considered in setting these goals.
OSC Vision
To be an effective and responsive securities regulator -- fostering a culture of integrity and compliance and instilling investor confidence in the capital markets.
OSC Mandate
The OSC's mandate (established by statute) is to provide protection to investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in capital markets.
Our Environment -- Challenges and Issues
Capital market structures and products continue to evolve at a rapid pace. The regulatory framework for Ontario's capital markets is designed to provide protection to investors while fostering fair and efficient capital markets. A wide range of issues and risks challenges the OSC's ability to achieve its vision and mandate. Public confidence in these markets can be affected by many factors, including the stability of the financial system, the economic health of the country and the volatility in the marketplace. Key challenges and issues that may influence our policy agenda and affect our operations and how we use our resources are set out below.
Globalization continues to have wide-ranging impacts on our capital markets. Extreme mobility of capital heightens the need for the OSC to support the competitiveness of Ontario capital markets and the importance of regulatory alignment both domestically and around the world. It creates a strong need for engagement and appropriate coordination with foreign regulators to achieve effective cross-jurisdiction enforcement or mutual reliance in other areas that can deliver better regulatory outcomes. The OSC must also remain focused on seeking proportionate regulatory solutions and opportunities to avoid or reduce undue burdens on business as regulatory burden is a key component affecting the competitiveness and efficiency of Ontario's capital markets. Over- or under-regulation may deter innovation, capital raising, and productive and appropriate risk taking.
Harmonization and Coordination need to be key focus areas for the OSC given the international, national and interprovincial nature of the markets it regulates and because capital flows are not constrained by borders. The OSC also works with the Canadian Securities Administrators (CSA) to harmonize rules and their application across the country where practicable. The OSC continues to play an active role in international organizations such as the International Organization of Securities Commissions (IOSCO) to influence and promote changes to international securities regulation to benefit Ontario markets and participants.
The OSC is working with the Ontario Government and other participating jurisdictions to implement a cooperative capital markets regulatory regime to deliver more efficient and effective regulation of the capital markets. The OSC must balance the need to maintain an engaged and effective OSC regulatory presence while contributing to a smooth transition to a Capital Markets Regulatory Authority (CMRA) that addresses the needs of investors and market participants.
Ongoing Structural Changes in our Financial System will continue to introduce a range of challenges. Evolving business models, growth in exempt market activities (including crowdfunding) and the expanding use of social media and mobile technology will continue to pose regulatory challenges.
Financial markets are increasingly dispersed and complex and the complexity of financial products, markets and technology continues to evolve at a rapid pace. For example, growth in clearing through derivatives clearing organizations and new requirements for uncleared swaps and monitoring have implications in terms of market concentration and investor choice. The transparency, fairness and liquidity of fixed income markets can also affect the cost of capital and investor alternatives. Investors also must deal with complexities and variations in the design of investment funds, retail products and hybrid securities.
Digital evolution continues to disrupt and transform the capital markets landscape. This evolution can be seen in a wide range of examples that challenge the OSC's ability to maintain an effective and efficient regulatory framework to support rapidly evolving market structures and processes. Evolving market channels (e.g. automated financial advice) could redefine client wealth management expectations as well as the fees charged for advice. Increased dependence on digital connectivity, combined with exponential growth in data, creates challenges with data management and raises potential exposure to resilience issues and disruptions, including cyber security issues.
Demographics, including a growing seniors' population, will continue to generate a range of investor-focused issues. Expectations that the OSC will support and protect investors continue to grow and are reinforced by increasingly active investor advocacy groups. The OSC will need to continue to reach out and connect with investors and understand their needs, to advance investor interests and to educate investors about market changes.
Reliance on advice is expected to continue to grow to meet changing investor risk profiles and more complex investment choices and structural shifts, such as the continuing shift from defined benefit to defined contribution pension plans. In addition, new Exempt Market offerings are expected to attract many new investors to the capital markets who are inexperienced and would benefit from the advice of investment professionals. As a result, issues related to market conduct, firms' compliance cultures and how advisors meet the interests of their clients will continue to remain important areas of focus. Investors are seeking an environment where reliance on their advisors is well-placed, the advice being provided is suitable, and any conflicts are managed appropriately. Through achievement of these outcomes, the OSC will foster investors' confidence to invest in our capital markets.
A well-functioning investor/advisor relationship is critical to the economic well-being of Ontarians and ultimately to achieving healthy capital markets. The Ontario Government is currently examining policy alternatives for more tailored regulation of financial planning, including analysis of relevant issues (e.g. sufficiency of regulatory frameworks, proficiency and education requirements and the use of multiple titles). Better alignment of the interests of firms and investors can be achieved by improving standards of financial advice, raising competency and increasing transparency regarding financial advice.
Human capital continues to be an area of strategic focus for the OSC. The OSC operates in a competitive environment where attracting, motivating and retaining top talent is a key challenge. It will be critically important for the OSC to invest in data and information systems and continue to provide the right tools and training to leverage the talents of its people.
Increasing regulatory burden affects the competiveness and efficiency of Ontario's capital markets. Regulatory burden continues to present challenges for market participants as the complexity of regulatory requirements and the resources required to comply continue to grow. The OSC will need to examine whether the existing rules remain effective, and determine whether they inhibit or promote high-quality capital markets and deliver a system that protects investors and promotes their confidence. The OSC must balance the costs of complying with the regulatory protections that safeguard investor needs with the concern that these costs may induce market participants to access non-traditional, less regulated markets for capital.
OSC 2015 -- 2016 Regulatory Goals
1. Deliver strong investor protection -- The OSC will champion investor protection, especially for retail investors
2. Deliver responsive regulation -- The OSC will identify important issues and deal with them in a timely way
3. Deliver effective compliance, supervision and enforcement -- The OSC will deliver effective compliance oversight and pursue fair, vigorous and timely enforcement
4. Promote financial stability through effective oversight -- The OSC will implement a regulatory program to effectively oversee and supervise the OTC derivatives market infrastructure to reduce systemic risk
5. Be an innovative, accountable and efficient organization -- The OSC will be an innovative and efficient organization through excellence in the execution of its operations, and will demonstrate accountability in fulfilling its mandate and achieving its goals
The OSC has accomplished much in moving its regulatory agenda forward and has made a number of key advances in the way it approaches its work. The OSC has made important advances in providing guidance to market participants and investors and in using open and consultative processes to assess and address issues. The OSC has significantly grown the level of its cooperation with many entities, including Federal Finance, the Office of the Superintendent of Financial Institutions and the Heads of Agencies, in order to achieve more harmonized and coordinated outcomes. The amount of enforcement activity conducted with police and other enforcement bodies continues to expand, resulting in more successes across a broader range of enforcement actions. The impact of the OSC's efforts internationally is growing, resulting in timely insight, understanding and input into emerging regulatory issues.
Confidence in fair and efficient markets is a prerequisite for economic growth. The OSC is the largest regulator in the largest market in Canada. Our actions have implications for Ontario, for the rest of Canada and, given the global nature of capital markets, internationally. The OSC remains committed to promoting safe, trustworthy and efficient markets in Ontario and has identified a broad range of initiatives to improve the regulatory framework in Ontario. Although the OSC SoP is focused on our plan for 2015-2016, in some cases these initiatives are ongoing from prior years and/or will not be completed within 2015-2016. Initiatives often span more than one year for various reasons including:
• The nature and complexity of most issues warrant careful analysis and review of potential options and implications
• Consultation contributes to better outcomes; however, consultation takes time. This is particularly true in achieving national consensus with other regulators on harmonized approaches
• Regulatory choices can have fundamental and profound impacts on industry. The cost of being wrong can be very significant and the impacts on industry are usually difficult, if not impossible, to reverse
In some instances, specific priorities are not carried forward to the SoP in the following year. This does not necessarily mean that work on the initiative has stopped but rather that its priority relative to other initiatives no longer warrants inclusion in the SoP, the remaining work is minimal, or the next steps involve integrating the changes into the OSC's daily operations.
This document sets out the most important priority areas where the OSC intends to focus resources and actions in 2015-2016. It is important to note that the majority of OSC resources are focused on delivering the core regulatory work (authorizations, reviews, compliance and enforcement) undertaken by the OSC to maintain high standards of regulation in Ontario's capital markets. A smaller proportion of OSC resources are applied to our high profile work on SoP initiatives. Each of the proposed priorities has been aligned under one of the five OSC regulatory goals.
Goal 1 -- Deliver strong investor protection
The OSC is strongly committed to delivering on its mandate to protect investors and is proposing a number of initiatives to enhance investor protection. Investors need to be confident in the market and products they invest in. A key step to achieving this outcome is to improve the alignment of the interests of advisors and firms with those of investors. Know your client (KYC), know your product (KYP) and suitability are among the most fundamental obligations owed to a client. This is particularly important given the degree to which investors rely on advice.
Investors need to be confident that the advice they receive involving financial products and services is unbiased and of high quality. Investors need to better understand the cost of advice and be assured that compensation structures will not adversely affect the quality of advice they receive or their long term investment outcomes. At a more fundamental level it is important to achieve greater consistency in the level and type of disclosure across similar products. To maximize the value of improved disclosure the OSC also needs to proactively inform and educate investors so they are better prepared and able to invest.
Investor profiles are diverse and this raises complex challenges. Aging demographics raise a number of investor protection issues. Older Canadians are facing challenges to achieve sufficient investment returns either for their own retirement or for aging parents. New investors, in particular those attracted by new investment alternatives provided by Exempt Markets, may be inexperienced and require expert support and guidance. Other vulnerable investor groups can also be at risk as they strive to support education costs for children or to meet lifestyle consumption goals. As each of these groups searches for yield and/or capital appreciation, its members can become susceptible to fraud and other investment risks that can have life-changing outcomes. The wide disparity in the level of financial literacy and understanding among investor groups is a key source of risk that needs to be addressed through outreach, education and regulation.
Achieving consensus on harmonized approaches to improve investors' confidence and trust in our markets, and the advisors and firms they interact with, will take more than one year to achieve. The priorities set out below are designed to improve the alignment of the expectations of investors and the actions of their advisors and assist investors to more effectively meet the challenging environment they face.
Putting the Interests of Investors First
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Priority Issue |
Advance regulatory reforms that put the interests of investors first |
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a. |
Develop and evaluate regulatory provisions to create a best interest duty |
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Action Plan/ Next Steps |
b. |
Develop and evaluate targeted regulatory reforms under NI 31-103 to improve the advisor/client relationship |
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c. |
Finalize analysis of advisor compensation practices and address those practices that are inconsistent with current regulatory requirements |
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a. |
Analysis of approaches for creating a best interest duty completed |
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Success Measures/ Expected Outcomes |
b. |
Proposals developed to amend NI 31-103 |
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c. |
Staff Notice of compensation review findings including expectations for compliance and best practices |
Reviewing Compensation Arrangements in Mutual Funds and Empowering Investors through Better Disclosure
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Priority Issue |
Determine what regulatory action is needed to address embedded commissions and other types of compensation arrangements and improve retail investment product disclosure |
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a. |
Complete third-party research to determine how mutual fund compensation models may influence advisor behaviour |
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b. |
Review and evaluate with the CSA the research results and publish the findings |
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Action Plan/ Next Steps |
c. |
Support implementation of pre-sale delivery of Fund Facts for mutual funds and continue to work with the CSA to implement the Point of Sale initiative; specifically, publish rules for comment: |
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i. |
to introduce a mandated CSA risk classification methodology to improve the comparability of risk ratings of mutual funds in the Fund Facts |
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ii. |
to introduce a new summary disclosure document for ETFs (ETF Facts) and require it to be delivered |
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a. |
Third-party research completed and Staff Notice setting out key findings published |
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Success Measures/ Expected Outcomes |
b. |
Actionable results identified by the OSC including a recommendation made about embedded commissions and other types of compensation arrangements |
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c. |
Rules to introduce a mandated CSA risk classification methodology and to introduce a new summary disclosure document for ETFs published for comment |
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Improve Education, Outreach and Advocacy for Investors
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Priority Issue |
Advance investor protection and support to retail investors by expanding the OSC's investor engagement, education and outreach |
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a. |
Improve the OSC's investor focus by integrating the OSC Office of the Investor with the OSC Investor Education Fund to create the new Office of Investor Policy, Education and Outreach, to: |
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i. |
establish and implement the OSC's investor education strategy |
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ii. |
better inform investors about market events, product innovations and key OSC regulatory and supervisory activities by publishing alerts and bulletins and working with investor networks and organizations on education and outreach campaigns |
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Action Plan/ Next Steps |
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iii. |
refresh and expand outreach programs, such as OSC in the Community, with a focus on potentially vulnerable investors |
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b. |
Obtain a better understanding of investor issues and needs through targeted research, seminars and roundtables |
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c. |
Respond to the issues identified at the 2014/15 seniors roundtable by: |
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i. |
completing targeted research to improve the OSC's understanding of seniors' financial needs and challenges |
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ii. |
collaborating with SROs and investor and industry associations to identify ways to be more responsive to seniors |
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a. |
Existing partnerships strengthened and new external relationships created to inform and advance investor focused issues |
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Success Measures/ Expected Outcomes |
b. |
Specific recommendations from the seniors roundtable addressed |
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c. |
Relationships with key senior stakeholder organizations and networks established and strengthened |
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Goal 2 -- Deliver responsive regulation
To meet the OSC's mandate the bulk of its resources are focused on delivering our core regulatory functions. As a gatekeeper to the markets, the OSC vets potential participants to confirm that they are suitable to participate in our markets and interact with investors or to raise capital in our markets. Compliance and enforcement activities continue to play a central role in maintaining and enhancing trust in Ontario's capital markets. Effective registration and compliance oversight regimes, combined with timely enforcement, help deter misconduct and non-compliance by registrants and market participants.
Within the context of today's capital markets, we continue to believe that a national securities regulator will enhance investor protection, foster efficient rulemaking and globally competitive markets in Canada, strengthen our capacity to identify and manage systemic risk and solidify Canada's international reputation for regulating its financial system. While working with the participating jurisdictions to transition smoothly to the CMRA it will be critical for the OSC to maintain high standards of regulation and to keep stakeholders informed and engaged throughout the transition period. The OSC will also need to work with the CSA to seek harmonized approaches to regulation as much as possible.
Our regulatory framework needs to remain current, responsive to the continuing evolution of market structures and products, and supportive of capital formation in Ontario. The OSC must carefully balance the desire to broaden investment alternatives and improve access to capital with the need to maintain appropriate investor protections. To support the implementation of a regulatory framework to expand exempt markets and achieve this balance, the OSC will implement effective oversight and supervision processes. The OSC will need to work effectively with IIROC to achieve outcomes that best respond to these issues.
Where regulatory solutions are not achieving desired outcomes the OSC will need to take action to make necessary changes to achieve appropriate outcomes. Where access and transparency of markets are not sufficient, the OSC will need to look for solutions to improve the fairness and integrity of those markets where the needs of investors and those seeking capital can be achieved with mutual benefit.
The OSC introduced disclosure requirements in 2014 to promote the transparency and representation of women on Boards and in executive and senior management positions at senior exchange-listed issuers. The OSC continues to strongly support this outcome and will seek to maintain momentum on this issue to achieve better corporate decision-making.
Women on Boards and in Executive and Senior Management Positions
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Priority Issue |
Continue efforts to promote transparency and representation of women on Boards and in executive and senior management positions for senior exchange-listed issuers |
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a. |
Receive and review issuer disclosures on representation of women on Boards and in executive and senior management positions |
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Action Plan |
b. |
Publish results of the disclosure review |
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c. |
Hold consultation roundtable to discuss results |
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Success Measures/ Expected Outcomes |
a. |
Disclosure review completed and results are published |
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b. |
Continued improvement in the transparency of Board selection and composition for senior exchange-listed issuers |
Improve Access to Capital
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Priority Issue |
Foster capital formation in Ontario while maintaining appropriate investor safeguards |
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a. |
Develop and publish rules to implement the following: |
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i. |
offering memorandum exemption from prospectus requirements |
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ii. |
crowdfunding regime |
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iii. |
modernized prospectus-exempt rights offering regime |
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Action Plan/ Next Steps |
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iv. |
new reporting requirements regarding exempt market distributions |
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b. |
With the CSA, develop an enhanced and harmonized report of exempt distributions to facilitate better monitoring of new prospectus exemptions |
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c. |
Conduct compliance and pre-registration reviews focussing on these new exemptions and EMD portal business models. Meet with SROs to ensure our approaches to oversight are consistent and opportunities for regulatory arbitrage are minimized |
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a. |
Rules, companion policy and guidance for the proposed new exemptions published for comment and delivered to the Minister for approval |
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Success Measures/ Expected Outcomes |
b. |
Significant areas of non-compliance identified are appropriately addressed by registrants. Reduction in non-compliance by registrants |
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c. |
Improved ability to monitor exempt market activity more efficiently |
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Market Structure Evolution
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Priority Issue |
Respond to issues (market data fees, trading fees) arising from the implementation of the Order Protection Rule (OPR) |
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Action Plan/ Next Steps |
a. |
OPR framework amended in response to comments received from publication in 2014/2015, including finalizing approaches for dealing with trading fees and market data fees |
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Success Measures/ Expected Outcomes |
a. |
Final changes to update the OPR framework, including approaches for dealing with trading fees and market data fees, are published |
Goal 3 -- Deliver effective compliance, supervision and enforcement
Effective compliance and strong enforcement are the cornerstones of protecting investors and fostering confidence in capital markets. The importance of effective compliance and supervision continues to grow as domestic market structures, processes and products (expansion of exempt market, new markets) and international (IOSCO, PFMI) guidelines and responsibilities evolve. As part of its core work the OSC will continue to undertake targeted compliance reviews of high risk and new registrants, specifically, online advice and portal business models. We will also conduct targeted prospectus and continuous disclosure reviews of issuers, investment funds and structured products that respond to market developments and product innovations, and publish OSC staff guidance as warranted.
The OSC continues to seek innovative approaches to identify serious breaches of Ontario securities law. Effective enforcement in today's increasingly complex markets requires new tools, enhanced computer forensics and other technological support. The OSC recently announced its intention to pursue a whistleblower program to achieve more timely, actionable information to deter misconduct. Through this initiative the OSC hopes to minimize harm to investors and better preserve the integrity of Ontario capital markets.
The OSC needs to reduce its enforcement timelines, including more timely issuance of its orders, decisions and reasons. A key to achieving this outcome will be measures to improve access to the tribunal and make the hearing process more streamlined, accessible and efficient.
Enhance Compliance through Effective Inspections, Supervision and Oversight
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Priority Issue |
Protect investors and foster confidence in our markets by confirming compliance with our regulatory framework |
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Action Plan/ Next Steps |
a. |
Develop and implement programs to effectively oversee an expanded exempt market in Ontario including a risk based supervision program for issuers and registrants and tailored pre-registration reviews and compliance examination programs |
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b. |
Implement data analysis for systemic risk oversight and market conduct purposes including the development of analytical tools and the creation of snapshot descriptions of the Canadian OTC derivatives market |
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a. |
New supervision programs in place and initial results of programs and reports on exempt market activity developed and published |
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Success Measures/ Expected Outcomes |
b. |
Systems for oversight and to facilitate systemic analysis of the Ontario derivatives markets will be in place |
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c. |
Compliance program for the trade reporting rule in place. Reviews of largest derivatives participants commenced |
Earlier Identification of Fraud and Other Violations
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Priority Issue |
Deter misconduct by seeking more timely, actionable information that will allow the OSC to pursue impactful cases of misconduct and serious breaches of securities law |
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Action Plan/ Next Steps |
a. |
Complete consultations on proposed OSC whistleblower program |
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b. |
Respond to comments and publish OSC whistleblower policy, if appropriate |
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Success Measures/ Expected Outcomes |
a. |
OSC whistleblower program launched, if appropriate |
Enhance Enforcement and Adjudicative Processes
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Priority Issue |
Achieve better outcomes from OSC enforcement and adjudicative processes by introducing better tools, analytics and approaches |
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Action Plan/ Next Steps |
a. |
Improve technological support to Enforcement staff, including the Joint Serious Offences Team, through enhanced computer forensics and the capacity to conduct e-discoveries and e-hearings |
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Success Measures/ Expected Outcomes |
a. |
The OSC's e-hearing directive and applicable case management guidelines result in reduced case timelines |
Timely, Fair and Efficient Adjudication
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Priority Issue |
The OSC will improve its case management and adjudicative processes through more transparent policies, practices and procedures and more timely issuance of its orders, decisions and reasons |
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a. |
Continue the implementation of its Electronic Case Management System and Hearing system and use of technology to enhance accessibility for respondents and the public by holding electronic hearings |
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Action Plan/ Next Steps |
b. |
Implement and monitor adherence to its internal guideline for the timely release of decisions within six months |
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c. |
Adhere to newly adopted Case Management Practice Directive regarding a new Case Management Timeline for Enforcement Proceedings |
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a. |
The Electronic Case Management and Hearing System will be implemented and monitoring of issues and enhancements to the newly designed system will be made as appropriate |
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Success Measures/ Expected Outcomes |
b. |
Improved access to the tribunal. The efficiency and timeliness of tribunal adjudicative hearing and deliberation processes will be improved. Decisions will be released within six months |
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c. |
The Tribunal will monitor the implementation of its newly adopted Case Management Timeline for Enforcement proceedings, and address arising issues |
Goal 4 -- Promote financial stability through effective oversight
Capital markets have become increasingly interconnected by technology, business models and investment flows. The interconnectedness of markets creates the potential for systemic risk within the wider financial framework, and securities regulators have assumed an important role in maintaining its stability. Success in managing this complex area will have a significant impact on market confidence and ultimately the health of our capital markets. It is critical for the OSC to work with other financial market regulators to design and build a regulatory framework and operational programs to effectively oversee and supervise the OTC derivatives market and its participants.
There are approximately $500 billion in corporate bonds outstanding in Canada and almost $500 billion in corporate bonds traded in the Canadian secondary market in 2014. In Canada, corporate bond trading is subject to limited post-trade transparency for both regulators and investors. The OSC is taking steps to enhance regulation in the fixed income market and to identify opportunities where changes to regulatory approaches could improve market transparency and better protect investor interests.
Promote Financial Stability through Effective Oversight
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Priority Issue |
Advance OSC systemic risk oversight and analytic capabilities |
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a. |
Develop rules for the clearing of OTC derivatives |
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b. |
Develop a registrant regulation framework for derivatives market participants |
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Action Plan/ Next Steps |
c. |
Implement rules and a compliance program for OTC derivatives trade reporting |
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d. |
Implement rule/policy framework for clearing agencies to incorporate CPMI/IOSCO revised standards |
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e. |
Develop recommendations to implement Principle 14 Segregation and Portability under the CPMI IOSCO Principles for Financial Market Infrastructures |
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a. |
Clearing and reporting rules for OTC derivatives that align with international standards and meet G20 commitments will be in place |
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Success Measures/ Expected Outcomes |
b. |
National Instrument for Registration of Derivatives Dealers published for comment |
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c. |
Notice that outlines recommendations for implementation of segregation and portability (other than for OTC derivatives) published |
Regulation of the Fixed Income Market
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Priority Issue |
Enhance regulation in the fixed income market by increasing transparency, improving market integrity and evaluating access |
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Action Plan |
a. |
Publish a regulatory plan, working with IIROC, that addresses key issues identified in the fixed income review, including requirements to increase post trade transparency |
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Success Measures/ Expected Outcomes |
a. |
Plan published and implementation of proposed changes underway |
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b. |
Improved post-trade transparency allowing more informed decision-making among all market participants |
Goal 5 -- Be an innovative, accountable and efficient organization
Securities regulators are facing growing pressures to respond appropriately to market issues while avoiding over-regulation. The need for a cost-effective regulatory framework is critical as capital moves more quickly across multiple marketplaces that span jurisdictional borders. The OSC is strengthening its core functions, including compliance and enforcement, and adjusting how it works to develop the capacity to efficiently deliver the right regulation for investors, market participants and markets. The OSC needs to continue its efforts to upgrade procedures, practices and systems as part of a commitment to robust processes and high-quality execution, including:
• Implementing a consistent organizational approach for managing risks
• Increasing reliance on research and analytics in the way we work, including conducting regulatory impact analyses prior to initiating proposed policy projects
• Expanding the use of technology to gather and analyze data and other information, including information required for compliance and adjudicative matters
Management and staff will continue these efforts to reposition the organization as a more proactive and agile securities regulator that fosters the integrity of capital markets in Ontario.
Harmonization and coordination are key elements in achieving cost-effective regulation. Increasingly, the OSC must deal with regulatory matters that are international, not just provincial or national, in their scope, such as the oversight of emerging markets issuers and the regulation of OTC derivatives. More than ever before, the OSC regulates within the context of a global marketplace, which underlines the imperative of engaging with our international counterparts, especially through IOSCO, to deliver proactive regulation. The OSC needs to provide leadership to the multinational reform agenda on matters that promote the convergence of stronger international market conduct standards that benefit investors and market participants. Participation in international regulatory fora allows the OSC to obtain timely insight and understanding of emerging compliance and regulatory issues to develop an informed, proactive oversight approach.
Effectively Influence the International Regulatory Agenda
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Priority Issue |
Influence the international regulatory agenda to reflect the needs of Ontario's markets |
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Action Plan/ Next Steps |
a. |
Enhance our ability to influence and shape the international standard setting process by seeking leadership roles within IOSCO (e.g., Chair committees and task forces) |
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b. |
Perform greater proactive analyses of risks/issues identified by other jurisdictions globally by participating in bi-lateral meetings with key regulatory partners |
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a. |
Other regulators seek our views and advice in developing regulatory standards because of the value we bring |
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Success Measures/ Expected Outcomes |
b. |
Ontario's interests are reflected in international initiatives that relate to issues affecting our markets |
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c. |
Canadian regulatory framework keeps pace with global regulatory developments. Harmonized regulatory approaches internationally and within the CSA, where applicable, reduce regulatory burden on our market participants |
Proactive use of Data and Research
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Priority Issue |
Improve policy development and regulatory outcomes by increasing the integration of economic and quantitative analysis, including regulatory impact analyses, in the development of policies and rules |
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Action Plan/ Next Steps |
a. |
Continue to develop data collection, management and assessment practices |
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b. |
Demonstrate enhanced use of economic analysis, research and data analysis within the OSC including completing a regulatory impact analysis for proposed policy projects |
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Success Measures/ Expected Outcomes |
a. |
Use of research reflected in OSC policy initiatives and OSC publications |
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|
b. |
Completion of one major research project |
2015 -- 2016 Financial Outlook
OSC Revenues and Surplus
The OSC is forecasting 2015-2016 revenues to increase by 13.9% from 2014-2015 actual revenues. The forecast reflects fee rates set out in the OSC's fee rules (13-502 and 13-503), which become effective April 6, 2015. The key change to the new fee rules is the return to the previous method of calculating participation fees. Under the new rules, we will use the most recent financial year information, as opposed to a reference fiscal year. As a result, fees due to the OSC will become less predictable as the amount payable by market participants will increase or decrease based on actual changes in business conditions and performance. Under the new fee rules, the OSC expects to generate a surplus of $6.6 million in 2015 -- 2016 to add to its expected 2014 -- 2015 ending surplus of $11.2 million, for a total surplus of $17.8 million as at March 2016. When the new fee rules were developed and published, the OSC advised that they would be relatively revenue neutral over the three-year period, with an expected surplus in 2015-2016, a smaller surplus in 2016-2017 and a deficit in 2017-2018. This is because revenues are expected to be relatively flat over the term of the rule, while expenses are expected to increase each year. The budget approved by the OSC Board for 2015-2016 is in line with this expectation. As a result, the above-noted ending general surplus is expected to decline to $15.4 million by the end of 2017 -- 2018.
2015 -- 2016 Budget Approach
Our regulatory framework needs to remain current and responsive to the continuing evolution of market structures and products and supportive of capital formation in Ontario. The OSC must carefully balance the desire to improve access to capital with the need to retain appropriate investor protections. The 2015-2016 SoP sets out the OSC's key priorities to meet these challenges. Achievement of these priorities is a key driver of the proposed increases to the 2015 --2016 OSC Budget as this will require focused investments in the following four areas:
• improving education, outreach and advocacy through creation of the new Office of Investor Policy, Education and Outreach
• development of a new regulatory framework (including supervision and oversight) for the derivatives market
• enhanced oversight of the exempt market
• improving the OSC's information technology, in particular to support a greater reliance on data and research.
The budget reflects an increase of 6.0% from the 2014-2015 budget. Salaries and benefits, which comprise $80.7 million or 73.9% of the budget, represent an increase of $4.8 million or 6.2% over 2014-2015 spending. The key reasons for this increase are:
• approval of new positions to support the investments noted above
• under-spending in 2014-2015 by maintaining vacancies for longer than planned as a cost control measure and due to some shifting or deferring of priorities as a result of the CMRA initiative. Therefore, budgeting of full-year costs for vacancies and staff hired throughout 2014-2015 contributes to the increase.
The OSC will maintain fiscal responsibility in its other operating areas as evidenced by the fact that budget amounts will decrease, or remain flat in approximately 40% of its operating branches. The budget also includes resources for work toward the successful implementation of the CMRA.
The capital budget primarily reflects the build-out of recently acquired additional space, as well as the cost to support the OSC's information technology needs, including a data warehouse to support Derivatives oversight.
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|
|
|
|
2014-15 Budget |
2015-16 Budget |
||
|
|
2014-2015 |
2014-2015 |
2015-2016 |
to |
to |
||
|
(thousands) |
Budget |
Actual |
Budget |
2015-16 Budget |
2014-15 Actual |
||
|
|
|||||||
|
Revenues |
101,325 |
101,622 |
115,782 |
14,457 |
14.3% |
14,160 |
13.9% |
|
|
|||||||
|
Expenses |
102,976 |
96,937 |
109,182 |
6,206 |
6.0% |
12,245 |
12.6% |
|
|
|||||||
|
Deficiency of Revenue compared with Expenses |
(1,651) |
4 ,685 |
6,600 |
8,251 |
|
1 ,915 |
|
|
|
|||||||
|
Capital Expenditures |
3,349 |
1 ,692 |
3,101 |
(248) |
|
1 ,409 |
|