Ontario Securities Commission releases results of targeted review of Portfolio Managers and Exempt Market Dealers

TORONTO – The Ontario Securities Commission today released the findings of a targeted review of portfolio managers (PMs) and exempt market dealers (EMDs) to assess compliance with important regulatory requirements, specifically know-your-client, know-your-product and suitability obligations. These registrants are under the direct oversight of the OSC and the sweep was therefore critical in highlighting regulatory breaches and in highlighting to registrants the fundamental importance of these obligations.

The review commenced in June 2012 and looked at a total of 87 PMs and EMDs. To date, it is the largest targeted review conducted by the Compliance and Registrant Regulation Branch of the OSC. Staff identified a number of deficiencies, specifically around the sale of exempt securities to non-accredited investors, relying on purported “client-directed trade instructions” and inadequate processes for the collection, documentation and maintenance of KYC information.

“Know-your-client, know-your-product and suitability determinations are fundamental obligations owed by registrants to their clients,” said Howard Wetston, Q.C., Chair and CEO of the OSC. “Enhancing compliance among portfolio managers and exempt market dealers is critically important and we are taking appropriate regulatory action where we identified significant compliance issues.”

Of the registrants reviewed, most were issued deficiency reports and staff will monitor for corrective action, conduct follow-up reviews and take further regulatory action as appropriate.

The results of the review are set out in OSC Staff Notice 33-740 and should be used by registrants as a self-assessment tool. The OSC will be issuing guidance to registrants over the next several months, which will include best practices and highlight examples of unacceptable practices.

The OSC is the regulatory body responsible for overseeing Ontario’s capital markets. The OSC administers and enforces Ontario’s securities and commodity futures laws. Its mandate 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.

 

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