OSC Annual Report 2009 Francais
OSC


Strong Investor Protection

Champion investor protection, especially for retail investors

Investor protection is one half of the OSC’s dual mandate. As a regulatory agency, the OSC strives to provide protection to investors by administering and enforcing the Securities Act and the Commodity Futures Act.

Increasingly, Canadians are responsible for planning for their own retirements. The retirement savings of Canadians – including RRSPs and pension plans – are tied to the capital markets. As a result, investors have a greater awareness of and sensitivity to the effects of the current market downturn. In tandem, their expectations for financial market regulators to protect their interests have increased.

Investor Secretariat

In order to serve the interests of all investors, especially retail investors, the OSC understands how important it is to solicit and obtain their input and understand their concerns about regulatory matters. The OSC is developing better channels of communications with investors by building on the experience of earlier initiatives related to investor outreach and consultations. As well, the OSC is implementing more effective processes to better identify, articulate and expand on initiatives that both provide protection to, and inform, investors.

One such initiative that has been announced is the establishment of the OSC Investor Secretariat. It is anticipated that the Investor Secretariat will function as a hub within the OSC to better coordinate its policy efforts and assist with identifying and addressing issues of interest and concern to investors, especially retail investors. The Investor Secretariat will also assist OSC staff to better understand the impact that OSC initiatives may have on investors. Furthermore, the Investor Secretariat will identify ways to ensure that the retail investor perspective continues to be included in the development of all rules and policies.

Expanded investor outreach

A second initiative of the OSC is to support an expansion of the outreach initiatives to investors undertaken by the Investor Education Fund (IEF), which operates the website www.investorED.ca (330,000 visits in 2008–09). The IEF was established by the OSC and is funded through proceeds from OSC enforcement settlements and fines, but operates separately from the OSC.

The IEF’s mandate is to develop, distribute and support resources that will increase the investment knowledge of investors and potential investors. These resources include financial literacy programs, lesson content for elementary and secondary school teachers and teacher training. The IEF also conducts research on topics such as the financial literacy of Ontarians.

The Investor Secretariat and expanded outreach programs will build on existing initiatives to engage retail investors in the regulatory process and obtain their input on securities-related matters. The OSC is continuing to explore more effective means through which to obtain feedback from investors, who are most directly affected by the OSC’s investor protection efforts.

Joint Standing Committee on Retail Investor Issues

The OSC was one of four co-founding organizations of the Joint Standing Committee on Retail Investor Issues (JSC) in 2008. The other JSC partners are the Investment Industry Regulatory Organization of Canada (IIROC), the Mutual Fund Dealers Association of Canada (MFDA) and the Ombudsman for Banking Services and Investments (OBSI).

The purpose of the JSC is to provide an effective forum for executives of the four organizations to discuss and consider retail investor issues. The JSC works to coordinate ways to address emerging issues that affect retail investors. The JSC will also seek opportunities to co-operate with the new OSC Investor Secretariat.

In 2008–09, the initial consultative projects of the JSC involved seeking public feedback on questions related to investment product suitability and a study about the information needs of Canadian investors who work with investment advisers. Both projects were funded by the OSC and its JSC partners. A summary report about the consultation on investment product suitability is available on the OSC website.

 


 


Handling complaints

It is important for retail investors to know where to turn when they have a concern or complaint related to their experience investing in the capital markets.

The OSC has worked to improve how complaints from investors are handled so that concerns can be resolved more efficiently and effectively. Inquiries and complaints received by the OSC are handled with urgency, diligence and care. Complaints are first analyzed to identify potential violations of Ontario securities laws. Complaints that reveal potential violations are carefully reviewed and referred, as appropriate, to compliance and/or enforcement staff for further review, or to other regulators or authorities.

The OSC’s Inquiries & Contact Centre operates an Investor Assistance function that has a particular focus on helping investors understand the securities regulatory system and the role of the OSC. Staff also assist investors to understand how to make a complaint to a securities regulator, self-regulatory organization (SRO) or other agency.

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Assistance for Investors
 
 
     
 Assistance for Investors in 2008–09    

Total contacts from investors to the OSC Inquiries & Contact Centre

5,080  
     
Most common areas of contact with investors in 2008–09    

Inquiries about public companies

24%  

How and where to file a complaint

10%  

Registration inquiries about investment dealers or advisers

8%  

Inquiries about regulatory policy or securities law

8%  

Issues about customer service provided by investment dealers, advisers and public companies

7%  

Inquiries about alleged investment scams and frauds

7%  

In 2008–09, most of the contacts about the complaint process were resolved by staff providing information to investors. When appropriate, the OSC has procedures in place to refer a complaint to the relevant SRO or agency. Both IIROC and the MFDA have issued separate proposals aimed at enhancing the process of how their member firms handle complaints from investors. Complaint handling will continue to be a significant area of focus for the Inquiries and Contact Centre in 2009–10.

Of the 5,080 total contacts from investors in 2008–09, the Inquiries & Contact Centre responded to 371 contacts of a regulatory nature for the OSC. Certain issues were forwarded within the OSC for further review and/or response, where appropriate. For example, investor feedback related to short selling was provided to the Market Regulation Branch and various concerns dealing with corporate takeover bids were referred to the Corporate Finance Branch. By referring such inquiries to various OSC Branches, the Inquiries & Contact Centre contributes to providing a timely and appropriate compliance and/or enforcement response.

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Handling complaints: SROs

OSC staff have worked this past year with the Canadian Securities Administrators (CSA) and staff of IIROC and the MFDA to develop an effective and harmonized framework for the client complaint handling process. The framework sets out standards and timelines for acknowledging, investigating and responding to client complaints. The framework also contemplates that registered firms will monitor complaints and report them to management in order to allow the detection of frequent and repetitive complaints that may, on a cumulative basis, indicate a problem.

The CSA is planning to include portions of the complaint handling framework in proposed National Instrument 31-103 Registration Requirements. The remainder of the client complaint handling framework is expected to be included in amendments to National Instrument 31-103 after the process of developing harmonized requirements with the SROs has been completed. IIROC and the MFDA recently published their complaint-handling proposals for comment. Proposed NI 31-103 also contains provisions that would require that independent dispute resolution or mediation services be made available to clients at the registered firm’s expense.

Responding to market developments

The downturn in the capital markets in 2008–09 represented a significant challenge for investors, capital market participants and securities regulators. The OSC took a number of steps in response to developments in the capital markets:

  • compliance reviews of major segments of the investment funds market in Ontario;
  • continuous disclosure reviews and monitoring of public disclosure made by investment funds;
  • focused reviews of Ontario-based hedge funds to assess any unusual risks to investors;
  • reviews of continuous disclosure filings of 100 public companies, especially those in the banking and financial services sector, as well as highly leveraged companies; and
  • a temporary prohibition on short selling of certain inter-listed financial sector stocks to prevent regulatory arbitrage. The precautionary ban was imposed following a similar prohibition by the U.S. Securities and Exchange Commission (SEC) to ensure that inter-listed financial sector stocks were not subject to short selling in Canada when this trading was prohibited in the U.S.

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ABCP proposals

The OSC also led the preparation of a regulatory consultation paper on non-bank sponsored asset-backed commercial paper (ABCP). The paper by the CSA outlines several regulatory proposals related to the ABCP market, including:

  • measures to restrict the way complex short-term debt products are distributed; and
  • the need to regulate and oversee credit rating agencies.

The proposals related to ABCP are intended to provide an appropriate and proportionate response to the crisis in the credit markets by securities regulators. These proposals were published for public comment and the CSA is assessing those comments. The CSA will then develop final proposals to present to the public in the coming year.

More details about the OSC response to market developments in 2008–09 are available in the Compliance Section.

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Regulatory initiatives

The OSC has also played a leading role in several regulatory initiatives with important investor-protection objectives:

  • Point of sale disclosure: The OSC is working with other financial market regulators in Canada to develop specific proposals to enhance the disclosure regime for investors before they buy mutual funds or segregated funds. The proposed regime would provide investors with more meaningful disclosure before they make an investment decision.

  • Registration reform: In 2009–10, securities regulators in Canada plan to propose the implementation of significant reforms to the registration requirements for firms and individuals who sell securities, offer investment advice or manage investment funds. The reforms aim to improve investor protection by encouraging registrants to foster a culture of compliance, and also by giving regulators additional compliance oversight tools.

  • Trade-through protection: The OSC is collaborating with the CSA to propose a framework that would ensure all better-priced orders for a security would be filled first, regardless of the marketplace where the order is entered. As market structures become more complex, the proposed trade-through obligations are intended to maintain investor confidence and fairness in the market.

  • Financial reporting: Canadian securities regulators introduced reforms to improve the transparency, quality and reliability of financial reporting by publicly-traded companies. An important objective of these internal control requirements is to have public companies provide greater transparency to investors in their financial reporting.

  • Scholarship plans: Securities regulators are working to develop proposals to update the rules that govern the formation and operation of scholarship plans, which are a form of investment vehicle used by Canadians to save for their children’s education. In addition, securities regulators want to clarify the structure and simplify the disclosure in the information that is provided to scholarship plan holders to help them better understand the plans they are investing in.

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