2. Red Tape in the investment industry has been increasing
without abatement for many years. ;e Ontario government and
other governments implemented programs such as the Open for
Business initiative to reduce Red Tape; however, this program did
not apply to the OSC. For example, recent proposals to create
rules were in areas where rules already existed but are not being
enforced. ;is was acknowledged by the OSC.
3. ;e rules surrounding the activities of dealers and advisers are
principles-based but the OSC tries to enforce prescriptive requirements through sta; notices which are not rules, leading to a lot of
4. ;e PCMA supports principles-based rules1. In designing NI
31-103, the CSA made an intentional move to principles-based
regulation stating in the notice to the rule:
Compliance is a ;rm-wide responsibility. We have sought to reinforce
;rm-wide responsibility by setting out a general compliance obligation
in the Rule. Registered ;rms must establish and enforce a system of
controls and supervision that ensures the ;rm’s compliance with all
applicable requirements of securities legislation. ;ese are not new
requirements. However, the Rule adopts a principles-based approach to
these requirements because experience suggests this is a better way to
accommodate the diversity in size and scope of our industry participants.
5. ;is follows the lead of other regulators such as the FCA in the
UK. In discussing the move to principles-based regulation in a
2007 paper, the FSA (as it was then known) said “Principles-based
regulation means moving away from dictating through detailed,
prescriptive rules and supervisory actions how ;rms should
operate their business”. It further stated “Principles-based regulation means placing greater reliance on principles and outcome-focused, high-level rules to drive at the regulatory aims we want to
achieve, and less reliance on prescriptive rules.”
6. Rather than embrace principles-based rules, the OSC has been
trying to frustrate them. When a ;rm approaches the OSC with a
novel approach, the OSC does not take the holistic approach and
risk-based approach required with principles-based regulation.
Instead, the tendency seems to be to focus on the details rather
7. ;e CSA are making amendments to NI 31-103 at a rapid rate,
adding prescription to principles. Unduly narrow prescriptive
amendments have led to an ine;ective crowd funding rule, a
frustrating OM exemption and a shortage of Chief Compliance
O;cers. Overall, the current approach may cause business people
to turn away from Ontario.
8. ;e OSC has increasingly focused on administrative items, such
as incorrect ;lings, things that have little to do with investor
protection. In addition, they charge late ;ling fees of $100 per day
for these administrative errors. Many of these late ;ling fees are
capped at $5,000 per year, but begin anew in the next calendar
year, with the result that a simple oversight can cost a ;rm $10,000
or more by the time it comes to light. ;is appears to be out of
proportion to the bene;t achieved. ;is is money that could be
used to improve investor protection measures.
9. Sta; at the OSC are not required to have the same educational
background as the people they regulate. Most compliance examiners are accountants and most policy makers are lawyers. Most
industry participants have backgrounds in business with degrees in
commerce, economics and MBAs. To be registered to work in the
industry, there are courses that must be taken and in some cases a
CFA designation is required. ;is dichotomy between the
pro;ciencies the regulators require and the pro;ciencies the
regulators leads to potential misunderstanding prompting
complaints from the industry that OSC sta; does not understand
the business they regulate.
10. In recent years, the time period for review and consideration of
applications and other matters before OSC sta; has grown,
leaving many to feel there is a growing insensitivity to the needs of
business. In the investment industry, “time is money”, which
means expanding regulatory timelines cost money and are a source
of frustration. OSC sta; are not held accountable for delays which
can keep people out of work for months and, in some cases, can
cause ;rms to languish for a year or more waiting for a decision
from the OSC. We recognize that regulating large and complex
capital markets is no easy endeavor, but we are receiving constant
feedback that management of timelines appears to be unchecked.
11. ;ere should be a review of the rules to eliminate duplication
and prescriptive rules.
12. Principles-base rules should be used where ever possible to
provide flexibility to participants and regulators.
13. ;e OSC should have enforced service standards for registra-
tions and compliance reviews.
14. ;ere needs to be an oversight committee that can impel the
OSC to respond to issues and hold them to their service standards.
15. Sta; should have the same educational and experiential quali-
fications as the industry participants they regulate.
16. ;e late filing fees regime should be re-evaluated. Ideally, late
filing fees should be tailored to enforce meaningful requirements
and removed or significantly reduced for some of the more
mundane and administrative requirements.
1. ;e PCMA believes principles-based rules must be clear in their interpretation
and application. Regulatory guidance and commentary are required.
PCMA DELEGATION GOES TO QUEEN’S PARK
ISSUE: 1. Red Tape created by the OSC has increased regulatory burden to the point that investment
firms are leaving Ontario, changing business or not getting into business.
Brie;ng Note for the PCMA’s presentation at Queen's Park on March 9, 2017.