Category: Regulatory Compliance

FAIR Funding

In some welcome news for investor advocates, the OSC recently announced that it will provide $3.75 million to FAIR Canada (FAIR), a national charitable organization dedicated to advancing the interests of individual investors. This funding will be provided to FAIR in annual instalments of $750,000 over five years to fund its day-to-day operating expenses.

December 11, 2020

Tipster Trio Shares OSC Whistleblower Payout

On November 17, the Ontario Securities Commission (OSC) announced that it has awarded a total of $585,000 to three whistleblowers, each of whom provided timely, specific and creditable information that helped advance enforcement action resulting in monetary payments to the OSC.

The whistleblowers included company outsiders who provided OSC Enforcement Staff with specialized technical analysis on a complex area of securities law that led to the opening of an investigation, and that broadened an existing investigation. The whistleblowers’ detailed information brought to light violations of Ontario securities law that would have otherwise been difficult to detect.

November 11, 2020

OSC to Leave Fees Alone for Now

On November 12, the Ontario Securities Commission (OSC) published OSC Notice 13-708 whereby it informed market participants that after reviewing current fee levels and projected cash flows, it has determined that no changes to OSC Rule 13-502 (Fees) and OSC Rule 13-503 (Commodity Futures Act Fees) (together, the Fee Rules) are required at this time, even as it anticipates an impact on its revenues due to the Covid-19 pandemic. An OSC analysis leads it to believe that maintaining current fee levels and leveraging its cash position will ensure that it can continue to deliver on its priorities. Fees will be reviewed after markets stabilize and the outcomes of the Capital Markets Modernization Taskforce (Taskforce) are known. The final report containing the Taskforce’s recommendations is expected before the end of the year and it will then be up to the provincial government to determine which recommendations to adopt. The OSC typically reviews its fee levels every three years, and recently completed its review for its next fiscal year, which starts in April 2021.

AUM Law will monitor these developments and keep you informed as to any changes to the Fee Rules.

December 11, 2020

OSC Research Study Offers Suggestions to Help Investment Industry Get Trusted Contact Person Information from Clients

Earlier this year, the Canadian Securities Administrators proposed amendments that will require registrants to take reasonable steps to obtain the name and contact information of a TCP from their clients, as well as the client’s written consent to contact the TCP in specified circumstances, such as when concerns arise about financial exploitation or mental capacity. We previously reported on this topic in our March bulletin.

On November 9, the Ontario Securities Commission (OSC) published OSC Staff Notice 11-790, Protecting Aging Investors through Behavioural Insights. The research report identifies techniques dealers and advisors can use to increase the likelihood that older clients will provide TCP information designed to protect older investors. Interestingly, the report found that a form designed using behavioural techniques resulted in a 23% increase in the likelihood that an investor would appoint a TCP.

The OSC encourages registrants to review the report and consider integrating the tactics suggested in the report into their current practices. If you would like to discuss the report or would like assistance in preparing TCP forms, please contact us.

December 11, 2020

OSC Proposes Elimination of Routine Exemptive Relief Applications for International Firms

Welcome news for International Firms! Currently, certain international firms doing business in Ontario in reliance on statutory registration exemptions must also manually apply for discretionary relief from certain registration requirements in the Commodity Futures Act (Ontario). These applications may also include a request to be exempt from certain options proficiency requirements in OSC Rule 91-502 Trades in Recognized Options. Per recent proposed OSC Rule 32-506 (under the Commodity Futures Act) Exemptions for International Dealers, Advisers and Sub-Advisers the OSC is doing its part to remove this additional layer of regulatory burden. The comment period closes on March 1, 2021 and we’d be happy to have a call with you if you have any questions or comments relating to this proposal or the regime governing international firms generally.

December 11, 2020

Government Introduces Bill Proposing Significant Changes to Federal Privacy Legislation

The Government of Canada has big plans for privacy protection in Canada. It has proposed the Digital Charter Implementation Act, which is a Bill that would enable the government to establish a new privacy law for the private sector called the Consumer Privacy Protection Act.

The effect of this new law would be to increase protections to Canadian’s personal information by giving them more control and greater transparency when companies handle their personal information.

For example, the new law contains modernized meaningful consent rules regarding the use of personal information, transfer rights to move personal information from one organization to another, the ability to dispose of personal information and withdraw consent to its use, rules regarding de-identification of information, among other changes.

The new law would also provide significant new consequences for non-compliance, including allowing the Privacy Commissioner to force organizations to comply or to order a company to stop collecting data or use personal information. It also would grant the Privacy Commissioner the ability to impose administrative monetary penalties of up to 3% of global revenue or $10 million for non-compliant organizations and the ability to impose a maximum fine of 5% of global revenue or $25 million for certain serious contraventions of the law.

For now, you should stay tuned to the implementation of these changes and continue to treat personal information in your control carefully (of course).

December 11, 2020

Two Western Provinces Consult on Innovative Prospectus Exemption

The Alberta Securities Commission and the Financial and Consumer Affairs Authority of Saskatchewan are proposing an interesting new prospectus exemption as a three-year pilot project as set out in CSA Multilateral Notice and Request for Comment 45-327 Proposed Exemption for Self-Certified Investors. Unlike the current financial tests for accredited investors, the new proposed exemption would be available to individual investors in Alberta and Saskatchewan purchasing securities of an issuer located in those provinces who provide a prescribed form of certification. Investors would need to attest that they have a CFA designation, a CPA designation (in Canada), are admitted to the practice of law in Canada (focusing on M&A or financings) or hold an MBA with a focus on finance or a degree in finance. Non-individual investors would also be able to use the exemption based on similar criteria. A number of conditions to the exemption are proposed, including an extensive prescribed risk disclosure as part of the self-certification, and limits on investments to $10,000 in the last twelve months per issuer, with an aggregate cap of $30,000 in the last 12 months for all issuers. Given the importance of the exempt markets and ongoing burden reduction initiatives, we will be watching the outcome of the consultation closely.

December 11, 2020

OSC Seeks Comment on Proposed Priorities for 2021-22

On November 16, the Ontario Securities Commission (OSC) published OSC Notice 11-791 Statement of Priorities seeking comment on its draft 2021-2022 Statement of Priorities (SoP) to inform its business planning for the 2021-2022 fiscal year ending on March 31, 2022.

The OSC has set out four strategic goals and it has set out the priority initiatives it will pursue in support of those goals for the 2021-2022 fiscal year. The first goal, promoting confidence in Ontario’s capital markets, will be supported by further work to implement projects such as the Client Focused Reforms, policies on mutual fund embedded commissions and deferred sales charges (DSCs), continued consultation on the current self-regulatory organization (SRO) framework, more timely and impactful enforcement action, collaboration on financial literacy initiatives, strengthening OBSI and expansion of the OSC’s systemic risk oversight (focusing on derivatives and investment fund liquidity risks). The second goal of reducing regulatory burden will involve completing the actions identified in the OSC’s existing burden reduction plan. Under the third goal of facilitating financial innovation, the OSC will implement their multi-year plan for the Office of Economic Growth and Innovation and continue the work of LaunchPad in engaging with fintech market participants. The fourth goal, strengthening the organizational foundation of the OSC, involves continuing to develop SEDAR+, modernizing OSC technologies, fostering a culture of inclusion and diversity and continuing to monitor and adapt to the impacts of the Covid-19 pandemic.

Stakeholders are invited to provide written comments on the draft SoP by December 16, 2020 and comments will be considered by the OSC. The OSC will adjust its priorities as necessary to respond to the impact of the Covid-19 pandemic and to accommodate changes resulting from pending recommendations by the Capital Markets Modernization Taskforce as adopted by the Government of Ontario. Any necessary adjustments to the 2021-2022 SoP will be included prior to finalization and publication.

December 11, 2020

Reminder! Investment Funds Have a January 30 Deadline to File Reports of Exempt Distribution

With the New Year just around the corner, investment funds that take advantage of the option in National Instrument 45-106 – Prospectus Exemptions (NI 45-106) to file certain Reports of Exempt Distribution on Form 45-106F1 (Reports) once a year, instead of after every distribution, have some homework to do. As discussed below, for some funds, two regulatory developments in 2019 might make the process of preparing and filing reports more complicated and time-consuming.

Background: To rely on many of the exemptions in NI 45-106, issuers must report prospectus-exempt distributions to every securities regulator where a distribution of securities was made to a resident of that province or territory. Generally, the filing deadline is ten days after the date of distribution. Investment funds, however, can file their forms once a year, by January 30, for distributions made in the preceding year in reliance upon the accredited investor (AI), minimum amount, or additional investment in fund units exemptions. Distributions made by an investment fund in reliance on other prospectus exemptions may need to be reported to the relevant securities authorities within ten days of the distribution.

How to file the Reports and Pay Fees: An investment fund that is required to file the Report must file it electronically as follows:

  • In British Columbia, through the online eServices portal of the British Columbia Securities Commission (BCSC);
  • In Ontario, through the online Electronic Filing Portal of the Ontario Securities Commission (OSC); and
  • In all other jurisdictions, through SEDAR.

Note that BC Instrument 13-502 Electronic Filing of Reports of Exempt Distribution has been amended to require all Reports to be filed through the BCSC’s eServices portal. Paper filings (by Canadian or foreign issuers) are no longer acceptable. If the investment fund is a non-reporting issuer and does not have a profile set up on the BCSC online eServices portal, an advance registration form must be sent to the BCSC 24 hours prior to filing.

Likewise, if the investment fund does not currently have a SEDAR profile, it must create one prior to filing Form 45-106F1 on SEDAR.

Each securities regulator charges a separate filing fee for the Report. Filing fees for forms filed in British Columbia and Ontario are paid directly online when submitting the form through the regulators’ respective online portals. Filing fees payable to other jurisdictions must be made electronically through SEDAR.

Reports for Exempt Distributions to Fully Managed Accounts May Be More Complicated: Since 2016, NI 45-106 has deemed that in connection with a distribution made in reliance on the AI exemption, a trust corporation, trust company or registered adviser (collectively, the Adviser) purchasing securities on behalf of a fully managed account is considered to be purchasing the securities as principal. As a result, in all jurisdictions, issuers (or their underwriters) only have to provide information about the Adviser, not the beneficial owners of the securities, in the Reports. However, as we reported in our February 2019 bulletin, the Canadian Securities Administrators (CSA) have taken different approaches to where Reports need to be filed and fees paid:

  • Group 1 – Manitoba and Québec: If the exempt distribution has a connection to either province (such as beneficial owners of fully managed accounts resident in either province), issuers and registrants should consider carefully whether a Report must be filed, and fees paid in those provinces. The fees payable for filing a Report in Québec may be significant because they are calculated based on the gross value of the securities distributed in that province.
  • Group 2 – Almost Everywhere Else: The regulators in all other provinces and territories (except Saskatchewan) have indicated that the Report needs to be filed and the fees paid based on the location of the Adviser.
  • Group 3 – Saskatchewan: The regulator has granted blanket, exemptive relief so that the outcome (at least for now) is the same as Group 2.

Next Steps and How We Can Help: Hopefully you have but if you haven’t already started to collect the required information and prepare your forms, we encourage you to do so as soon as possible. Should you require assistance with annual filings of Reports for investment funds, please contact your usual lawyer at AUM Law or one of our securities clerks as soon as possible to ensure that filing deadlines can be met.

December 11, 2020

Regulatory Highlights from 2020

How do you summarize a year like no other in history? Well, the shift to a remote work environment didn’t do much to slow our regulators who, along with the Canadian asset management industry, rose to meet the multi-faceted challenges presented by the COVID-19 pandemic.

A. Burden Reduction and Capital Markets Modernization Initiatives

Regulators moved forward with initiatives intended to reduce regulatory burdens and modernize the regulatory framework, including the following:

Crowdfunding: In February, the Canadian Securities Administrators (CSA) proposed a harmonized, start-up crowdfunding regime. In July, after the comment period closed on the CSA proposal, the Ontario Securities Commission (OSC) issued an interim class order (Order) providing prospectus and registration exemptions for start-up crowdfunding that are similar to the exemptions already in place in a number of other provinces. The Order is expected to remain in place until the earlier of the date the new CSA regime is adopted or January 31, 2022.

SRO Reform: When market participants and regulators weren’t coming to grips with remote work arrangements, they were debating whether and how to reform Canada’s self-regulatory organizations (SROs) for registrants. The Mutual Fund Dealers Association of Canada (MFDA) kicked things off in February when it published its Proposal for a Modern SRO. The CSA followed up in June with its own consultation paper on SRO reform, and the Ontario Government’s Capital Markets Modernization Task Force (Task Force) set out its draft recommendations on the subject in its July consultation report.

OSC Burden Reduction Initiatives: In early 2019, the OSC kicked off a multi-year process to identify and implement actions to reduce regulatory burdens in Ontario and improve the investor experience. Check out our December 2019 regulatory recap if you’d like to refresh your memory. In May 2020, the OSC provided a progress report on its regulatory burden reduction initiatives and provided a further update in the June 2020 Interim Progress Report on its 2019-2022 priorities. We also reported on several specific projects, including the following:

  • In June, the CSA announced changes designed to make it easier for advising representatives (ARs) of portfolio managers (PMs) to register as client relationship management (CRM) specialists.
  • In July, the CSA published guidance on flexible CCO arrangements.
  • In August, the CSA published final amendments that raise the threshold for when non-venture reporting issuers are required to file business acquisition reports.
  • In October, the Ontario government proposed changes to the Business Corporations Act (OBCA) that, if enacted, will eliminate director residency requirements for OBCA corporations and introduce a more flexible regime for privately held OBCA corporations regarding written shareholder resolutions.

B. Business Continuity and Risk Management

Business continuity planning and risk management have been top of mind for firms and regulators this year, and not just because of the COVID-19 pandemic.

  • In March we discussed pandemic-related business continuity issues for firms to consider in the short and medium and term.
  • In July, we highlighted an interesting publication by the North American Association of Securities Administrators (NAASA) focusing on the need for firms to be prepared to deal with colleagues experiencing diminished capacity.
  • In September, we discussed the CSA’s guidance on liquidity risk management for investment fund managers as well the discussion paper issued by Office of the Superintendent of Financial Institutions (OSFI) on core principles for operational resilience in a digital world.

C. Crypto Assets

Crypto-currency issues remained in the news in 2020.

  • In January, we highlighted CSA Staff Notice 21-327 Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets.
  • In February, we discussed U.S. Securities and Exchange Commission (SEC) Commissioner Hester Pierce’s informal proposal for a safe harbour for token offerings.
  • In July, we wrote about the OSC’s approval of a settlement agreement with Coinsquare Ltd and its executives regarding market manipulation on a crypto-asset trading platform.
  • In August, we highlighted the CSA’s first decision registering a crypto-asset trading platform under its regulatory sandbox program.
  • In October, we discussed the settlement reached by Kik Interactive with the SEC regarding its unregistered token offering.

D. COVID-19

Regulators responded to the COVID-19 pandemic in impressive fashion by, among other things, extending regulatory deadlines, granting temporary relief from certain requirements, and scaling back certain initiatives. They also turned their attention to compliance and other risks affecting market participants that were specific to, or exacerbated by, the pandemic.

A number of the pandemic-related regulatory actions we wrote about in 2020 were temporary in scope, so we have highlighted below the pandemic-related articles we wrote in 2020 that continue to be relevant for market participants.

  • In March, we wrote about factors for registered firms to consider in the short to medium term after they activated their business continuity plans.
  • In April, we reported that the CSA had extended the deadline for implementing the CFRs concerning conflicts of interest and related relationship disclosure information (RDI) reporting requirements by six months to June 30, 2021.
  • In May, we wrote about guidance provided by the Financial Services Regulatory Authority of Ontario (FSRA) to mortgage brokers and administrators regarding their disclosure and other obligations in respect of mortgage-based investments during significant market disruptions, such as the COVID-19 pandemic.
  • In August, we wrote about the U.S. SEC’s risk alert on COVID-related compliance risks relevant to dealers and advisers as well as the task force established by the North American Securities Administrators Association (NASAA) to target COVID-19 fraudsters.
  • The CSA and FSRA extended the expected deadline for implementation of changes to the regulatory framework for syndicated mortgages in April and again in August. As recently announced, the new framework is now expected to take effect on July 1, 2021.
  • In October, we wrote about the CSA’s biennial report on their continuous disclosure review program, which included guidance for reporting issuers on how to disclose COVID-19 impacts.

E. Cyber-Security and Data Privacy

Cyber-security and data privacy continued to be hot topics, with the shift to remote work arrangements due to the pandemic presenting increased risks for inadvertent cyber-security failures as well as opportunities for hacking. AUM Law addressed these and other privacy and cyber-security issues in a number of articles, including the following:

  • Cyber-Resilience: We touched on cyber-resilience in our March FAQ on business continuity planning and wrote a more detailed article in our April bulletin. In September, we reported on the Office of Superintendent of Financial Institutions’ consultation paper on operational resilience in a digital world, which includes recommendations regarding cyber-resilience, and in October, we reported that the international Financial Stability Board (FSB) had finalized its cyber incident recovery and response toolkit.
  • Artificial Intelligence: In February we wrote about the consultation paper on the regulation of artificial intelligence published by the federal Office of the Privacy Commissioner (OPC), and in June we discussed the consultation paper published by the International Organization of Securities Commissions (IOSCO) regarding potential regulatory measures addressing asset managers’ and market intermediaries’ use of artificial intelligence.
  • Privacy: In August, we reported that the Ontario government had launched a consultation to determine whether reforms to Ontario privacy legislation are warranted. See also our article in this bulletin regarding the Canadian government’s proposed Digital Charter Implementation Act, 2020.

F. Compliance Review and Enforcement Report Cards

The summary reports that regulatory staff publish about their oversight of market participants are valuable tools that can help firms learn more about recent and proposed regulatory initiatives, what staff consider to be problematic (or, conversely, beneficial) practices, and how staff interpret legislation and rules. In 2020, we wrote about:

  • Alberta Securities Commission (ASC) staff’s review of issuers’ and registrants’ compliance with the offering memorandum exemption (January);
  • Insights from staff of the OSC’s Compliance and Registrant Regulation (CRR) Branch regarding their compliance program, shared during a webinar hosted by the Portfolio Management Association of Canada (PMAC) in May;
  • The annual enforcement report published by the Investment Industry Regulatory Organization of Canada (IIROC) in May;
  • The CRR Branch’s annual Summary Report for Dealers, Advisers and Investment Fund Managers (September) – a ‘must read’;
  • The CSA’s biennial report card on reporting issuers’ continuous disclosure practices (October); and
  • The OSC’s Corporate Finance 2020 Annual Report (discussed later in this bulletin).

G. Cases and Enforcement Sweeps

In 2020, we wrote about a number of regulatory decisions that we think offer lessons for our readers.

  • In January, we wrote about IIROC’s decision to fine a representative for his failure to follow through on red flags regarding a client account being handled under a power of attorney.
  • In March, we discussed the IIROC decision to fine TD Waterhouse $4 million for deliberate non-compliance with relationship disclosure information requirements. In the same month, the Ontario Court of Appeal upheld Daniel Tiffin’s conviction for trading in promissory notes without registration and distributing securities without a prospectus, but overturned the lower court’s decision sentencing him to six months in jail. (PS: if you’re ever tempted to conclude that a particular instrument is not a security, first read Tiffin).
  • In May, we highlighted the enforcement action initiated by OSC staff against a mutual funding dealing representative who agreed to serve as executor for a client’s will even though he was alleged to have known that he was a beneficiary under that will. We also discussed undertakings given by two issuers to the Alberta Securities Commission (ASC) regarding internal controls, training and other requirements to ensure compliance with prospectus exemptions.
  • In June, we discussed a significant decision issued by the Federal Court of Appeal regarding the constitutionality and application of Canada’s Anti-Spam Legislation (CASL).
  • in July, we wrote about the OSC’s approval of a settlement agreement with Coinsquare Ltd and its executives regarding market manipulation on a crypto-asset trading platform.
  • In September, we reported that the Financial Institutions Regulatory Authority of Ontario (FSRA) had fined Fortress Real Developments for operating without a license.
  • And, as mentioned in Section C above, we wrote about two crypto-asset-related enforcement decisions, concerning market manipulation on a crypto-asset trading platform (Coinsquare) and an unregistered token offering in the U.S. (Kik Interactive).

H. FAQs

In 2020, we published a number of FAQs offering practical insights on various topics. Although many of them touched on issues arising out of the COVID-19 pandemic, we think the insights will continue to have relevance in other contexts.

  • In January, we discussed whether an advising representative (AR) can act as the executor of an estate on behalf of a client.
  • In February, we discussed things to watch out for when firms describe themselves and their representative on social media.
  • In March, we outlined issues for registered firms to consider, in light of the COVID-19 pandemic, regarding their know-your-client (KYC) and suitability determination obligations.
  • In April, we discussed the use of electronic signatures for subscription documents, investment management agreements and similar agreements with the firm’s clients.
  • In May, we addressed the issue of whether an associate advising representative can work remotely or in a one-person branch office.
  • In July, we described how a registered firm’s ultimate designated person (UDP) can certify the firm’s RAQ responses if they do not have online access to the survey.
  • In July, we also discussed whether registered individuals (and applicants for registration) have to disclose offenses they have been charged with, if the matter hasn’t adjudicated yet. (This issue was also covered later in the year in an Advisor’s Edge interview with our Erez Blumberger).

In 2019, the CSA published its own FAQ guidance, this time focusing the client-focused reforms (CFRs). We discussed those FAQs in our September and October bulletins.

I. FSRA

Although the COVID-19 pandemic delayed implementation of the revised oversight framework for syndicated mortgages to July 2021, the good folks at FSRA kept busy in 2020 with a number of initiatives, including:

  • In August, FSRA published for comment an oversight framework, including proposed rules and guidance, regarding the use of financial planner and financial titles.
  • Also in August, FSRA and the OSC published for comment proposed local rules and guidance regarding syndicated mortgages, while the CSA finalized its amendments for the syndicated mortgages regime.
  • In September, FSRA published proposed service standard for comment.
  • In October, FSRA published its 2021-22 Statement of Priorities for comment.

December 11, 2020

Reminder: OSC Participation Fee Calculation and Payment

It’s time for Ontario-registered firms, unregistered exempt international dealer/adviser firms, and unregistered investment fund managers to get ready to file their annual participation fee calculations with the Ontario Securities Commission (OSC) by December 1 and pay the prescribed fees by December 31.

Filing and Payment

  • How and when: Firms must complete and file Form 13-502F4 Capital Markets Participation Fee Calculation (Form 13-502F4) or Form 13-503F1 (Commodity Futures Act) Participation Fee Calculation (Form 13-503F1), as appropriate, by December 1.
  • Certification: Your firm’s chief financial officer (CFO) or another specified officer, such as the chief compliance officer (CCO), can certify and submit the required forms to the OSC.
  • Amount: According to the information that your firm provides in Form 13-502F4 or Form 13-503F1, the National Registration Database (NRD) generates a preliminary annual fee summary in early December. The participation fee in Form 13-502F4 or Form 13-503F1, as well as the annual fees payable in other jurisdictions (if applicable), will be withdrawn from your firm’s NRD account on December 31. Ensure that your NRD account has the necessary funds on December 31 to allow these withdrawals.
  • If you do not pay: Failure to pay annual participation fees will result in automatic suspension of a firm and its individuals. Furthermore, late fees will apply for forms and participation fees submitted after the due dates.

AUM Law Can Help: Please contact Gordana Beric or Rachel Palozzi if you would like our help in preparing and filing Form 13-502F4 or Form 13-503F1, or if you have any questions about the requirements.

October 30, 2020

FSRA Publishes 2021-22 Statement of Priorities for Comment

On October 13, the Financial Services Regulatory Authority of Ontario (FSRA) published for comment its proposed 2021-22 Statement of Priorities (SoP). We think our readers may find the following elements of the proposed SoP interesting.

Cross-Sectoral Priorities: FSRA has identified four cross-sectoral priorities.

  • Enable Innovation: FSRA’s Innovation Office plans to, among other things, review the discretionary powers FSRA needs to enable regulatory solutions that respond to the pace of change in the sectors it regulates. It also intends to develop an inclusive innovation framework, a proactive innovation engagement and outreach strategy, build a two-way communication channel with stakeholders to support forward-looking regulatory practices, and create financial innovation testing environments and tools for prioritized sectors.
  • Modernize Systems and Processes: In the coming fiscal year, FSRA expects to implement a technology platform that enables simplified and fully digitized operations, including a 360-degree view of regulated entities, a case management system, an enterprise content management system, and data analytics, with enhanced client portals. It also plans to implement advanced online/web-based information sharing and transactional processing tools on FSRA portals, develop digital document processing capabilities to streamline existing paper-based channels, and enable data analytics for each of its regulated sectors to support policy and supervisory initiatives.
  • Transition to Principles-Based Regulation (PBR): FSRA will continue transitioning to a principles-based and outcome-oriented regulatory approach. This will involve, among other things, continuing to update its external supervisory and regulatory processes and guidance to reflect a principles-based approach, completing a review of its Guidance Framework and updating it as needed to ensure it’s aligned with PBR, initiating each sector’s implementation of a PBR approach, and then formally rolling out PBR to ensure understanding of the approach.
  • Protect the Public Interest: FSRA plans to develop and publish a complaints framework and implementation plan for affected sectors, develop a strategy for consumer disclosures and pilot disclosure improvements, strengthen cross-jurisdictional regulatory collaboration around consumer protection issues, develop and publish a framework for consumer education, and pilot education tools and strategies.

Financial Planners and Advisers: As we discussed in our August 2020 bulletin, FSRA has proposed a regulatory framework for the approval and oversight of bodies that offer credentials that meet FSRA’s minimum standards for financial planner (FP) and financial adviser (FA) titles. In fiscal 2021-22, FSRA plans to operationalize and fully implement the title protection framework, including approval of credentialing bodies and FP/FA titles under the new regime, rollout of a supervisory approach to credentialing bodies, development of an action strategy targeting non-credentialed FP/FA users, and a public education campaign.

Mortgage Brokers: FSRA’s priorities for this sector will focus on supporting the Ontario Government’s policy direction relating to the five-year review of the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA) completed in 2019. The SoP, however, does not outline any specifics on what that work might involve.

What’s Next: Comments on FSRA’s proposed SoP are due on November 3 and FSRA expects to submit its annual business plan to the Minister of Finance by the end of the year.

October 30, 2020

Kik Back in the News after Settling U.S. Enforcement Proceedings Regarding Its Token Offering

Readers might recall that in August 2019, we reported that the U.S. Securities and Exchange Commission (SEC) was taking enforcement action against Ontario-based crypto-currency issuer Kik Interactive Inc. (Kik), alleging that it had made an unregistered offering of tokens known as Kin in violation of the Securities Act of 1933 (Securities Act).

On September 30, U.S. District Court for the Southern District of New York (Court) awarded summary judgment in favour of the SEC. Focusing on the economic realities of the transaction, the Court concluded that Kin met the definition of an “investment contract” and, therefore, Kik’s offering of Kin without a registration statement or available registration exemption violated the Securities Act.

Having ruled on the legal issues, the Court left it up to the parties to negotiate a final judgment. On October 21, the Court approved the parties’ settlement, which provides, among other things, that Kik will pay US $5 million to the SEC. For the next three years, Kik also is required to give the SEC 45 days’ advance notice before it participates, directly or indirectly, in any offer, sale, or transfer of the existing Kin tokens or any new, similar digital asset.

As we emphasized last year, this case and the regulators’ continued focus in this area highlight the importance of obtaining legal advice if your business plans contemplate the use of crypto-currency. AUM Law has experience in this area, and we can help you navigate its regulatory challenges.

October 30, 2020

OSC and IIROC Looking for Hot Tips on Abusive Trading

On October 1, the Ontario Securities Commission (OSC) and Investment Industry Regulatory Organization of Canada (IIROC) published joint whistleblower guidance (Guidance) encouraging the public to submit tips on potential abusive trading, including illegal insider trading, market manipulation or abusive short selling. According to the Guidance, IIROC and the OSC believe that certain market participants are engaged in abusive short selling and they are particularly interested in tips relating to short selling into or ahead of private and public offerings of Ontario securities. The Guidance also stresses that anyone, not just trading firms or their employees, may be eligible for a whistleblowing award of up to $5 million under the OSC program, if they have first-hand or other specific and credible evidence of securities law misconduct. The OSC’s Whistleblower Program is outlined here and IIROC’s program is outlined here.

October 30, 2020

FSB Finalizes Its Cyber Incident Recovery and Response Toolkit

In April, we wrote that the Financial Stability Board (FSB) was seeking comment on 46 recommended cyber incident response and recovery (CIRR) practices for financial institutions. On October 19, the FSB published its final “toolkit” consisting of 49 recommendations (Report). Although the FSB tends to focus more on systemically important financial institutions, we think that all capital markets participants will find it worthwhile to read the final Report. The FSB expects that firms of various sizes and with different business models will choose to adopt, and adapt, some or all of the recommendations as appropriate, taking into account their size, complexity and risks to the financial system.

AUM Law can help you assess and enhance your cyber security policies and procedures and conduct training in this area for your employees. Please contact us to find out more about our services in this area.

October 30, 2020