The Financial Services Regulatory Authority of Ontario (FSRA) released a draft Approach Guidance (Guidance) which outlines its plans for principles-based regulation, including its “Framework Principles” and an explanation of how such regulation will be implemented and how it will impact FSRA regulated entities and individuals. In the Guidance introduction, FSRA notes that principles-based regulation is used by leading financial services regulators globally, and helps regulators respond quickly to consumer needs and technological changes, focus on desired regulatory outcomes and reduce regulatory burden through a flexible regulatory approach. This approach by nature allows regulated entities to determine how they can each best achieve the desired regulatory outcomes, based on size, complexity and risk profile.

The general statements included in the Framework Principles include the following:

  • FSRA will be outcome focused and spend its time on the outcomes it seeks to achieve for consumers and pension plan beneficiaries;
  • FSRA will facilitate innovation in the sectors it regulates;
  • The focus will be consumer-centric (i.e. the impact on consumers and pension plan beneficiaries);
  • FSRA will utilize a risk-based approach and focus on issues and entities that pose the highest risk;
  • FSRA will be transparent by communicating its expectations, requirements, activities and performance to stakeholders; and
  • Stakeholders will be engaged though public consultations as part of FSRA’s collaborative

The principles-based approach means that FSRA will refer to broadly stated principles in guidance or rules and explain desired outcomes. For credit unions, pension plans or insurers, the Guidance specifically notes that FSRA will place more reliance on an entity’s senior management (for a pension plan, the plan administrator) and board of directors to internalize the requirements needed to achieve the stated outcomes. While industry best practices may be used to help assess the regulated entity/individual’s approach, they are intended to provide insights into what is being done by industry peers and provide a baseline to help identify practices that work best for the individual organization. FSRA does note further on in the Guidance that in certain areas, it will need to continue to rely on detailed rules and requirements to ensure adequate consumer and pension plan beneficiary protection. Factors that will impact the approach to be adopted by FSRA include the complexity of the regulatory problem and the sophistication and resources of the entity to address the issue effectively. Finally, FSRA notes it will be releasing specific guidance on its approach to investigations and enforcement processes and practices.

Comments on the draft Guidance will be accepted until April 29, 2022.

March 31, 2022