New disclosure requirements for dealers are coming, the Ontario Securities Commission indicates in a new report that also highlights the results of recent compliance reviews.

The OSC’s Compliance and Registrant Regulation branch published its annual report for the 2010 fiscal year in Friday’s OSC Bulletin.

In the report, the commission indicates that it is working with the rest of the Canadian Securities Administrators, and the self-regulatory organizations, “on improving and harmonizing requirements in a number of areas related to a client’s relationship with a registrant.”

The report notes that some of the elements of the Client Relationship Model were dealt with in the registration reform rule, and that the OSC has now started phase 2 of CRM.

It indicates that the OSC expects to propose additional CRM principles and requirements for registered firms, requiring: additional disclosure to clients of all costs associated with the products and services they receive; and meaningful reporting to clients on how their investments perform.

The report also spells out the results of its compliance reviews for fiscal 2010. It notes that 10% of the firms reviewed received the most serious outcome, a referral to enforcement, up from 4% in 2009.

“The increase from the prior year is a result of performing more for-cause reviews, and continued enhancements to our risk-based approach to selecting registered firms for review,” the report says.

Additionally, 3% of field reviews resulted in the imposition of terms and conditions on registration, which is consistent with the previous year’s result of 4%. Also, 37% of the reviews resulted in enhanced compliance, down from 60% in fiscal 2009; whereas 50% resulted in “significantly enhanced compliance”, up from 32%. The report indicates that the increase in significantly enhanced compliance outcomes is primarily due to the regulator focusing its attention “on areas that we considered to be problematic during the recent market turmoil.”

The report also notes that, as the OSC continues to find deficiencies in the marketing practices of portfolio managers, it decided to conduct a second sweep of their marketing practices as part of a CSA initiative. “This sweep will help us to assess if investors are being provided with fair and accurate information when they decide to enter into, or maintain, an advising relationship with a portfolio manager,” the report says.

The regulators started the marketing sweep in the summer of 2010 by sending a sample of portfolio managers a survey that requested information about their marketing practices and copies of their marketing materials; a sub-set of those portfolio managers have been selected for on-site reviews, and those are in-progress, the report says.

IE