Corporate insiders and issuers need to do a much better job of reporting insider-trading activity and must improve their policies to prevent improper insider trading, according to a new regulatory review from the Ontario Securities Commission (OSC).

The OSC published a staff notice on Thursday detailing the results of a review of insider reporting, which found “material insider reporting deficiencies” in approximately 70% of the issuers that it reviewed. The OSC examined the filings of 100 firms — 35% of which were venture issuers from a broad cross section of industries — and 1,500 individual insiders. The review discovered at least one significant deficiency in the majority of firms, involving about 200, or 15%, of the individual insiders it reviewed.

“The compliance rate for insider reporting can be substantially improved, and this improvement needs to happen across all reporting issuers,” the OSC report states.

Indeed, the OSC’s review found reporting lapses at all sorts of firms it examined, noting that there was “minimal correlation between the size of the reporting issuer and the occurrence of material insider reporting deficiencies.”

The deficiencies uncovered in the review typically required insiders to amend their filings and often to pay additional filing fees, as a result.

The OSC report notes that failing to meet insider reporting requirements undermines the objectives of these rules, which include: deterring illegal insider trading; preventing shenanigans, such as options backdating or opportunistic option grants; and to provide the market with information on the trading activity of insiders, which may inform their own trading decisions.

“When insiders fail to comply with insider reporting requirements, this affects the integrity, reliability and effectiveness of the insider reporting regime, which in turn has a negative impact on market efficiency,” the OSC says in its notice. “As such, it is crucial for investors to have access to reliable trading information of insiders.”

Lack of filing was one of the biggest issues uncovered in the review, which indicates that approximately 30% of issuers had at least one reporting insider that wasn’t identified as an insider and wasn’t filing insider reports to the regulators at all. Most of these were directors, senior officers, or significant shareholders of reporting issuers, it notes. Although, in certain cases, the insiders who failed to file were the issuers themselves, the OSC’s review says.

“All instances of inaccurate reporting can negatively impact the insider reporting regime. However, when an insider fails to file any report in connection with a trade in a security, our regime is significantly impacted,” the OSC’s notice says.

The review also found that firms generally need to improve their insider-trading policies. It notes that most issuers have written insider-trading policies in place, but that some of these policies do not restrict derivatives-based transactions, option grants, or similar forms of stock-based compensation during blackout periods.

Policies prohibiting these transactions “are essential to avoid public and regulatory scrutiny” about possible improper insider trading, the OSC’s notice says. It also recommends that issuers review their insider-trading policies annually to ensure that they align with current Canadian securities legislation.

In an effort to boost compliance with these requirements, the OSC’s report sets out guidance on the various deficiencies uncovered in the review.

“Reporting insiders and reporting issuers should use the findings and guidance in this review to strengthen their compliance with insider reporting obligations,” says Huston Loke, director of corporate finance with the OSC, in the notice. “Reporting issuers can play a significant role in enhancing compliance in this area by strengthening their insider trading policies.”

The OSC is hosting a webinar on insider reporting obligations on Feb. 24.