Fiduciary duty among OSC’s top priorities

The OSC Thursday published its annual statement of priorities, which sets the strategic agenda for the regulator’s current fiscal year (which ends March 31), along with specific initiatives it’s planning. The draft is out for comment until June 3.

The OSC notes that the prospect of imposing a fiduciary duty on advisors will be one of its top priorities in the year ahead, and along with considering the feedback received on a paper published by the Canadian Securities Administrators (CSA) last year, the OSC also plans to further examine the issue with investors and the self-regulatory organizations, with a view to publishing an initial assessment of the idea sometime during the year.

It also indicates that the commission plans to conduct a “mystery shop” research sweep of advisors “to gauge the suitability of advice currently being provided and identify areas of concern and assist in targeting future OSC suitability sweeps.”

“The evolution of the wealth management industry away from transaction based fees towards more asset based revenue models may raise new issues with advisor behaviour at a time when there is greater investor need for objective financial advice. Within this context, global regulators are increasingly focused on ensuring investors have access to sound and appropriate advice,” it notes, adding that the demand for yield “may increase the potential for mis-selling, as investors may be drawn to securities that have a risk profile that may not be consistent with their investment goals, investment horizon or tolerance for risk and may prove to be unsuitable in a changing economic climate. The flow of assets into fixed income securities, either directly or into mutual funds, also raises questions about whether investors understand the impact of interest rate changes on their investments.”

It’s also planning to keep studying the issue of fund fees, and pledges to identify its policy options and publish a progress update. And, it says it will expand investor outreach, develop a new summary disclosure document for exchange-traded funds, and finalize the Fund Facts rules on substituting their use for a prospectus. The review of the exempt market, and possible new exemptions, such as a crowdfunding exemption also remains a priority; as do a variety of market structure issues, and a review of fixed-income regulation.

On the enforcement front, it pledges to do more to fight financial crime by identifying cases that are potentially criminal and using tools such as freeze orders and cease trade orders to prevent harm. It will also build an enforcement team to target criminal cases.

And, it’s promising improved accountability and better cost-benefit analysis of its rule proposals.

The statement also sets out the OSC’s budget forecast, which sees revenues increasing by 15.2% from the previous year under its new fee model. Still, it expects to continue to operate at a deficit, with its accumulated surplus projected to decrease to $1.8 million as at March 31, 2014.