The Ontario Securities Commission (OSC) says that it continues to find compliance deficiencies when it comes to firms complying with their suitability obligations.

In a new report that sets out the findings of its compliance branch during the past year, the OSC says “We continue to identify significant deficiencies in compliance by some registrants with their KYC and suitability obligations and unsuitable investments are a common subject of investor complaints.” These deficiencies include firms improperly relying on accredited investor exemptions to sell exempt securities.

The report also sets out common deficiencies uncovered in its reviews of firms’ and individuals’ registration applications, and the deficiencies it found in its compliance reviews of firms that are directly regulated by the OSC, such as exempt market dealers, scholarship plan dealers, and fund managers.

Its compliance reviews resulted in more conditions being placed on registration (in 8% of cases this year, up from 3% last year). Just 6% were referred to enforcement, 34% resulted in enhanced compliance, 47% brought “significantly” enhanced compliance, and 1% were required to surrender their registrations.

The list of compliance problems noted in the report includes inadequate compliance systems; chief compliance officers who are not adequately performing their responsibilities; inadequate relationship disclosure information; and, inaccurate calculations of excess working capital.

It also noted concerns with registered firms selling their own securities to clients. “We have noted a number of cases recently where a registered firm was directly selling securities (such as notes, common or preferred shares) of the registered firm itself to its clients,” it says, noting that this raises serious issues, including: firms raising money from investors to fund their operations when they are in financial difficulty, unsuitable sales, improperly relying on prospectus exemptions, cases where the money raised is used for other purposes, and insufficient risk disclosure.

“It is a material conflict of interest when a registered firm sells securities in itself to clients,” it stresses.

The report also summarizes new and proposed rules and initiatives impacting firms, provides a summary of some key misconduct cases, provides guidance on preparing for an OSC compliance review, and explains how registrants can get more information about their obligations.