OSC forecasts higher revenues and expenses

The commission forecasts that regulatory revenues will rise to $115.8 million and expenses will climb to $109.2 million in fiscal 2016, driven by increases in staffing and continued work of the Cooperative Capital Markets Regulatory system (CCMR).

Overall, the OSC is budgeting for a 11.4% increase in revenues for its current fiscal year, and a 13.9% rise in expenses.

The launch of the CCMR is now planned for the fall of 2016, and the OSC’s financial statements show that the country’s largest regulator is now spending more on that effort than it contributes to the work of the Canadian Securities Administrators (CSA).

The OSC committed approximately $1.8 million in staff resources to the CCMR project during fiscal 2015, up from just $500,000 the previous year. By contrast, total CSA spending on shared projects in fiscal 2015 was $1.8 million, of which, the OSC kicked in $685,000. The OSC also contributed $393,000 to the running of the CSA Secretariat.

The commission had much greater success collecting monetary enforcement sanctions during the year, the financial statements show, although this was largely due to the fact that two of the respondents were established firms that paid the sanctions assessed to them.

The commission collected 14.2% of the sanctions handed out overall in fiscal 2015, including 40% of the sanctions agreed in settlements, up from just 3% overall in 2014, and 7.7% of settlements. Collections in contested hearings, however, came in at just under 1%, which was similar to fiscal 2014.

Overall, the OSC ordered $53.0 million in sanctions in fiscal 2015, of which, it collected about $7.5 million and deemed another $2.1 million as being collectible.

During the fiscal 2015, the OSC distributed just $22,000 to harmed investors, down from $1.4 million in fiscal 2014. It allocated $2.1 million to the Investor Education Fund (IEF), which has since been brought in-house (down from $3.3 million in fiscal 2014). In addition, it gave $2.5 million to the investor advocacy group, the Canadian Foundation for the Advancement of Investor Rights (FAIR Canada), up from $500,000 in fiscal 2014.

Looking ahead, the OSC’s budget for fiscal 2016 is focused on four key areas: improving investor education, outreach and advocacy through the creation of its integrated Office of Investor Policy, Education and Outreach; enhancing oversight in both the derivatives market and the exempt market; and increasing its use of data and research. These efforts are expected to result in a 5.6% increase in salary expenses (which make up 74% of the commission’s overall budget); along with spending on IT, including a data warehouse to support the increased oversight of the derivatives market.

In fiscal 2015, the OSC’s general operating surplus increased by $7.7 million as a result of higher revenue, higher enforcement-related cost recoveries, and cost reductions, the regulator reports. Revenue rose due to increases in participation fee rates that took effect in April 2014. Total revenue came in at $103.9 million in fiscal 2015, up 5.3% from fiscal 2014 (and 2.6% higher than budget). Of the $5.2 million increase in participation fees, approximately half ($2.6 million) came from higher fees on registrants, $1.3 million came from reporting issuers, and the other $1.3 million was from marketplaces and other entities, which the regulator notes was primarily due to the timing of filings.

In fiscal 2016, the OSC expects to collect $97.4 million in participation fees, which represents a $9.0 million (10%) increase from 2015. The commission expects to collect $56.7 million from registrants, $39.1 million from issuers, and $1.6 million from marketplaces, in fiscal 2016.

The anticipated increase is due to the change in its fee model, the OSC states, which “reflects the improved market conditions since 2011/2012.” The fiscal 2016 plan for activity fees totals $14.7 million, up 12% from fiscal 2015, due to higher fee rates for certain filings.

In fiscal 2015, total expenses came in at $98.9 million, up $1.2 million (1%) from fiscal 2014. However, this was under plan by $5.1 million (5%) due to cost cutting efforts during the year. Yet, for fiscal 2016, the OSC forecasts total expenses jumping by $13.3 million to $109.2 million, as it ramps up its investor education work and enhances market oversight.