Toronto-based clearing firm CDS Clearing and Depository Services Inc. (CDS) is proposing to set tougher standards for the transfer agents it deals with that would expand the regulatory, information provision, operational and capital adequacy requirements imposed on CDS-approved transfer agents.

CDS indicates in a notice setting out the proposals that it has identified “several important operational risks” in its dealings with transfer agents. This includes the fact that CDS is vulnerable to transfer agents’ internal controls in mitigating the possibility of fraudulent or negligent activities; that CDS can’t require independent verification of those internal controls; that there’s currently no capital requirement imposed on transfer agencies; and that CDS doesn’t require proof of insurance coverage.

The proposed standards aim to address these risks to enhance the quality of asset safekeeping, bolster anti-fraud provisions and ensure the existence of business continuity and disaster recovery plans at CDS-approved transfer agents. They also aim to ensure that the Canadian market has similar standards to the U.S., in which the U.S. Securities and Exchange Commission (SEC) regulates transfer agents.

The proposals, which the Ontario Securities Commission (OSC) published on Thursday, are out for comment until Sept. 3.