Key Compliance Takeaways From the OSC’s 2025 RIE Annual Report

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The Registration, Inspections and Examinations Division (“RIE”) of the Ontario Securities Commission (“OSC”) published its 2025 Annual Report (“Report”) earlier this year, outlining key regulatory oversight activities conducted during the 2024-2025 fiscal year and highlighting compliance obligations.

The RIE is responsible for registering and supervising firms and individuals engaged in trading or advising on securities or commodity futures, as well as firms that manage investment funds in Ontario. The RIE also conducts compliance examinations of certain regulated market participants in Ontario, including oversight of the Canadian Investment Regulatory Organization (“CIRO”).

This article highlights some of the more salient deficiencies identified in the Report and provides an overview of ongoing initiatives of the RIE. Registrants are encouraged to review the Report in its entirety to ensure that their firms are compliant.

Priority Compliance Areas for Registrants

The Report is a valuable resource for those managing and overseeing compliance programs at Canadian registered and exempt firms, providing insights into common deficiencies and regulatory priorities.

Priority compliance areas for registrants are as follows:

• Conflicts of Interest: Despite the publication of additional guidance in 2023 (Staff Notice 31-363), registrants continued to inadequately identify, disclose and address material conflicts in their clients’ best interests. RIE’s examinations flagged certain practices, including Exempt Market Dealers (“EMDs”) distributing multiple series/classes of the same issuer to clients, and registrants using the issuer-sponsored dealing representative model.
  
• Prospectus Exemptions: The Report details instances where EMDs distributed securities in reliance on prospectus exemptions when they were unavailable or lacked sufficient evidence to support their use. Specific cases involved failing to consider eligible investors’ investment limits in reliance on the offering memorandum exemption, inadequately documenting the relationship between investors and issuers in reliance on the family, friends and business associates exemption, and using an incorrect definition of “accredited investor” in reliance on the accredited investor exemption. Generally, EMDs should be documenting Know Your Client (“KYC”) information that supports their firms’ reliance on the relevant exemptions and taking steps to confirm that the exemption conditions are met.
  
• EMDs Holding Client Cash: Deficiencies were noted with EMDs failing to meet regulatory obligations regarding custody, conflicts of interest and suitability determinations when holding client assets. EMDs should ensure that they have appropriate policies and controls in place to address these issues if they hold or have access to client assets. These deficiencies can be addressed through measures such as holding the assets in a separate designated trust account, minimizing the amounts of cash balances in trust and assessing the continuing suitability of client accounts.
  
• Excess Working Capital and Subordinated Loans: The Report identified deficiencies related to excess working capital and subordinated loans, including registrants not being aware of their working capital positions at all times, lacking documentation to support capital calculations, making inaccurate calculations due to changes in subordinated debt and making calculations using incorrect financial information.
  
• Delays in Responses to Books and Records Requests: Over the past year, the RIE experienced delayed responses to its books and records requests for compliance examinations. The RIE may consider a significant delayed response as a compliance deficiency in itself.
  
• Required OSC Filings Arising From Legal Actions: Another deficiency occurred with registered firms improperly filing or failing to file Form 33-109F5, which notifies and updates the OSC of any developments in a registrant’s ongoing or novel legal actions.
  
• Referral Arrangements: Paid referral arrangements are inherent conflicts of interest and are most commonly material conflicts. EMDs and Portfolio Managers (“PMs”) engaging in these activities did not demonstrate that they addressed these conflicts in their clients’ best interests.
  
• Inadequate Compliance System: The Report found that some registrants did not have appropriate policies and procedures for monitoring compliance, as well as sufficient documentation and understanding of the securities laws relevant to their operations. Inadequate procedural controls, combined with Ultimate Designated Persons and Chief Compliance Officers not fully carrying out their responsibilities, resulted in many other operational deficiencies.
  
• Market Value Determination: Some deficient registrants were found to lack a formal process for determining accurate market values of securities held in their clients’ accounts. To address this, registrants should have a robust valuation policy to validate the accuracy of prices and have procedures to review market values where there is an indication that they might not reflect current values. Registrants must monitor client securities for significant changes and assess the impact of those changes on the valuation.
  
• Inadequate Client Statements and Reports: The Report identified that some registrants, particularly EMDs and PMs, were not fully compliant with delivering client statements and reports. Common issues included client statements with language inappropriately limiting firms’ liability, missing key information, such as the name of the entity holding each security, and the use of abbreviated security names. Additionally, reports on charges, compensation and investment performance were sometimes delivered late, consolidated incorrectly or were missing required details. In some cases, required statements and reports were not provided at all. To ensure compliance, registrants should implement controls on client reporting to verify that the information presented is consistent across the various documents provided and to ensure that any outsourced processes are compliant with the delivery requirements.
  
• Delegation of Advisory Functions to Non-Registered Individuals: The Report highlighted that some PMs delegated activities requiring registration – such as collecting initial KYC information, making suitability determinations and maintaining direct client communication – to individuals who were not registered. To remain compliant, PMs should ensure that only registered individuals perform these functions and maintain oversight of all activities that require registration.
• Compensation Paid to Unregistered Entities for Registrable Activities: The Report noted that some registered firms compensated unregistered entities (such as a personal holding company of an individual registrant) for registrable trading or advising activities. Some registered firms also compensated non-registered individuals for registrable activities. Registered firms must directly compensate registered individuals that they sponsor for their registerable activities on behalf of the firm and should maintain related compensation records.
  

Ongoing RIE Initiatives

The Report highlights that the RIE continues to advance several initiatives, including:

1. continued efforts to streamline and transition the delegation of certain registration functions from the OSC to CIRO;
2. working with CIRO and other Canadian Securities Administrators (“CSA”) jurisdictions to process changes in the registration category of crypto asset trading platforms (“CTPs”) from Restricted Dealers (which was a temporary interim measure) to Investment Dealers;
3. applying Ontario securities law to certain CTPs that claim to offer immediate delivery of crypto assets;
4. considering industry feedback and working to harmonize the approach to assessing the “relevant investment management experience” requirement for certain registrants with CSA colleagues; and
5. implementing amendments to the Canadian over-the-counter derivatives business conduct and trade reporting rules.

The Capital Markets Group at Aird & Berlis LLP advises registrants and firms considering registration on securities law compliance, regulatory developments and related matters. Please contact the authors or any member of the group if you have questions or require assistance.