As discussed previously, the Ontario government recently undertook a review of financial services regulation in the province. On November 4, 2015, an expert Panel (including Osler partner Lawrence Ritchie) released its preliminary position paper setting out its initial conclusions and recommendations regarding its review of Ontario’s financial services regulators: the Financial Services Commission of Ontario (“FSCO”), the Financial Services Tribunal (“FST”) and the Deposit Insurance Corporation of Ontario (“DICO”).

While these recommendations are preliminary, if accepted, Ontario would see FSCO and DICO replaced by a new provincial regulatory authority (the Financial Services Regulatory Agency, or “FRSA”), while enhancing the independence and effectiveness of the FST. The changes could very well lead to more accountable and responsive regulatory system oversight of non-capital market financial services and service providers.


Recently, the financial services sector in Ontario has seen significant changes in the form of new products, services, technology, distribution channels and market participants. These developments have created new consumer protection expectations and a need to ensure that regulation of this industry keeps pace.

As a result of the changing landscape, the Ontario government tasked the expert Panel with a review of the mandates of FSCO, the FST and DICO. The three-member Panel was asked to address four issues:

  1. Whether, and to what extent, each agency’s mandate continues to be relevant to Ontario’s goals and priorities;
  2. Whether the agency is carrying out the activities and operations as required in its mandate;
  3. Whether all or part of the functions of the agency are best performed by the agency, or whether they might be better performed by a ministry, another agency or entity; and
  4. Whether changes to the current governance structure/associated accountability mechanisms are necessary to improve mandate alignment and/or accountability.

Review of regulator mandates

Following extensive consultation with industry, consumer groups and representatives, the Panel determined that the existing regulatory authority’s mandates were still relevant. However, the Panel advocated a fundamental restructuring to create a regime that is adaptable and responsive to the ever-changing financial services landscape, and progressively balances the need for efficient consumer protection and product and service innovation within a truly competitive financial service industry. Specifically, the Panel recommended that many of the roles played by FSCO could be more effectively performed by a restructured FRSA. It was recommended that DICO could continue to administer Ontario’s deposit insurance regime and the Pension Benefits Guarantee Fund, but otherwise its prudential regulatory authority could be exercised by the FRSA. The FST would continue to exist in an adjudicative role, separate and apart from the FRSA, and would have the authority to review appeals of FRSA decisions.

Changing Regulatory Environment – the FRSA

The Panel recommended that the FRSA be a self-funded body corporate outside of the Ontario public service. The preliminary recommendations propose that the FRSA be organized with three separate and distinct divisions: regulation of market conduct; prudential regulation; and regulation of pensions, employing a modified “twin peaks” approach to regulation. These branches would employ a  “coordinated and consistent” outcomes and risk-based approach to regulation, coordinated through oversight by a single CEO, reporting to an expert board of directors, sharing a common corporate infrastructure. Each division would be led by a Superintendent who would report to the FRSA’s CEO. The Board would have rule-making authority and would hold the organization accountable for fulfilling its clarified statutory mandate. The Board itself would report to the Ontario Minister of Finance.

FRSA to Have More Rule-Making Authority and Stronger Enforcement Tools

Feedback from consultation with market participants and sector leaders indicated that FSCO lacks the resources and flexibility to appropriately address consumer protection needs and market competitiveness in the dynamic financial services marketplace.

The Panel recommended that the FRSA have a strong consumer protection focus, founded on theTen Principles of the OECD’s G20 High Level Principles on Financial Consumer Protection. These principles require oversight authorities to be specifically responsible for financial consumer protection and have the requisite authority to fulfill their mandates, coupled with transparent enforcement mechanisms. Further to this consumer protection focus,  the FRSA would have an “Office of the Consumer” whose mandate would include ensuring that consumer interests are adequately Considered  in all regulatory undertakings.

The FRSA would have oversight jurisdiction over any self-regulatory body operating within the non-capital market financial services sector in the province. Moreover, the Panel recommended that the FRSA also have jurisdiction over any relevant participants in the financial sector such as payday lenders, loan brokers, consumer credit reporting agencies, debt and credit counsellors and guarantee and warranty insurers.

The Panel recommended that  the FRSA have rule-making authority and the power to levy monetary penalties in the areas that it regulates. The FRSA should be able to retain funds from these penalties, according to the report, to use them for specified, limited purposes.

Assuming that the Canadian Cooperative Capital Markets Regulatory Authority becomes reality, the FRSA will be important player in Ontario’s financial sector. Comments on the preliminary position paper are sought until December 14, 2015. We will continue to watch and report on developments toward regulatory reform as they continue to unfold.