To remain relevant and effective, industry regulators need to stay current. They must be attentive to economic realities, adapt to new technology and evolve with the industries they regulate. Ontario’s pension regulator is overdue for a major overhaul that will bring it into the 21st century.
Ontario’s Fall 2016 Economic Statement announced that government’s intention to introduce a new financial services regulator which will be known by the acronym FSRA (Financial Services Regulatory Authority). The FSRA announcement came shortly after the release of the Final Report, of the Ontario Expert Advisory Panel mandated to examine the Financial Services Commission, Financial Services Tribunal and Deposit Insurance Corporation.
The March 31, 2016, cover letter that accompanied the Panel’s Final Report stated that its recommendations for a ‘world-class regulatory system’ were prepared with “both the present and future in mind, and in light of industry and regulatory trends here and around the world.” It also recognized the rapid pace of change in the financial and pension sectors and concluded that the agencies under review had to be modernized and sufficiently independent, flexible, innovative and expert to facilitate the changes in governance, structure and accountability necessary to achieve the desired result.
Panel recommendations of particular relevance to the pension industry include:
- FSRA should operate as an integrated financial services regulator with responsibility for, among other things, consumer protection (referred to as ‘market conduct’), prudential oversight and pension plans;
- FSRA should be directed to protect beneficiaries while promoting a strong sustainable pension system that would operate in an efficient and fair manner, balancing the interests of all parties;
- FSRA’s mandate should require it to use its authority to adequately, firmly and consistently discourage fraudulent activities or behaviours that mislead or harm consumers and pension plan beneficiaries;
- FSRA’s mandate should require that it undertake its activities in a proactive manner;
- to remain relevant and flexible, FSRA’s mandate should include a commitment to innovation and transparency – to stay abreast of those issues that could compromise its ability to satisfy its mandate;
- the existing Financial Services Tribunal, which is housed within the current Financial Services Commission and, therefore, subject to potential conflicts, should be established as an independent tribunal with its own budget funded by government; and
- the Financial Services Tribunal should have authority to adjudicate matters clearly articulated in its enabling statute, including appeals from certain decisions of FSRA.
Bill 70, Building Ontario Up for Everyone Act (Budget Measures), 2016, was introduced by the Ontario government on November 16, 2016, and passed ‘First Reading’ in the Legislative Assembly. Among other things, this omnibus legislation would:
- enact legislation establishing FSRA, replacing both the Financial Services Commission and Deposit Insurance Corporation; and
- amend the Pension Benefits Act (Ontario) (PBA) to provide the Superintendent of Pensions with authority to impose significant administrative penalties for contravening or failing to comply with the PBA.
It is too soon to tell whether all aspects of the Panel’s recommendations will be implemented by the Ontario government. The proposed legislation is bare bones and creates only the framework for the FSRA. It does not set a clear mandate other than the fact that FSRA will regulate specific financial sectors of the Ontario economy.
On the other hand, proposed changes to the PBA clearly demonstrate a new regime involving administrative penalties – a hallmark of modern regulatory systems, providing the muscle to enforce compliance. If adopted, the amendments will enable the Superintendent to quickly impose meaningful administrative penalties (up to $25K for corporations and $10K for individuals) to ensure compliance with legislative requirements, orders and undertakings. As an added jolt, administrative penalties may not be paid from the pension fund of an offending administrator.
While there is a right to a hearing if an administrative penalty is proposed by the Superintendent, the process is swifter and more appropriate than current regulatory measures that require Crown prosecution under the Provincial Offences Act (Ontario). The difference between an administrative penalty and offences prosecution can be likened to the difference between a speeding ticket and a drunk-driving charge. Both involve motor vehicles, but in the former case you can pay your fine and drive away, while in the latter you’re obliged to spend time in court and will likely want a lawyer.
Bill 70 represents an initial response to the Panel’s numerous recommendations. Nevertheless, with just these preliminary changes, pension administrators and their agents should brace for more fines and greater enforcement in the future. Industry professionals expect the Ontario government to implement more Panel recommendations in 2017 and sense that they are witnessing the creation of a modern, responsive and far more dynamic pension regulatory system for Ontario.