Key Takeaways from the OSC’s 2025 Annual Compliance Report

By: Michael Holder, Kanchan Mehta, Rijja Baig

Registration & Compliance Deficiencies – Key Risk Areas and Best Practices

The OSC’s Registration, Inspections and Examinations (“RIE”) Division’s 2025 annual report outlined the foundational compliance obligations that registrants, of all sizes, have failed to address. The report outlines the most common deficiencies RIE observed this year, including conflicts of interest, poor record keeping, and improper compensation to unregistered parties.

This section is meant to help firms self-assess and strengthen their controls, policies, and day-to-day operations to avoid similar pitfalls. It’s not just about ticking regulatory boxes; it’s about building trust, protecting investors, and maintaining a resilient business.

1.    Conflicts of Interest

The OSC continues to see firms fall short in identifying, managing, and disclosing material conflicts of interest. Firms must prioritise client interests, either by effectively managing conflicts or avoiding them altogether. The OSC strongly encourages maintaining a detailed conflicts inventory that documents each conflict, how it was assessed, addressed, and disclosed. This applies to firms of all sizes.

2.    Misuse of Prospectus Exemptions

 The OSC found that many exempt market dealers (“EMD”) misused or inadequately documented reliance on prospectus exemptions, including the offering memorandum exemption, the family, friends and business associates exemption, and the accredited investor exemption. Common issues included breaching investment limits, misapplying definitions, and failing to collect sufficient know your client (“KYC”) information. Firms are reminded to confirm and document exemption eligibility thoroughly. When relying on exemptions, they must also collect supporting information, monitor investment limits, and maintain clear internal policies and procedures.

3.    Client Cash Handling

Some EMDs holding client cash failed to meet key obligations related to custody, conflicts of interest, and suitability. Issues included inadequate segregation of funds, unclear handling of interest earned, and poor oversight of cash left idle in client accounts. Firms must implement strong controls and processes to ensure client cash is kept in trust by a qualified custodian, separate from firm assets, and transferred to the client’s custodian account promptly after a trade.

4.    Working Capital Calculations

The OSC found that some firms failed to monitor their excess working capital regularly, used incorrect accounting methods, or failed to report changes in subordinated debt properly. These oversights led to inaccurate capital calculations and potential non-compliance with minimum capital requirements. Firms must ensure accurate, timely reporting using proper accounting standards, regularly calculate and monitor excess working capital, maintain clear supporting records, and remain aware of their capital position.

5.    Books & Records Delays

Delays in providing requested books and records during compliance exams continue to raise concerns. Firms are expected to maintain records in an organized, accessible manner and respond promptly to regulatory requests. Failure to do so may be treated as a compliance deficiency.

6.    Legal Action Disclosure

Some firms failed to notify the OSC about ongoing legal actions, as required under NI 33-109. Firms and individuals must promptly update their registration filings when involved in litigation that could impact their business or regulatory status. Missing or misleading disclosures can lead to enforcement action. Accordingly, firms should regularly review and comply with all reporting obligations under Forms 33-109F4, F5, and F6.

7.    Referral Arrangements

Referral arrangements often create material conflicts of interest and must be managed in the client’s best interest. The OSC noted that some firms lacked adequate oversight, especially when referral fees continued after the referrer stopped providing services. Firms should implement clear written agreements that outline roles and responsibilities and required disclosures. They must also establish ongoing oversight and ensure referral agreements remain in the client’s best interest.

8.    Weak Compliance Systems

The OSC found that some firms lacked a basic functioning compliance system, often marked by weak policies, poor oversight by senior officers, and repeat deficiencies. Issues included unsuitable investments, reliance on unregistered individuals, deficiencies in KYC and know your product processes, and inadequate oversight of service providers. Firms must review applicable securities laws and guidance to design a compliance system suited to their business and maintain documentation demonstrating compliance.

9.    Market Value Gaps

Some firms failed to implement effective processes for verifying the accuracy of market values in client accounts, especially for private or hard-to-value securities. Relying on custodian pricing without validation increases the risk of reporting stale or inaccurate values. Firms must establish clear valuation policies for all security types and cross-check prices using secondary sources to ensure fair and reliable reporting.

10.    Client Statements

The OSC found that some firms still fall short in delivering complete and accurate client statements, compensation disclosure, and investment performance reports. Issues include missing or unclear information, inappropriate consolidations, and a lack of proper oversight related to client reporting. Firms must ensure all client reporting obligations are met, clearly communicated, and supported by effective internal controls.

11.    Delegating Advisory Duties

Some portfolio managers improperly allowed unregistered individuals, such as financial planners, to perform advisory duties like collecting KYC information and discussing investment recommendations. These activities require registration and must be carried out by registered advising representatives. Firms must ensure only qualified, registered individuals handle portfolio management functions and maintain direct client communications.

12.    Unregistered Compensation

The OSC found that some firms improperly paid compensation for registerable activities, like advising or trading, to unregistered entities, including personal holding companies of their registered representatives. Such arrangements violate registration rules since only registered firms or individuals may be paid for registerable activities. Firms must ensure compensation is directed to registered individuals and maintain strong controls to prevent unregistered activity.

Areas noted in the OSC’s review represent real deficiencies that demand corrective action. Firms should act now to avoid regulatory, operational, and reputational risk, as remediating these issues takes time. North Star has developed a structured compliance program designed to help firms tackle these deficiencies directly and efficiently.

Contact us at info@northstarcompliance.com to learn how this year's findings may impact your firm and how we can help you get ahead of potential risks.