Administrative monetary penalties and statements of investment policies and procedures will be key concerns for Ontario pension plan sponsors as the provincial government moves forward on major regulatory changes in 2018.
“Breach of [the investment policy statement] is one of the areas for which the new regulator will be able to impose administrative monetary penalties,” said Anna Zalewski, counsel at Osler Hoskin & Harcourt LLP, during a session on legal issues for pension plan sponsors at Canadian Investment Review‘s Defined Benefit Investment Forum in Toronto on Friday.
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Zalewski was referring to Ontario’s incoming pension regulator, the Financial Services Regulatory Authority, as well as the province’s new administrative monetary penalty regime that comes into effect in January 2018. Caroline Helbronner, a partner at Blake Cassels & Graydon LLP who also spoke during the session, noted that while the government has set out a regime for administrative monetary penalties in a number of areas, she’s still watching to see if the regulator will issue guidance on how it will apply the new rules. In the meantime, she said it’s a good time for plan sponsors to take proactive steps by checking on their governance and compliance processes.
The penalty amounts, Helbronner added, “certainly have teeth,” suggesting the administrators of defined contribution plans will have a particular interest in how the issue plays out given that many of the rules seem to be more in line with the issues facing defined benefit plans. “I think there’s going to be heightening sensitivity” for defined contribution plans, she said.
And when it comes to statements of investment policies and procedures, Zalewski said the changing regulatory environment makes it a good time to take a look at that document as well. With changes to solvency funding rules in the works in Ontario, plans may want to look at changing their asset mix, which is something they’d want to incorporate into the investment document, according to Zalewski. Key considerations, she said, include ensuring the document is accurate and up to date with the changing environment, as well as keeping it flexible enough while avoiding overstating policies in areas such as environmental, social and governance factors.
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“I think you might want to think about how your SIPP works as a member communication document,” said Zalewski, suggesting that while the key purpose of the investment document isn’t to communicate with members, the changing regulatory environment nevertheless makes it more visible. “This is not a legislative requirement,” she said, noting that with member statements making reference to the investment policy document, plan sponsors will want to avoid any issues that could arise from that.
Zalewski added she’d like to see regulators allowing for longer transition periods to new rules, suggesting the challenges can be particularly significant for smaller pension plans. “I think the readiness still varies in that sector but it is much more challenging, for sure,” she said.