Section 4: Environmental Scan and Risks

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Environmental Scan

As a result of the COVID-19 pandemic, the past year has continued to bring unprecedented challenges to the liquor, gaming, horse racing, and retail cannabis sectors in Ontario. These challenges required the AGCO to adapt its regulatory approach to support these sectors, while maintaining a high degree of public confidence in fulfilling its regulatory mandate.

Looking forward to 2022-23 and the following years, the AGCO aims to balance the need for economic sustainability and recovery with continuing its focus on regulating in the public interest. This includes working with stakeholders from across the sectors it regulates, and the government to consider and recommend changes to legislation, regulations, and policies for regulating these sectors.

The AGCO has experienced significant growth in the last few years, having assumed responsibility for the horse racing industry, private cannabis retailers, as well as internet gaming, and ongoing liquor modernization. As a result, in addition to its strategic intent, the AGCO will also be increasing its focus internally on continuous improvement with a digital perspective, business optimization measures, and strengthening its financial framework over the next three years.

Many of the determinants of the AGCO’s operating environment flow from changes to government legislation and regulations. At the same time, public expectations and the AGCO’s visibility continue to rise, making it even more imperative that the AGCO regulate effectively and in the public interest. These new challenges underline the importance of focusing regulatory attention on higher-risk areas so that the AGCO is better equipped to navigate a changing environment.

Assessing and Managing Risk

The AGCO, like all organizations, faces external and internal factors that carry several risks and uncertainties which, if left unaddressed, could adversely affect the achievement of the AGCO’s strategic goals. The AGCO leverages risk management methodologies through the continued use and enhancement of an ERM Framework to monitor and mitigate these environmental risk factors. The ERM Framework assists the organization in identifying areas of risk in a systematic, disciplined, and integrated approach.

Key risks identified under this framework include:

  • New business functions and/or mandate change(s) requiring significant organizational and governance changes, may not be effectively integrated with current AGCO responsibilities

  • COVID-19 pandemic may negatively impact the achievement of corporate and strategic plans

  • Building a strong information security approach in the event that a significant information security incident occurs

  • The achievement of AGCO’s strategic and corporate plans may be negatively affected if the leadership and workforce do not have the appropriate skill sets and expertise

  • Financial resources are insufficient to meet operating and performance expectations

As mentioned above, ERM is a continuous, proactive, and systematic process to understand, manage and communicate risk from an organization-wide perspective and assists management in making strategic decisions that contribute to the achievement of the AGCO’s corporate objectives. An annual risk workshop is held with the senior management team to identify, assess, and decide on prioritization and mitigation activities for the AGCO’s top risks.

The results of the risk assessment activities are a key input in developing the AGCO’s Audit and Evaluation Plan, which prioritizes areas considered high risk and provides coverage of risk management, control, and governance processes. They also play a core role in developing the AGCO’s Corporate Plan.

External Factors

The AGCO has identified enterprise-wide risks that could impact the agency’s ability to deliver on its regulatory responsibilities. The AGCO will continue to monitor risks and implement risk mitigation strategies to ensure the AGCO is able to fulfill its mandate.

Responding to the COVID‑19 pandemic

The COVID-19 pandemic necessitated a major shift in the AGCO’s approach to developing and implementing regulatory activities. The COVID-19 pandemic has required the Ontario Government and the AGCO to react to unforeseen challenges as they arose. The AGCO has responded to demand from the sectors it regulates and requests from the Ontario Government to adapt its regulatory requirements to help protect public health while supporting the continued economic viability of the liquor, gaming, horse racing, and retail cannabis sectors. The AGCO has demonstrated a flexible regulatory approach and the ability to move swiftly to protect regulated sectors. The AGCO has learned from the strategies implemented during the COVID-19 pandemic and will continue to draw on this as Ontario moves forward with recovery from the COVID-19 pandemic. In the coming years, the AGCO will continue to work closely with the government to provide ongoing supports for the sectors we regulate, such as revised alcohol retail store hours and patio extensions. The AGCO has worked with the retail cannabis sector to implement curbside pickup and delivery from cannabis retail stores and will continue to support these retailers.

More than two-thirds of AGCO’s budget comes from recoveries collected from regulated industries.  Due to the COVID-19 pandemic, many of the regulated sectors were closed or greatly reduced in their offerings, making it untenable for the AGCO to recover costs. As a result, the AGCO is facing economic challenges in recovering its costs, resulting in a budget shortfall.   The AGCO and the Ministry of the Attorney General continue to manage its budget in a fiscally responsible manner.

In the coming months and years, the AGCO will continue to assess the impact of the COVID-19 pandemic on the alcohol, gaming, horse racing, and retail cannabis sectors. The AGCO will work closely with the Ontario Government to support economic recovery while fulfilling its regulatory mandate.

Emerging Issues and Industry Trends

The AGCO continues to monitor and address the evolution in public and consumer attitudes towards the sectors we regulate and will continue to stay informed on issues related to unregulated areas. These industry trends include changing consumer choices, increasing customer service expectations, and calls for more stringent protections on information. These trends are linked to global currents of rapidly advancing technological development, fully integrated use of data and analytics, and an increasingly digital first world. As a modern and collaborative agency, the AGCO will work with government partners, municipalities, law enforcement, and its stakeholders to address new challenges that may arise in the future.

Internal Factors

Impact of COVID-19 on the AGCO’s Workforce

A rewarding workplace environment with high performing and empowered staff is essential to implementing a successful transformation of the AGCO’s regulatory approach. Engaging staff is a particular challenge, with the majority of AGCO’s employees working remotely during the COVID-19 pandemic. The AGCO will continue to work on this and has just introduced a number of operational and well-being measures. Examples include:

  • Regulatory activities that are typically conducted away from home (e.g., compliance inspections) have been modified to protect the health and well-being of AGCO employees and the broader public. The AGCO will continue to ensure that the necessary personal protective equipment (PPE) such as masks, gloves, and hand sanitizer are available to field staff.

  • Keeping staff connected, engaged and supported, through monthly “Staying Connected” newsletters and the “Ask Us Anything” video conferences led by the AGCO executive team to provide an opportunity for all AGCO staff to ask questions directly.

  • The AGCO launched the Future of Work initiative. This initiative identifies what the future of work looks like at the AGCO and embraces solutions that advance the Digital and People First mindsets. AGCO’s hybrid work policies will be evaluated in 2022-23 with the goal to continue to evolve AGCO’s workplace as flexible, with the aim of improving employee wellbeing and work-life balance, enhancing the AGCO culture and reducing internal costs where possible.

Expansion of AGCO Regulatory Mandate

Marketplace evolution and initiatives such as the federal legalization of recreational cannabis and provincial proposal to expand and establish a competitive online market for igaming in Ontario and the need to create a regulatory frame for single event sports betting have expanded the AGCO’s regulatory authority. The AGCO receives its annual spending authority from the Ministry’s printed estimates, as approved by the Ontario Legislature. The AGCO is funded from a combination of revenue from the Consolidated Revenue Fund and recoveries. As a result, the AGCO works with government in order to request resources as it faces the challenge of managing an expanding mandate. Public expectations and the AGCO’s visibility continue to rise along with that expanded mandate, particularly during the COVID-19 pandemic. These challenges underline the importance of focusing regulatory attention on higher-risk areas so that the AGCO is better equipped to navigate a changing environment.

To help manage the operational and financial pressures related to this expanded mandate, the AGCO continues to implement its long-term direction through its Strategic Plan.