Section 4: Environmental Scan and Risks

Environmental Scan

The industries regulated by the AGCO are dynamic, in that they are responding to changing consumer preferences, but also impacted by the COVID-19 pandemic.  This is particularly true for Ontario’s hospitality sectors.  The AGCO has and will continue to support businesses across each regulated sector, including ongoing modernization initiatives and the reduction of unnecessary regulatory burden – while continuing to regulate in the public interest.

Since the launch of Ontario’s private recreational cannabis retail model in 2019, the AGCO has seen the growth of a robust open market for retail sales and understands the competitive pressures that operators and prospective operators are under.  We will continue to work with partners to explore opportunities to support cannabis retailers – while continuing to regulate in the public interest.

The AGCO and its subsidiary, iGaming Ontario, launched Ontario’s newly competitive igaming market in 2022-23.  We will continue to monitor and address considerations from public, consumers and operators in this sector as it continues to mature in 2023-24, including size of the market, advertising and promotions including promotional partnerships and other matters.

As part of its commitment to modernize the rules for the retail sale and consumption of liquor in Ontario, the provincial government introduced the new regulatory framework for liquor in November 2021. In addition, the government remains committed to its plan to continue expanding liquor sales to more retail locations. The AGCO will continue to work with government as more details become available.

The AGCO has experienced significant growth in scope since 2017, having assumed responsibility for a new competitive igaming market, recreational cannabis retail, and the horse racing industry, in addition to ongoing alcohol modernization.  As a result, and based on recommendations from the Office of the Auditor General, the AGCO will increase its focus on strengthening its financial framework over the next three years as well as finding opportunities for continuous improvement business optimization measures and digital tools.

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 opportunities addressing key risks identified under this framework include:  

• Building a strong information security approach including expeditious recovery in the event that a significant information security incident occurs.
• Ensuring the People First strategy addresses current workforce trends and best practices to enhance talent attraction and retention. 
• Developing the financial framework / dependence in order to meet operating and performance expectations.
• Strengthen our effectiveness as a regulator by addressing concerns and/or changes in the regulated sectors or service expectations in a timely manner.

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 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.

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.

Economic Impact of the Pandemic

Over the past three years, the AGCO 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 demonstrated a flexible regulatory approach and the ability to move swiftly to protect regulated sectors. The AGCO has learned from these strategies and will continue to draw on this learning as Ontario moves forward economic recovery. In the coming years, the AGCO will continue to work closely with the government to provide ongoing supports for the sectors we regulate.

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 cost-recovery and will work closely with the Ontario Government to support economic recovery while fulfilling its regulatory mandate.

Internal Factors

Expansion of AGCO Regulatory Mandate

Marketplace evolution and initiatives such as the provincial establishment of 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. 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.