The Ontario Securities Commission (the OSC) recently published “OSC Staff Consultation Paper 15-401” which sets out a proposed framework for an incentive-based whistleblower program. This program aims at incentivising whistleblowers to report Securities Act violations by offering a share of any monetary sanction or settlement resulting from the disclosure. With this publication, the OSC has also opened a 90 day comment period which ends on May 4, 2015.
Under the proposed framework, the OSC has discretion to grant eligible whistleblowers a financial award of up to 15% of monetary sanctions or settlements, to a maximum award of $1,500,000.00. Unlike similar regimes in other jurisdictions, the proposed framework grants awards based on the quantum of the final disposition, rather than on monies collected. The OSC hopes to encourage greater reporting by providing whistleblowers greater assurance that they will receive their reward.
In addition to the proposed whistleblower incentive payment, the OSC has also indicated it intends to request the Ontario government amend the Securities Act to provide specific whistleblower protection. This protection would include three new provisions providing:
- that whistleblower retaliation would violate the Securities Act, allowing OSC staff to commence a proceeding under section 127;
- that the whistleblower would have a civil right of action against a retaliatory employer; and,
- that contractual provisions designed to silence whistleblowers are unenforceable.
If enacted, these provisions would grant the OSC broad enforcement powers. On a finding of guilt under a section 127 proceeding, the OSC’s powers would include ordering the offender amend their workplace policies and practices, and pay a penalty up to $1,000,000.00. The civil right to action would allow a whistleblower to bypass the Ontario Labour Relations Board and seek punitive and restorative damages. The third provision could potentially make many confidentiality or non-disparagement clauses in employment contracts unenforceable. The OSC has further indicated a desire to extend these protections to whistleblowers who solely use internal reporting mechanisms.
In its current form, the framework penalizes companies which have ineffective internal whistleblower programs. The consultation paper proposes that a company’s failure to adequately address an internal complaint may eliminate credit they may otherwise get for cooperating with the OSC, and be used as an aggravating factor when recommending sanctions. The OSC is also specifically inviting comments on whether to require that whistleblowers must exhaust internal mechanisms before reporting to the OSC.
Despite no other Canadian securities regulator having published a comparable framework, the size of Ontario’s market means this initiative will have broad-reaching effects. Any company listed on the TSX, or which makes filings to the OSC, may be subject to this initiative when it comes into force. A similar regime by the Securities Exchange Commission in the United States launched in 2011 has already generated over 10,000 tips. If this is any indication, it is likely that once finalized this initiative will generate a significant number of new investigations for the OSC.