The Ontario Securities Commission (OSC) has released its proposed whistleblower policy, OSC Policy 15-601Whistleblower Program (Policy), following up on the consultation paper released in February 2015 (Consultation Paper) and subsequent stakeholder consultation. The proposed Policy is open for comment until January 12, 2016, and the OSC aims to have a final Policy in place by spring 2016.
The Policy seeks to encourage individuals to report serious securities-related misconduct in Ontario to the OSC. As in the Consultation Paper, the whistleblower program (Program) continues to have five major components: a financial incentive, eligibility criteria for whistleblowers, confidentiality for whistleblowers, protection of whistleblowers and program administration.
A detailed summary of the Program, which would be the first of its kind for securities regulators in Canada, can be found in our April 2015 Blakes Bulletin: Whistleblowers to be Rewarded, Protected Under OSC Proposal. A summary of stakeholder comments on the Program can be found in our July 2015 Blakes Bulletin: Issuers Apprehensive of OSC’s Proposed Whistleblower Program. The Policy implements a number of changes to the Program following receipt of stakeholder comments.
Maximum Financial Reward Increased to C$5-Million
The maximum financial reward has been increased from C$1.5-million to C$5-million.
The C$1.5-million cap on financial reward now applies only if the total monetary sanction imposed and/or voluntary payment made in a proceeding or multiple proceedings is equal to or greater than C$10-million.
To be eligible for a C$5-million financial reward, the OSC must actually collect the money from a proceeding or multiple proceedings where the monetary sanction and/or voluntary payments is equal to or greater than C$10-million (Collection Requirement). The Collection Requirement is similar to the policy of the U.S. Securities and Exchange Commission (SEC), where all financial rewards are contingent on collection. This change was prompted by the concern raised in stakeholder comments that compliant registrants and issuers would, through the OSC’s self-financing model, be paying rewards in respect of non-compliant registrants and issuers. However, to the extent a monetary sanction is imposed, compliant issuers and registrants will ultimately be responsible under the Program, through the self-financing model, to fund rewards of up to the C$1.5-million amount irrespective of whether amounts are recovered from the non-compliant registrants and issuers.
A whistleblower is not eligible for financial reward unless his or her information leads to the OSC imposing monetary sanctions and/or receiving a voluntary payment of C$1-million. The Commission must also deem information to be “original information” that is “of high quality” and provides “meaningful assistance” to OSC staff.
All awards are decided upon by a committee of OSC staff, including the director of enforcement (Staff Committee).
Whistleblower Eligibility List Expanded
Under the Policy, the list of persons eligible to be whistleblowers has been expanded to include directors and officers, chief compliance officers, and in-house legal counsel, provided certain conditions are met.
Whistleblowers who are complicit in the violation of Ontario securities law remain eligible for financial reward, though their culpability remains a factor for the Staff Committee to decrease the amount of an award.
STILL NO REQUIRMENT FOR WHISTLEBLOWERS TO REPORT INTERNALLY
Despite significant stakeholder commentary that the Program will undermine internal reporting and compliance programs and will create conflicting duties and incentives for employees, the Policy does not require whistleblowers to utilize internal compliance mechanisms prior to being eligible for a financial reward. In particular, the OSC did not adopt the recommendation of some commentators that potential whistleblowers be required to have reported through internal compliance programs before providing information to the OSC under the Program.
The OSC indicates in its Notice and Request for Comment (Notice) that it did not impose a requirement for mandatory reporting through internal mechanisms as a pre-condition for obtaining the incentive payment, saying there might be “extenuating circumstances” that might impede such reporting.
The OSC notes that the Program aims to incentivize internal reporting by considering it as a factor in increasing a potential whistleblower award, and by recommending that proposed legislative changes aimed at protecting whistleblowers from employer retaliation apply whether a whistleblower reports internally or to the OSC.
Reporting issuers are required under National Instrument 52-110, to establish procedures for the receipt, retention, and treatment of complaints received by the issuer regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by employees of concerns regarding questioning accounting or auditing matters. The Notice does not specifically refer to this requirement in the Program or the rationale for not requiring reporting under these specific procedures, which issuers are required to adopt, as a pre-condition for obtaining financial rewards.
Moreover, the Program also requires continued non-reporting by employees through internal mechanisms to their employer in relation to concerns about noncompliance after a whistleblower report is made to the OSC, as both the information that is the subject of the report to the OSC, and the fact of the report itself, must be maintained in confidence by the whistleblower and not shared with anyone other than their own lawyer. No exception is made for sharing the information with their employer. Thus, not only is internal reporting not required as a condition of obtaining an incentive, but there is positive obligation on the whistleblower not to report noncompliance to their employer after a whistleblower report is made by them to the OSC.
It remains to be seen whether the Policy will be implemented in its current form or further changed in response to stakeholder comments. If the Policy is implemented in its current form, the increased potential financial awards may provide greater incentive for a whistleblower to bypass internal compliance mechanisms and report violations directly to the OSC. Stakeholders wishing to comment on the Policy may do so until January 12, 2016. In the interim, issuers should continue to implement and enforce robust compliance and internal reporting systems, and to strongly encourage employees to report internally as part of their employment duties.