The Ontario Securities Commission published the Proposed OSC Policy 15-601 Whistleblower Program for comment on October 28, 2015, containing some noteworthy changes since Staff’s Consultation Paper 15-401 on February 3, 2015 as we summarized here. It is open for comment until January 16, 2016.
The most lively discussion on the Proposed Policy has centred around issues which include (1) who is eligible to receive an award including compliance staff and the culpable; (2) the impact on internal compliance systems; (3) how much money potential whistleblowers should receive in order to sufficiently incentivize reporting.
The summary below addresses these issues and provides other interesting highlights as follows:
WHO IS (IN)ELIGIBLE? THE CULPABLE, OFFICERS, DIRECTORS, COMPLIANCE, AUDITORS, LAWYERS
Those who have been criminally convicted in relation to the information will not be eligible. However, individuals complicit in misconduct may still be eligible for an award, but the amount will likely be decreased, and no immunity will be provided to them.
Internal or external auditors, CCOs or those providing an equivalent function, officers, directors, in house and external lawyers may be eligible for an award in the following circumstances:
- They have a reasonable basis to believe that the disclosure of the information is necessary to prevent the conduct at issue and that the subject is engaging in conduct that will impede an investigation;
- 120 days have elapsed since they provided the information to the entity’s audit committee, chief legal officer, CCO (or equivalent) or supervisor.
IMPACT ON INTERNAL COMPLIANCE SYSTEMS
The policy encourages whistleblowers who are employees to report potential violations through internal compliance but does not require that they do so in ‘extenuating circumstances’ that might otherwise impede that internal reporting.
Whether a whistleblower participated in internal compliance reporting first is a factor that may increase the amount of the award.
A key question for comment is whether the aforementioned sufficiently requires or promotes internal reporting as a first priority.
Employees remain generally protected from retaliatory actions from their employer, except where the employee is complicit in the misconduct.
An “award eligible outcome” is defined as one which results in the imposition of total monetary sanctions or voluntary payments by one or more Respondents in the amount of $1,000,000 or more. The Respondents’ appeal period must have expired or appeal rights exhausted.
The proposed ceiling on whistleblower awards has increased since Staff’s initial Consulting Paper, from $1.5 million to $5 million. The amount of the award will be a percentage between 5 and 15 percent of the total monetary sanctions imposed up to $1.5 million. However, if the OSC collects on these sanctions in an amount equal to or greater than $10 million, the award can be as high as $5 million.
At the conclusion of an administrative proceeding, OSC Staff is to prepare a recommendation including an evaluation of the information provided to bereviewed by a Staff Committee including the Director of Enforcement. A recommendation will then be provided to the Commission who maintains discretion to determine eligibility and amount. The Commission’s decision is not subject to appeal.
QUALITY OF INFORMATION
The information a whistleblower submits must be original, of high quality, contain sufficient timely, specific and credible facts relating to the alleged violation and be of meaningful assistance to Staff of the OSC. It cannot be subject to solicitor-client privilege. The information must relate to a breach of Ontario securities law, but the definition of such a breach has been expanded from its original scope of the definition found only in the Ontario Securities Act, to now include that found in the Commodity Futures Act.
An investor who believes he or she has suffered a loss as a result of an alleged breach of Ontario securities law would not generally be eligible as they would not ordinarily meet all of the required criteria, though there may be circumstances where they do.
PROCEDURE FOR SUBMITTING ORIGINAL INFORMATION: ANONYMITY
A whistleblower may submit information anonymously only if they are represented by counsel and their counsel follows the required procedural steps. Before payment of an award, the Commission would generally require that their identity be revealed.
A full copy of OSC Policy 15-601 may be found here: