The Alberta Securities Commission recently announced its three-year Strategic Plan, which is targeted at “reacting to Alberta’s changing economic environment, while upholding a regulatory framework where capital markets can thrive and where there is strong investor protection against market misconduct.” The Strategic Plan centres on three strategic pillars: delivering intelligent and relevant regulation; ensuring proactive and comprehensive compliance, enforcement and education; and fostering a culture of engagement.
As part of the second pillar, the ASC is exploring the creation and implementation of a whistleblower program that is designed to motivate individuals within organizations to provide tips regarding serious violations of Alberta securities law. If implemented, the ASC’s whistleblower program would be the latest of its kind in Canada, following the whistleblower initiatives in Ontario and Quebec.
The details of the ASC’s potential whistleblower program have yet to be unveiled. However, according to the Financial Post, at present, the ASC is not considering costly financial rewards as part of their whistleblower initiative. Instead, the ASC intends to focus on ways to ensure the confidentiality of whistleblowers and their protection from reprisal from the organizations on which they report.
Similarly in Quebec, the Autorité des marchés financiers does not offer financial payments to whistleblowers. Tara Meinhardt, senior communications advisor at the ASC, stated that in Quebec’s experience “confidentiality and protection against reprisals (retaliation) are key to encouraging people to report wrongdoing within their organizations.” However, as we discussed in an earlier blog post, the U.S Securities and Exchange Commission has paid large awards to whistleblowers in recent years. The 2016 Annual Report to Congress on the Dodd-Frank Whistleblower Program provides that in 2016 the SEC awarded more than $57 million to 13 whistleblowers. In total, the SEC has issued more than $111 million in awards to 34 whistleblowers since the program’s inception in August 2011. The SEC maintains that these large bounties encourage whistleblowers to come forward and helps the commission to prosecute serious securities law violations within organizations that would otherwise go undetected. Ontario’s program pays up to $5 million to individuals who come forward with tips that lead to enforcement of securities law violations. Ontario similarly determined that monetary awards were critical to providing incentives for individuals to expose wrongdoings within their organizations.
As we previously observed, a concern with financial incentives for whistleblowers is these bounties may undermine or circumvent an issuer’s internal procedures and controls by encouraging employees to bypass established internal reporting processes by going directly to the regulator. Moreover, there are concerns that incentivized whistleblower programs can also lead to frivolous complaints by employees seeking a financial reward.
We will monitor and report on developments in the evolution of whistleblower programmes as a securities regulatory tool in Canada.