The Alberta Securities Commission (ASC) announced its new Credit for Exemplary Cooperation in Enforcement Matters Policy (ASC Policy) on October 16, 2017. The ASC Policy sets out the benefits of cooperating with the ASC and the factors the ASC will consider when determining whether that cooperation earns credit in enforcement matters. The ASC Policy is designed to increase cooperation and encourage parties to self-report their securities misconduct.
The ASC Policy is consistent with the trend towards incentivizing cooperation with securities regulators. Along with the ASC’s intention to explore a whistleblower program, it perhaps signals a realization that securities misconduct is hard to detect without cooperation from market participants.
The ASC Policy formalizes the ASC’s ability to reward parties for their exemplary cooperation. It applies to parties with knowledge of securities misconduct, parties under ASC investigation, and parties subject to ASC enforcement actions. The ASC Policy does not apply to the most serious enforcement matters, which are treated by the ASC as criminal or quasi-criminal matters.
The ASC Policy provides basic guidelines on how parties can earn credit for their exemplary cooperation. To earn credit, parties should investigate and self-report misconduct, provide appropriate lawful compensation for their misconduct, and fully cooperate with the ASC by disclosing all available documents and records.
The ASC will not award credit when a party fails to report misconduct, withholds information, knowingly misrepresents information, delays settlement agreements or fails to correct misconduct.
The ASC can grant a range of rewards for exemplary cooperation. These include narrowing the scope of allegations or proceeding with a discounted-recommended sanction. The ASC can also resolve matters through alternative means or, in exceptional cases, take no enforcement action.
Under the ASC Policy, the ASC can publish examples of credit for exemplary cooperation to encourage other market participants to cooperate with the ASC and self-report misconduct.
Comparisons with Other Jurisdictions
The Ontario Securities Commission (OSC) has had a credit for cooperation policy since 2004. The current Revised Credit for Cooperation Program (OSC Policy) was published in 2014.
The OSC Policy operates alongside the OSC’s whistleblower program. This program provides whistleblowers financial awards for information leading to enforcement action. While the OSC has yet to make any whistleblower payments, similar programs in the United States have been successful. To date, the Securities and Exchange Commission has awarded more than $160 million to whistleblowers for information leading to enforcement action.
The ASC does not have a whistleblower program. However, the ASC plans to explore implementing a whistleblower program as part of their three-year Strategic Plan.
The OSC Policy is very similar to the ASC Policy. Both policies were created to increase cooperation and encourage self-reporting. The policies set out the same expectations and restrictions for when security commissions can reward parties for their exemplary cooperation.
The policies have some important differences. The ASC Policy explicitly states that it does not apply to criminal or quasi-criminal proceedings. The OSC Policy does not have a similar caveat. Moreover, the ASC Policy sets out a more in-depth self-reporting and cooperation procedure than the OSC Policy. Finally, the ASC Policy specifically states that parties can communicate with the ASC through their lawyer. The OSC Policy does not.
The British Columbia Securities Commission (BCSC) has had a Credit for Assistance in Investigations policy (BCSC Policy) since 2002. The BCSC Policy establishes the BCSC’s general ability to reward parties for their exemplary cooperation. It lists general circumstances when the BCSC may reward credit for cooperation.
The ASC Policy is more comprehensive than the BCSC Policy. The BCSC Policy does not include: examples of non-exemplary conduct, a self-reporting and cooperation procedure, or the BCSC’s disclosure policies.
The ASC Policy has a different scope than the BCSC Policy. The BCSC Policy only applies to a party’s cooperation before and during a BCSC investigation. By contrast, the ASC Policy applies to parties with knowledge of securities misconduct, parties under ASC investigation, and parties subject to ASC enforcement actions. Moreover, the BCSC Policy does not specify whether it applies to criminal or quasi-criminal proceedings.
Initial Impressions and Analysis
The ASC Policy represents a potentially important development in securities regulation in Alberta. One of the historic issues with securities enforcement has been the lack of a clear understanding on the merits of cooperating with Staff during an investigation. The ASC Policy provides some clarity to this area and will be a welcome addition to the regulatory environment.
The impact of the ASC Policy will depend upon its implementation. The ASC Policy provides significant leeway and discretion to the amount of "credit" a cooperating party might receive. The extent of the cooperation that will occur will likely depend upon the amount of credit that is provided. The more the market sees evidence of real credit given for cooperation, the more likely it is that participants will be advised to cooperate early and often. Conversely, credit that is limited in scope or provides no real benefit to the participant may result in limited cooperation.