Ontario may soon become the first Canadian jurisdiction to implement a whistleblower program for suspected securities law violations.
On February 3, 2015, the Ontario Securities Commission (OSC) issued Staff Consultation Paper 15-401 – Proposed Framework for an OSC Whistleblower Program seeking comment on their proposed whistleblower program. The program, which would offer the potential for substantial financial awards to individuals who come forward with possible breaches of Ontario securities law, would be the first of its kind for securities regulators in Canada and has similarities to the widely-publicized whistleblower program adopted by the United States Securities and Exchange Commission (SEC).
The whistleblower proposal follows the recent implementation of several other enforcement-related initiatives by the OSC, including no-contest settlements, a clarified process for self-reporting and enhanced public disclosure of credit granted for cooperation (OSC Adopts New Initiatives to Strengthen Enforcement), which were designed to resolve enforcement matters more quickly and effectively.
The Proposed Whistleblower Program
The stated purpose of the whistleblower program is three-fold: (1) motivate those with inside knowledge or information relating to possible securities law breaches to share that information with the OSC; (2) increase the number of complex securities law cases pursued by the OSC and the efficiency in those cases by obtaining high-quality information; and (3) motivate issuers and registrants to self-report misconduct.
The consultation paper addresses several key elements of the proposed program, including:
- Whistleblower Eligibility – A whistleblower must be an individual and must voluntarily provide high-quality and original information to the OSC that results in an enforcement outcome (including an outcome following a contested hearing or through a settlement).
- Financial Incentive – An eligible whistleblower may receive up to 15 percent of the total monetary sanctions awarded or obtained in a regulatory enforcement case (excluding any costs award), with a maximum limit of $1.5 million on any award. A whistleblower can only recover in cases in which over $1 million in sanctions was awarded or obtained.
- Confidentiality – The OSC would make all reasonable efforts to keep the identity of a whistleblower confidential, with some exceptions (for example, where disclosure is required to enable a respondent to make full answer and defence or where required by court order). The OSC is also considering allowing whistleblowers to make anonymous submissions through legal counsel.
- Whistleblower Protection – The OSC also intends to pursue legislative amendments to offer statutory protection for whistleblowers, including provisions to: prohibit retaliation against a whistleblowing employee by an employer; provide the employee with a civil right of action against any employer who violates the anti-retaliation provision; and render contractual provisions designed to silence a whistleblower from reporting wrongdoing unenforceable.
Notably, unlike the SEC whistleblower program, the recovery of any award by a whistleblower would not be contingent on the successful collection of monetary sanctions by the OSC. The OSC has also proposed to deny eligibility to whistleblowers in several circumstances, including where: the whistleblower was culpable in the misconduct being reported; the information provided was misleading, untrue, had no merit, lacked specificity or was privileged; the information was provided by a director, officer or the Chief Compliance Officer of an issuer who acquired the information as a result of the company's internal compliance program or investigation process; or where information is provided in circumstances that would otherwise "bring the administration of the [program] into disrepute."
Comparisons with SEC Whistleblower Program and Proposed National Regulator Provisions
While the OSC's proposed whistleblower program is similar in many respects to the SEC whistleblower program administered by the SEC Office of the Whistleblower (particularly the provision of a financial award), there are several key differences:
- Size of Monetary Recovery – The SEC program may award whistleblowers between 10 and 30 percent of the monetary sanctions (where sanctions exceed US$1 million) actually collected in any SEC enforcement action, with no maximum recovery cap. The OSC program, however, may make awards up to a maximum of 15 percent of total monetary sanctions (where sanctions exceed $1 million), collected or not, with a maximum award of $1.5 million.
- Culpable Whistleblowers – The SEC program may provide culpable whistleblowers with monetary awards but considers culpability a factor in decreasing the amount of a whistleblower's award, while the OSC program considers culpability as a factor that makes the whistleblower ineligible for any award (the OSC is seeking comment on the appropriateness of this exception).
- Right of Appeal – The SEC program allows a whistleblower to appeal the SEC's decision to deny an award (no appeal is permitted where an amount awarded is between 10 and 30 percent of the monetary sanctions collected), whereas the OSC program as proposed does not provide for any right of appeal.
The proposed OSC whistleblower provisions also share some similarities with the whistleblower provisions contained within the draft uniform provincial securities legislation (the PCMA) published in connection with the proposed Cooperative Capital Markets Regulatory System (National Securities Regulator Moves Forward; Draft Legislation Published). Several differences are noted, including that the PCMA does not statutorily provide for any financial awards or awards program for whistleblowers, nor does it provide a whistleblowing employee with a civil right of action against their employer for violations of the anti-retaliation provisions of the PCMA.
The OSC has requested comments to the proposed whistleblower program by May 4, 2015. The OSC also intends to host a roundtable during the comment period in order to encourage further discussion. Bennett Jones invites clients to contact the firm with any questions or comments and would be pleased to assist clients in preparing and submitting their comments on the proposal.