On October 28, 2015, the Ontario Securities Commission (OSC) published proposed OSC Policy 15-601 – Whistleblower Program (Policy). The proposed Policy provides for the adoption of a whistleblower program by the OSC with the aim to encourage individuals to report information on securities- or derivatives-related misconduct. The whistleblower program is designed to further the OSC’s mandate to protect investors from unfair, improper, or fraudulent practices, and to foster fair and efficient capital markets. If implemented, the whistleblower program would be the first of its kind for securities regulators in Canada.
In developing the proposed Policy, the OSC reviewed written comments received regarding OSC Staff Consultation Paper 15-401: Proposed Framework for an OSC Whistleblower Program, which was released on February 3, 2015 (as discussed in our previous client alert). In addition, the OSC considered the dialogue about the whistleblower program that took place at its June 2015 public roundtable. As a result, the proposed Policy sets out a structured program that includes how information may be submitted to the OSC, whistleblower protections, eligibility and monetary amounts for whistleblower awards.
Who is eligible to be a whistleblower?
Under the proposed Policy, a whistleblower is an individual who voluntarily provides original information relating to a violation of Ontario securities law that has occurred, is ongoing or is about to occur. The proposed Policy expands the list of individuals who are eligible to be whistleblowers. The list of eligible individuals now includes directors and officers, chief compliance officers, in-house legal counsel and culpable whistleblowers provided that there is a reasonable basis to believe that:
a. the subject is engaging in conduct that is likely to cause substantial injury to the financial interest or property of the entity or investors;
b. the subject is engaging in conduct that will impede an investigation of the misconduct; or
c. in circumstances where the whistleblower provided the information to the relevant entity’s audit committee, chief legal officer, chief compliance officer or the individual’s supervisor, at least 120 days have elapsed since the whistleblower provided the information.
What type of information would entitle a whistleblower to be eligible for an award?
To be eligible for a whistleblower award, the OSC expects that information will relate to a serious violation of Ontario securities law and will be:
a. original information;
b. information that has been voluntarily submitted;
c. of high quality and contain sufficient timely, specific and credible facts; and
d. of meaningful assistance in investigating the matter
How will whistleblower awards function?
For a whistleblower to receive a monetary award, the OSC requires an individual to report information and misconduct that results in administrative proceedings or a settlement under section 127 of the Ontario Securities Act or section 60 of the Commodity Futures Act. Upon final resolution of a matter, the OSC would offer an eligible whistleblower a monetary award between 5-15 percent of the total monetary sanctions imposed in a hearing or settlement where total sanctions or voluntary payments exceed CA$1 million. If the total sanctions imposed or voluntary payment is equal to or greater than CA$10 million, the award would be capped at a maximum amount of CA$1.5 million. However, if the monetary sanctions imposed or voluntary payment is equal to or greater than CA$10 million, and the OSC in fact collects an amount equal to or greater than CA$10 million in respect of the proceeding, the whistleblower may be awarded up to a maximum of CA$5 million.
The determination of an award under the proposed whistleblower program is discretionary and requires the OSC to analyze the established criteria provided by the proposed Policy. Some factors that may increase the amount of an award to a whistleblower are:
a. the timeliness of the whistleblower’s initial report;
b. whether the whistleblower’s assistance saved time in the investigation;
c. the whistleblower’s efforts to remedy the harm caused by the violations of Ontario securities law; and
d. any unique hardship the whistleblower experienced as a result of the report.
Other factors that may decrease the amount of a whistleblower award are:
a.the whistleblower refused to provide additional information or assistance to the OSC when requested;
b.whether the whistleblower unreasonably delayed reporting the violations; and
c.the degree to which the whistleblower was culpable or involved in the violations.
The whistleblower program is expected to increase the OSC’s effectiveness in gaining high quality information in enforcing matters such as insider trading, accounting, disclosure violations and registrant misconduct. Further, the whistleblower program is expected to encourage companies to self-report misconduct to the OSC.
To avoid investigations by the OSC and potential monetary sanctions, it is imperative that companies implement appropriate procedures and conduct scrupulous oversight to ensure compliance with Ontario securities legislation.
The OSC is inviting feedback and written comments on the proposed Policy until January 12, 2016.
The OSC’s aim is to have a whistleblower project established in the spring of 2016.
This article was co-authored by Tom Budziakowski an articling student in Dentons’ Toronto office.