OSC Adopts Whistleblower ProgramFriday, August 5, 2016
On July 14, 2016, the Ontario Securities Commission (the “OSC”) adopted OSC Policy 15-601 Whistleblower Program (the “Whistleblower Program”). The adoption of the Whistleblower Program concludes a stakeholder consultation process which included (i) a 90-day comment period following the publication of OSC Staff Consultation Paper 15-401: Proposed Framework for an OSC Whistleblower Program (the “Proposed Framework”) in February 2015, (ii) a “Whistleblower Roundtable” discussion regarding the Consultation Paper hosted by the OSC on June 9, 2015, and (ii) a 60-day comment period following the publication of Proposed OSC Policy 15-601 Whistleblower Program in October 2015.
The Whistleblower Program is the first of its kind in Canada that will introduce monetary awards for “whistleblowers”, being individuals who voluntarily provide original information relating to a violation of Ontario securities law to the OSC. In contrast, the U.S. Securities and Exchange Commission has provided monetary awards for whistleblowers since the inception of its whistleblower program in August 2011 and has paid out more than US$85 million to date.
Purpose of the Whistleblower Program
The Whistleblower Program is designed to encourage individuals to report to the OSC information on serious securities or derivatives-related misconduct. The OSC believes that the Whistleblower Program has the potential to increase the OSC’s effectiveness in enforcing Ontario securities laws, resulting in greater deterrence against serious misconduct in the marketplace and that it may assist in preventing or limiting harm to investors that may result from such misconduct. Furthermore, the OSC believes that whistleblowers could be a valuable source of timely and credible information for enforcement actions concerning a wide variety of market misconduct, particularly in the areas of accounting and financial reporting, insider trading, market manipulation and general misrepresentation in corporate disclosure.
Eligibility and Award
In order to be eligible for a monetary award under the Whistleblower Program, the information submitted to the OSC by the whistleblower must have provided meaningful assistance to OSC Staff in investigating the matter and obtaining an order and/or settlement that results in the imposition of total monetary sanctions against, and/or the making of a voluntary payment by, one or more respondents in an amount of $1,000,000 or more. If eligible, the whistleblower will receive an award of between 5% and 15% of the total monetary sanctions imposed and/or voluntary payments made in the relevant proceeding, up to a maximum of $5,000,000, an increase from the $1,500,000 ceiling initially considered under the Proposed Framework.
While a whistleblower is eligible to receive an award even if the whistleblower is complicit in the violation of Ontario securities laws about which the whistleblower submitted information to the OSC, the amount awarded to a whistleblower who is complicit in the conduct will likely be decreased and more importantly, the complicit whistleblower will not be granted immunity from potential enforcement action taken by the OSC against them for their role in the misconduct.
While the OSC considered excluding whistleblowers in compliance roles (including in-house legal counsel and auditors) from eligibility, these individuals will be eligible to receive awards if certain conditions are met, including possessing a reasonable belief that reporting is necessary to prevent substantial injury to the financial interest or property of the entity or its investors, or at least 120 days have passed since the whistleblower initially reported the incident internally.
Protection of Whistleblowers
In addition to the Whistleblower Program, on April 19, 2016, the Government of Ontario passed certain amendments to the Securities Act (Ontario) (the “Act”). These amendments, which are a fundamental aspect of the Whistleblower Program, consist of anti-reprisal measures designed to protect employee whistleblowers from employer retaliation. The anti-reprisal provisions under section 121.5 of the Act protect whistleblowers from retaliation in the workplace by (i) making it a violation of Ontario securities law to take reprisal against a whistleblower, thereby permitting OSC Staff to take enforcement action against the employer pursuant to sections 122 to 127 of the Act and (ii) rendering unenforceable provisions in agreements between employers and employees that are designed to silence a whistleblower.
A likely concern for many individuals considering reporting securities law violations is repercussions from his/her employer and damage to that individual’s reputation within the industry. To address this concern, the OSC will allow whistleblowers to submit information anonymously as long as they are represented by legal counsel. However, if the whistleblower would like to obtain a monetary award, he/she must disclose their identity and any other information required to determine eligibility.
Internal Compliance Systems
A concern voiced by commentators in respect of the Proposed Framework was that a whistleblower program would undermine internal compliance systems already in place in the workplace. While the OSC continues to encourage individuals to utilize their employer’s internal compliance and reporting processes, the Whistleblower Program recognizes that there may be circumstances that limit or prevent an individual from utilizing this route.
Now that the Whistleblower Program has been adopted, it will be of interest to capital markets participants in Ontario and across Canada to see what role whistleblowers will play in the enforcement of Ontario securities law. The experience of whistleblower programs in the United States has shown that they can be an effective tool in uncovering and prosecuting capital markets misconduct. Time will tell if the same will hold true in Ontario.
This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.
If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.