On October 28, 2015, the Ontario Securities Commission (OSC) published the Proposed OSC Policy 15-601 “ Whistleblower Program for comment. The proposed whistleblower program follows the OSC Staff Consultation Paper 15-401 “ Proposed Framework for an OSC Whistleblower Program, which was published for comment on February 3, 2015. The new proposed program incorporates some of the comments received by the OSC in response to the Staff Consultation Paper. The most noteworthy change is the increase in the maximum potential award from $1.5 million to $5 million.
The proposed whistleblower program is designed to encourage individuals to voluntarily submit information on securities- or derivatives-related misconduct to the OSC. In exchange for providing information that was of meaningful assistance to OSC Staff in obtaining an order that results in total monetary sanctions and/or voluntary payments of $1 million or more, the whistleblower may be entitled to a financial award of up to $5 million.
Through the proposed whistleblower program, the OSC hopes to obtain information regarding misconduct that would otherwise be difficult to detect. As a result, the program is intended to increase the OSC's effectiveness in the enforcement of Ontario securities law and to deter potential wrongdoers from engaging in serious misconduct in the marketplace.
The following are some of the key aspects of the proposed whistleblower program as well as how they differ from the previously released Staff Consultation Paper.
Submitting Information to the OSC
Whistleblowers have the option to submit information anonymously. However, an anonymous whistleblower must be represented by counsel and may be required to disclose his or her identity to receive a financial award. OSC Staff will make all reasonable efforts to keep the whistleblower's identity confidential.
The proposed whistleblower program also includes provisions addressing internal compliance and reporting mechanisms. These provisions reflect concerns received by the OSC in response to the Staff Consultation Paper. In particular, there were concerns that a whistleblower program could undermine internal corporate compliance systems by creating incentives to report misconduct to the OSC, rather than through an internal system. The proposed new program expressly states that, although not required, the OSC encourages whistleblowers to report misconduct through an internal compliance and reporting mechanism. Additionally, reporting through an internal system before or at the same time as providing information to the OSC is a factor that may increase the financial award.
Eligibility for an Award
To be eligible for a financial award, the OSC expects that the whistleblower will provide information related to a serious violation of Ontario securities law and that the information will be:
- voluntarily submitted;
- of high quality and contain sufficient timely, specific, and credible facts relating to the alleged violation of Ontario securities law; and
- of meaningful assistance to OSC Staff in investigating the matter and obtaining an award eligible outcome.
An award eligible outcome means the making of an order under section 127 of Ontario's Securities Act, R.S.O. 1990, c. S.5 or section 60 of Ontario's Commodity Futures Act, R.S.O. 1990, c. C.20, including an order in connection with a settlement, that results in total monetary sanctions or voluntary payments of $1 million or more. References to the Commodity Futures Act were absent from the Staff Consultation Paper and were a new addition to the proposed whistleblower program.
The proposed whistleblower program also provides criteria for determining what sort of whistleblowers are ineligible for an award. Examples of ineligible whistleblowers include individuals who might learn of the misconduct as a result of an entity's internal compliance system, such as in-house or external counsel, auditors, directors or officers, and Chief Compliance Officers. However, in response to comments received in connection with the Staff Consultation Paper, the program now provides exceptions to ineligibility, such as where 120 days have elapsed since the whistleblower provided the information through appropriate internal channels. Despite any exception, the information cannot have been obtained through a communication that was subject to solicitor-client privilege.
Another notable change is the eligibility of whistleblowers who were complicit in the misconduct. Although culpable whistleblowers were excluded from award eligibility in the Staff Consultation Paper, culpable whistleblowers are eligible for an award in the new proposed whistleblower program. However, the degree to which the whistleblower was complicit in the misconduct is a factor that may decrease the amount of the award and the OSC does not grant immunity from prosecution to culpable whistleblowers.
Amount of the Award
Where an award eligible outcome is achieved, the OSC will provide an award of between 5 and 15 percent of the total monetary sanctions or voluntary payments. The amount of the award is also connected to the OSC's success in collection, which, given the OSC's historical collection rates, may prove a realistic challenge to whistleblowers collecting an award.
Where the total monetary sanctions or agreed voluntary payments are equal to or greater than $10 million, the maximum award is $1.5 million. However, if the OSC collects monetary sanctions or voluntary payments equal to or greater than $10 million, the whistleblower may receive between 5 and 15 percent of the collected amount up to a maximum of $5 million. The maximum award of $5 million is perhaps the most noteworthy change from the Staff Consultation Paper, which set out a maximum award of $1.5 million.
The ultimate decision as to the amount the whistleblower will be awarded within the 5 to 15 percent range lies within the discretion of the OSC. The proposed policy sets out factors that might increase or decrease the award.
The proposed whistleblower program is open for comment until January 16, 2016.