The Ontario Securities Commission recently released Staff Notice
15-704 requesting comments on proposed enforcement initiatives.
Such enforcement initiatives are aimed at resolving enforcement
matters more quickly and effectively, and at increasing the amount
of protective orders made in the public interest.
The new measures being proposed by the OSC are as follows:
New Program for Explicit No-Enforcement Action
Agreements – Parties would explicitly not be
subject to enforcement action in exchange for prompt self-reporting
and for cooperating in an investigation. In the past, staff would
simply advise the market participant that no action would be taken.
This measure is intended to provide greater certainty of
New No-Contest Settlement Program –
Settlement agreements could be finalized in the absence of a
specific admission by the respondent of a breach of the
Securities Act or specific conduct contrary to the public
interest. This initiative reflects the fact that respondents may
not be willing to make admissions due to the potential risk of
these admissions being used in other proceedings. The no-contest
settlement option, however, will not be made available to all
respondents as the staff notice specifies certain conditions for
Clarified Process for Self-Reporting under the Credit
for Cooperation Program – This proposal would
ensure that all parties are informed on how best to self-report and
come forward with information. Elements of the process could
include self-reporting through an intermediary (i.e. legal counsel)
which protects the identity of the self-reporter and agreements
that set out the circumstances in which testimony provided by a
person during an investigation may or may not be used against them
in enforcement proceedings.
Enhanced Public Disclosure of Credit Granted for
Cooperation – This initiative would provide
certainty of potential outcomes for all parties that may consider
self-reporting. This may be achieved through public announcements
by the OSC disclosing information about cooperation provided by a
party and through settlement agreements that refer to the credit
that was granted in exchange for cooperation.
Rationale for the New Enforcement Initiatives
These initiatives will expand on the OSC's credit for
cooperation program, which is intended to provide market
participants with incentives to self-police, self-report and
self-correct matters that may involve breaches of Ontario
securities law or activities that would be considered contrary to
the public interest.
The staff notice states that the current credit for cooperation
program has not worked as expected due to its low rate of use. Part
of the reason for this has been a disconnect in expectations
between OSC staff and market participants as to what is meant by
cooperation, a lack of understanding as to what type of credit
would be provided, and misunderstandings as to how a market
participant might approach staff to initiate discussions.
The staff notice recognizes that persons or companies contacted
during investigations are increasingly concerned about concurrent
civil litigation, particularly class action lawsuits, that may
arise against them. This has created hesitation to disclose
documents and provide testimony to the OSC for fear that such
disclosure would result in a waiver of privilege for the purpose of
Such enforcement initiatives are also the result of the
OSC's limited resources being spread across a larger number of
files, which is resulting in fewer enforcement orders and creating
The OSC proposal will bring the OSC's settlement practices
into closer alignment with the general practice of the US
Securities and Exchange Commission. Although not referred to in the
notice, these initiatives may have the additional benefit of
simplifying the resolution of cross-border investigations where
there are civil liability risks in both the United States and
The OSC is seeking public comment on these initiatives until
December 20, 2011.
Further OSC Enforcement Initiatives
In addition to these proposals, the OSC is examining the
prospect of introducing a new whistleblower program to provide
incentives (possibly through financial compensation and/or
protection from retaliation) to persons who provide the OSC with
information about misconduct in the marketplace. An OSC notice
inviting public comment on such initiatives may be published in the
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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