Canada: Issuers Apprehensive Of OSC's Proposed Whistleblower Program

The public comments on the Ontario Securities Commission (OSC)'s proposed whistleblower program (Program) evidence considerable concern that the Program could undermine issuers' internal reporting and compliance programs, create conflicting duties and incentives for employees, and prevent issuers from disciplining employees for wrongdoing.

While the comment letters from issuers, law firms, industry associations, academics and investor advocates were in large part supportive of the goals of the Program, many identified causes for concern as to specific aspects of the Program as outlined in OSC Staff Consultation Paper 15-401 – Proposed Framework for an OSC Whistleblower Program (Consultation Paper). In addition to the items noted above, commenters also flagged the size and structure of the proposed financial incentive, the Program's proposed funding structure, the perceived lack of clarity of the types of behaviour to be targeted by the Program and the eligibility for rewards of an organization's chief compliance officer (CCO), directors and officers as potentially troubling.

The proposal has five major components: a financial incentive, eligibility criteria for whistleblowers, confidentiality for whistleblowers, protection of whistleblowers and program administration. For a more detailed summary of the proposal, please see our April 2015 Blakes Bulletin: Whistleblowers to Be Rewarded, Protected Under OSC Proposal.

UNDERMINING INTERNAL COMPLIANCE PROGRAMS

Many commenters, including issuers, industry associations and law firms, expressed concern that because the Program would not require whistleblowers to report wrongdoing through internal compliance processes before providing information to the OSC, it would undermine internal reporting and compliance procedures.

In particular, commenters worried that the financial incentive could tempt employees to bypass a company's internal compliance mechanisms and instead report violations directly to the OSC. Many commenters expressed concern that this could prevent issuers' internal compliance systems from functioning properly.

Although commenters acknowledged that the OSC's proposal included provisions intended to encourage use of internal compliance processes (for example, by considering the date of internal reporting as the report date for the purposes of eligibility for the Program), many commenters indicated that they considered it appropriate for the OSC to require potential whistleblowers to have reported through internal compliance programs before providing information to the OSC under the Program. Some pointed to the U.S. Securities and Exchange Commission (SEC)'s whistleblower program, which requires that a period of time pass following internal reporting before a whistleblower can provide information to the SEC, as an appropriate model.

Some investor-advocacy groups, however, expressed the view that internal reporting should not be required for eligibility under the Program.

CREATION OF CONFLICTING DUTIES AND INCENTIVES

Commenters warned that the financial incentive under the Program might lead employees to take actions that were in conflict with their duties to their employers — for example, by breaching obligations of confidentiality or their duties to use internal reporting mechanisms.

Issuers and other commenters also cautioned that the possibility that a financial award under the Program might incentivize potential whistleblowers to engage in further misconduct or to delay reporting misconduct to ensure that, once reported, the misconduct would be sufficiently serious to meet the Program's criteria. The financial incentive might in this way exacerbate rather than deter the type of misconduct targeted by the Program.

Issuers generally called for greater exclusions relating to culpable conduct and expressed opposition to permitting those who engaged in the misconduct to profit from it as a result of the Program. Some law firms suggested that providing immunity or leniency to culpable whistleblowers would be more appropriate than making a financial award.

Supporters of this aspect of the OSC proposal contended those engaged in misconduct should not be excluded from eligibility because such participants would often be best placed to provide reliable information about the misconduct and therefore would be some of the most valuable whistleblowers.

PROTECTING WRONGDOERS THROUGH ANTI-RETALIATION PROVISIONS

Issuers and industry groups also generally warned that the Program's anti-retaliation provisions might prevent issuers from appropriately disciplining employees who engaged in misconduct or did not comply with internal policies. Commenters worried that, faced with the knowledge that an employee had engaged in misconduct, issuers would be hamstrung in dealing with such an employee by the anti-retaliation provisions.

A further concern raised about the proposed anti-retaliation provisions focused on the OSC's lack of expertise in enforcing such provisions. The enforcement of any anti-retaliation provisions, it was suggested, should be left to a court or specialized tribunal rather than the OSC.

Certain investor groups, on the other hand, advocated strengthening the anti-retaliation provisions by, for example, specifying that whistleblowers who chose to use internal reporting mechanisms would also benefit from the Program's anti-retaliation provisions.

INAPPROPRIATE STRUCTURE AND SIZE OF FINANCIAL INCENTIVE

The Prospectors and Developers Association of Canada (PDAC)'s comment letter was notable for its outright opposition to the provision of a financial incentive. PDAC argued that the financial incentive model was inappropriate in the Canadian context given the relatively small size and fragmented regulatory framework of the country's capital markets. As discussed above, many commenters also raised concerns about the potential negative effects that providing a financial incentive could have on companies' internal compliance systems.

On the other hand, a number of commenters, including investor advocacy groups, academics and investors' law firms, submitted that, given the reputational and economic risk involved in whistleblowing, the C$1.5 million cap on awards was too low to provide a sufficient incentive for whistleblowers to share information with the OSC.

To address this perceived deficiency, some commenters suggested that an eligible whistleblower should be able to receive a percentage of any amount collected by the OSC in addition to a capped award to be paid regardless of the amount recovered.

FUNDING THE PROGRAM

Certain industry groups expressed concern about the OSC's proposed method of funding the Program. These groups commented that, if the financial incentives were not dependent on the recovery of monetary sanctions, the cost of the Program might be borne by all market participants — through, for example, higher participation fees — rather than by wrongdoers.

DESCRIBING BEHAVIOUR TARGETED BY PROGRAM

A number of commenters indicated that, in their view, the OSC's proposal did not sufficiently identify the types of behaviour that the Program was intended to target and encouraged the OSC to more specifically define the types of serious misconduct the Program aims to uncover and prevent.

ALLOWING ELIGIBILITY OF CCOS, DIRECTORS AND OFFICERS

The OSC's proposal contemplated excluding an organization's CCO and any director or officer who learned of misconduct as a result of the organization's internal reporting or investigation process from eligibility for a financial award under the Program, and the OSC specifically asked for comments on whether an organization's CCO should be excluded from eligibility.

Commentary on this question generally acknowledged that a CCO should, in practice, nearly never be eligible, but was divided on whether the Program should allow a CCO to be eligible in certain exceptional circumstances.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
16 Oct 2018, Seminar, Toronto, Canada

Join Blakes lawyers for our 10th annual overview of recent legal and regulatory developments and practical strategies to navigate the changing regulation of Canada’s payments industry.

26 Oct 2018, Other, Vancouver, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

30 Oct 2018, Other, Toronto, Canada

Please join us for discussions on recent updates and legal developments in pension and employee benefits as well as employment law issues.

Similar Articles
Relevancy Powered by MondaqAI
Osler, Hoskin & Harcourt LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Osler, Hoskin & Harcourt LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions