On July 29, 2016, the Ontario Securities Commission approved a
no-contest settlement agreement with three
Bank of Nova Scotia dealers in connection with fee overcharges that
had gone undetected by the dealers' internal control systems,
and that had affected thousands of clients dating back to 2009. As
a part of the settlement, the Scotia dealers agreed to implement a
compensation plan to pay back the impacted clients in the amount of
nearly $20-million. Also included as a part of the settlement was a
"voluntary payment" by the dealers in the amount of
$800,000 for use by the OSC for the purpose of educating investors,
and a further payment of $50,000 for Staff's costs of the
investigation. This settlement is the fifth of its kind under the
OSC's no-contest regime, and demonstrates the importance of
identifying problems internally and cooperating with the regulator
to the extent possible in the circumstances.
The settlement resulted from the self-reporting by three Scotia
dealers, namely Scotia Capital Inc., Scotia Securities Inc. and
HollisWealth Advisory Services Inc., following their discovery of
the overcharges. In particular, the Scotia dealers identified that
they had overcharged clients who held certain mutual funds, ETFs
and structured products over a period of six years from 2009-2015.
The overcharges apparently occurred as a result of what OSC Staff
characterized as "inadequacies in the Scotia Dealers'
systems of controls and supervision which formed part of their
The Settlement Agreement noted a number of mitigating factors
that were present in this case. Among these mitigating factors was
the fact that there was no evidence of dishonest conduct by the
Scotia dealers (and no such conduct was alleged by Staff). In other
words, the overcharges were entirely inadvertent. In addition, the
Settlement Agreement noted that the Scotia dealers discovered and
reported the problems to the Commission, and that the dealers
"provided prompt, detailed and candid cooperation to
Commission Staff". Moreover, as a part of the settlement, the
Scotia dealers complied with Staff's request that the dealers
conduct an extensive review of their other businesses operating in
Canada to identify whether there were any other instances of
inadequacies in their systems of controls and supervision leading
to clients directly paying excess fees. The Scotia dealers advised
that there were no other instances of overpayments. In addition,
the Settlement Agreement noted that the Scotia dealers are taking
corrective action, including implementing internal controls to
address the inadequacies that gave rise to the overcharges, and to
prevent the re-occurrence of these inadequacies going forward.
Self-Reporting in the Whistleblowing Era
The OSC implemented a no-contest settlement regime in 2014 as
part of its Credit for Cooperation Program, which seeks to enhance
self-policing, self-reporting, and self-correcting of conduct that
runs afoul of securities legislation and the public interest in
general. No-contest settlements allow OSC Staff, in limited
circumstances, to reach a settlement without the respondent having
to admit to any wrongdoing or liability. When determining whether
no-contest settlements are appropriate, OSC Staff may consider
several factors, including the degree of investor harm, the
deterrent effect of the settlement, and the respondent's
The OSC's Credit for Cooperation Program now exists in the
same world as its recently adopted Whistleblower Program, which has
been in force for just three weeks.
As we have discussed in detail, the Whistleblower Program
encourages employees with information about breaches of securities
laws to report those breaches directly to the OSC's Office of
the Whistleblower, and carries with it the potential for
significant awards to be paid out to whistleblowers.
The outcome in this case may well have been different had a
whistleblower – and not the Scotia dealers themselves –
reported the overcharges to the OSC. This case underscores the
importance of robust internal controls and reporting mechanisms
that allow companies to detect and self-report problems to the
Commission. While it took some time for the Scotia dealers to
identify the overcharges in this case, the consequences for the
dealers would likely have been more severe if the issue had been
brought to the regulator's attention through different
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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