OSC Whistleblower Program

Are you prepared?

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In June 2015, the Ontario Securities Commission’s (OSC) strategic plan confirmed that it would continue to pursue the establishment of an Office of the Whistleblower. The Whistleblower Program aims to achieve more timely, actionable information to deter misconduct. The program would be the first of its kind for securities regulators in Canada. Under the proposed OSC policy (15‐601), a whistleblower could be awarded up to $5m upon final resolution of an administrative matter.

The OSC is requesting comments on the proposed policy by January 12, 2016 and aims to have the whistleblower program in place in the spring of 2016.

The following are key elements of the proposed Whistleblower Program:

  • Whistleblower eligibility — Established criteria to define whistleblower eligibility requirements and describe the characteristics of information expected to be reported.
  • Financial incentive — A monetary incentive to eligible whistleblowers who provide the OSC with timely, credible and robust information that leads to an enforcement outcome. If there is an award eligible outcome, eligible whistleblowers could receive up to a maximum of $1.5m regardless of whether the OSC recovers sanction monies ordered, and up to a maximum of $5m if the OSC does recover funds.
  • Confidentiality — All reasonable efforts to be used to protect the identity of the whistleblower and the whistleblower would not generally be expected to testify.
  • Whistleblower protection — The OSC staff intends to recommend legislative amendments to the Securities Act (Ontario) which would provide protection to whistleblowers against retaliation by their employer.

On September 28, 2015, EY hosted a Director’s Briefing Breakfast Session which included a panel discussion on the implications of the OSC Whistleblower Program.

Panel Moderator:

Mike Savage
EY Canada Leader of Fraud Investigation and Dispute Services

Panel Members:

Kelly Gorman
Deputy Director of the Ontario Securities Commission

Linda Fuerst
Partner at Norton Rose Fulbright

Brian Loughman
EY Americas Leader of Fraud Investigation & Dispute Services

We have highlighted some of the key themes from the discussion.

The enforcement environment is becoming more aggressive globally and the OSC’s proposed whistleblowing program for detecting wrong doing is aligned with a global trend.

So, how should organizations be responding to the program? First, organizations may need to strengthen their compliance and ethics programs, including a credible alternative to external whistleblowing. Second, organizations need to be prepared for investigations and enforcement actions resulting from reports directly to the OSC.

“This is a game changer for the OSC and our ability to achieve stronger outcomes for investors and the capital markets.” - Howard Wetston, OSC Chair

Board considerations related to whistleblowing

  • Focus on oversight of effectively designed and operating internal control systems as this remains the best defense for organizations and directors against corporate misconduct
  • Empower whistleblowers to keep complaints internal without precluding them from reporting to the regulator. Create a culture encouraging employees to report concerns internally without fear of retaliation.
  • Without an effective means to report issues, whistleblowers will resort to other options, including:
    • Do nothing — leaving the issue to become more serious
    • Contact law enforcement, the media or a regulator — giving control of the situation to a third party
  • Determine the processes appropriate for your organization as there is no “one size fits all” approach with respect to whistleblower hotlines.
  • There are no quick fixes for bribery, corruption and fraud, and compliance programs may require a more global outlook. Leading practices include setting a strong tone at the top, formal procedures, communication, education and training for whistleblowing activity.
  • If the Board doesn’t have procedures to gather sufficient information and act before allegations reach the regulators, both the organization and the Board risk facing adverse consequences, including losing control over the investigation, and dealing with intrusive requests for information and data. The OSC will consider these factors with respect to eligibility for its credit for cooperation policy.
  • Consider what resources the organization would need to deal with issues that might arise from whistleblowing allegations and whether these resources currently exist.

What does a framework look like for Board’s to assess whistle-blower allegations?

  • The Board should have visibility into whistleblower allegations — through the Audit Committee Chair — either through reports from management or more directly from the whistleblower service provider. Some Directors also rely on less formal channels, such as communications with the CFO, general counsel, internal audit and/or the external auditor.
  • The Board should have an understanding of the organization policy and management’s procedures applicable to whistleblowing, including the procedure to assess the allegations, trigger an investigative response as appropriate and act on the investigative findings.
    • The investigative response should preserve evidence and assemble the facts to conclude on whether the grounds for concern are confirmed.
    • The process to act on investigative findings should include appropriate resources to deal with matters such as employment actions, internal control remediation, public relations and regulatory disclosures.
    • Reporting to the Board should be adequate to ensure that allegations are properly resolved in a reasonable time frame.
  • The Board should have a contingency plan in the event that allegations are significant. For example, the allegations could be about senior management (who may be conflicted in investigating their own activities). Or the allegation is provided by a regulator with the risk of significant adverse consequences. In these circumstances, the contingency plan might require a Board Committee to exercise oversight, or even initiate an independent review. As part of their contingency plan, some Boards have designated investigative legal and accounting firms who have agreed to keep themselves independent of management.

Practical considerations related to the OSC Whistleblower Program

  • Organizations will be eligible for credit for cooperation if they self‐report.
  • Be aware of language in employment agreements, compliance affirmations and non‐disclosure/confidentiality agreements that prohibits or discourages individuals from reporting misconduct to regulators. This type of language would not be supported by the OSC.
  • Whistleblower channels are often open to employees, but not to external parties. Consider opening a whistleblower channel for external parties as an alternative to the OSC channel.
  • Confidentiality of the whistleblower cannot be guaranteed under the OSC proposal.

How should an organization and the Board deal with allegations of misconduct in foreign operations?

  • Understand the local legal environment before undertaking an internal investigation, including seeking professional advice from local jurisdictions.
  • Regulator frameworks may vary and the organization’s ability to collect information may be different as there may be varying data security laws.
  • Be sensitive to cultural differences when assessing whistleblower allegations in foreign operations. Sometimes the initial issue being alleged is not the real underlying issue and therefore organizations will need to undertake a thorough investigation before taking any further action.
  • Have programs and systems in place to respond to enforcement action (e.g., US — Foreign Corrupt Practices Act (United States), Canadian — Corruption of Foreign Public Officials Act) which may decrease the risk of securities regulatory enforcement proceedings against the organization or qualify the organization for reduced sanctions or settlement on a no contest basis, which is a significant advantage if civil or class proceedings have been instituted or are a realistic possibility.