How Would Canadian Organizations Handle the Possible Impact on Their Internal Compliance Programs?
Canada’s largest capital markets regulator, the Ontario Securities Commission, is proposing an incentive-backed whistleblower program that could see whistleblower financial rewards of up to $1.5 million, for financial crimes.
This would be a first for a Canadian securities regulator.
Of course with a program like this, and the SEC whistleblower program, the purpose is to identify securities misconduct that would otherwise not come to the attention of regulators. One reason for this is that employees will have attempted to bring forward instances of wrongdoing within their place of employment, but the employer choses to not take action on that complaint.
And that’s a fair point. How many securities violations are happening right now that are playing out in a case of ‘an employee knowing it’s happening’, but not being able to report it for fear of backlash, retaliation, or because the employer can’t be bothered, or chooses, to ignore it to satisfy their own occupational goal?
If this program does come to fruition, it would see many of the same attributes as the US SEC’s program launched in 2011. And this program has generated thousands and thousands of tips and a small handful have resulted in some pretty hefty payouts to the whistleblower.
The program features would include paying money for “timely, credible and robust” information that leads to a successful enforcement action or settlement, and promising “reasonable efforts” to protect the identity of the whistleblower, who would generally not be expected to testify. In addition, anti-retaliation measures would be implemented “to deter employers from retaliating against employees who provide information internally or to the OSC.” And what’s critical to the success of a program like this? The payment of financial incentives.
In the recent years, Canadian securities regulators have established whistleblower phone lines, but these haven’t exactly been ringing off the hook. Example, the Investment Industry Regulatory Organization of Canada generated just a few dozen calls over more than three years. Securities experts suggest this is because there are no financial incentives and little can be done to protect the identity of the whistleblower.
Well that certainly makes a lot of sense.
But hold tight for a minute, there is a minor difference between the two regulators as far as financial rewards go. Financial rewards from the program proposed by the OSC would be capped at $1.5 million, whereas the SEC paid out a record award of $30-million to a whistleblower last year. An OSC reward of up to 15% of the total monetary sanctions in a case would only be considered in cases where those sanctions exceed $1 million, and would be paid out of penalties, “disgorgement” and settlement amounts collected by the regulator.
The OSC’s proposal is expected to raise concerns from companies, about the impact on their internal ethics and compliance programs. Some organizations say that a program such as this one may “produce undesirable and even perverse consequences, including the proliferation of frivolous claims or the condoning of undesirable conduct by certain employees so that others may blow the whistle.”
However, Tom Atkinson, director of enforcement at the OSC, says the SEC has “demonstrated an incentive-backed whistleblower program can weed out tough-to-detect malfeasance involving insider trading, market manipulation, corporate disclosure and financial statements.”
So that raises an interesting topic of discussion:
If organizations are worried that their employees might use this program as an incentive to commit some form of false crime in order participate in a possible payout by the OSC, then what other types of incentives, not related to the OSC, could also drive these same employees to commit a fraudulent act for self benefit?
If you [organization] have done your due diligence when hiring employees, should you not have the trust to know that any employee who reports on a wrongdoing is actually reporting a true wrongdoing that could actually jeopardize your organization? Don’t you want to know about that?
Well if this program hits the road running, it’s best that Canadian organization take a gander at their existing compliance programs to ensure all their ducks are in a row.