2.6 Modernizing enforcement and enhancing investor protection

Recommendation:

To improve collections, the Taskforce recommends the following which is based on recent amendments to the British Columbia Securities Act:

1. Enhanced OSC Freeze Powers

Currently, when applying to the Superior Court to continue the application of a freeze direction issued by the OSC, the OSC must establish some evidence that frozen funds or property were obtained through a breach of Ontario securities law by the target of an investigation.

The Taskforce recommends that the OSC also be permitted, subject to the same authorization and oversight by the Superior Court as exists currently for freeze directions, to freeze any assets, starting at the investigation stage, by establishing that the assets are being preserved in order to possibly return money to investors who may have been harmed and/or to deprive a respondent of ill-gotten gains through a disgorgement order. This expanded freeze order power would apply in cases where there is any misconduct that is intentional, dishonest or involves investor harm, including breaches of s. 25 (trading without registration), s. 53 (distribution of securities without a receipted prospectus), s. 76 (insider trading and tipping) and s. 126.1(1) (fraud and market manipulation).

2. Power to Seize Assets Transferred Below Market Value

The Taskforce also recommends giving the OSC the clear power to freeze and seize assets that were transferred below fair market value to family or third parties using the tests for continuing a freeze direction that currently exist, as well as the alternative conditions outlined above; and providing the OSC with expanded powers to investigate transfers of property to, or receipt of property from, family or third parties. This power would cover transfers to family that could have occurred before the misconduct at issue in the investigation had begun, and transfers to third parties that may have occurred on or after the misconduct at issue had begun. Certain transfers to third parties or family members below fair market value may be excluded, such as transfers made for legitimate tax or estate planning purposes.

3. Power to Dispose of Frozen Assets to Retain Value

In addition, the OSC would, subject to obtaining a Court order, have the power to dispose of frozen assets to retain value where there is a risk of the asset or property losing value. This could happen prior to a hearing and any potential monetary sanctions being ordered. The Court’s role would be essential to ensure that this extraordinary remedy would be used in a way that achieves fairness.

4. Joint and Several Liability

The Taskforce also recommends that the OSC be permitted to seek an order from the Court that the third parties or family members who received a below market value benefit as a result of the transfer, be made jointly and severally liable with the respondent to pay the lesser of: (a) disgorgement amounts ordered by the Commission or by the Court or (b) the below market value benefit received. Third parties could have a potential defence if, at the time of transfer, they could prove they were dealing at arm’s length with the respondent.

5. Role of Tribunal Under the New Governance Structure

Under the new OSC governance structure, the original ex parte freeze direction and hearings of any requests for clarification, variation or revocation in respect of the direction would be heard in front of the OSC tribunal (as is currently the case for OSC freeze directions that are heard in front of the Commission). The OSC’s exercise of its freeze and seizure powers would continue to be contingent on a Court extending the freeze or seize direction, or making its own order, after the initial direction by the Tribunal.

Recommendation:

The Taskforce recommends that Ontario not issue or renew a driver’s licence or licence plates to individuals who have failed to pay the administrative penalties, disgorgement or costs ordered by the OSC, or fines, or restitution or compensation ordered by the Court. As many individuals drive, this proposal is aimed at incentivizing payment and increasing the OSC’s sanction collection rates. This recommendation is based on recent amendments to the British Columbia Securities Act.

The implementation of this recommendation requires careful consideration of privacy safeguards that may be appropriate to put in place with respect to information sharing and will require coordination between the OSC and the Ministry of Transportation, including information sharing with respect to the names, addresses, driver’s licence numbers, vehicle information, etc. As this is a collections-related measure, the sharing of compelled information would be permitted under the proposed exemption discussed in Recommendation 63 above.

Recommendation:

The Taskforce recommends creating a new and specific prohibition on making misleading or untrue statements about public companies. This will make it easier for the OSC to effectively deter and combat abusive practices intended to affect share prices or influence investor decisions, such as “short and distort” campaigns and “pump and dump” schemes. The prohibition would also cover attempts to make “misleading or untrue statements about public companies” to address the abusive practices that may not be successful, but which are still egregious.

The prohibition would allow the OSC to take enforcement action targeting any person or entity who makes one or more statements about a public company, where those statements are known to be (or there is a reckless disregard for whether these statements are) misleading or untrue, and when those statements, taken on their own or together, would be expected to either affect the market price or value of the securities of the public company or derivatives based on such securities, or influence the investment decision-making of a reasonable investor in respect of these securities or derivatives.

To enforce the prohibition, the OSC would not need to prove that the market was distorted by the statement or statements (i.e., there would be no causation requirement). An intention to impact the market or influence a reasonable investor’s decision-making would be sufficient. This prohibition is not meant to capture analysts who frequently provide their researched views on reporting issuers’ securities, and who may omit facts without the intent to mislead. It is also not meant to stifle the legitimate dissemination of public information by analysts or reputable activist short sellers. Indeed, the Taskforce acknowledges that reputable activist short sellers’ public comments can be important for price correction of a public issuer’s securities.

Recommendation:

The Taskforce recommends increasing the maximum administrative penalty to $5 million to modernize securities legislation by adjusting for inflation and scale of Ontario business, aligning with similar SRO sanctions for similar breaches, and more effectively deterring misconduct for larger firms or more egregious conduct.

The administrative monetary penalties and certain other amounts collected by the OSC, as set out in the Securities Act, could be allocated to third parties or used by the OSC for certain specific purposes.

The Taskforce recommends that the OSC work with the Ministry of Finance to examine potentially expanding the uses of these “designated funds” to support OSC’s regulation of capital markets in accordance with its mandate.

The Taskforce also recommends increasing the maximum fine for quasi-criminal offences to $10 million. This would bring the maximum fine closer to the maximum quasi-criminal fine proposed under CCMR in the draft Capital Markets Stability Act of $25 million which aligns with the similar US$25 million maximum criminal penalty in the United States under the Securities Exchange Act of 1934. In the United Kingdom, there is no monetary limit, while the maximum criminal monetary penalty in Australia is AU$11.1 million.

Recommendation:

The Taskforce recommends that judges or justices of the provincial Court should have the power to issue production orders to require firms and individuals that are not under investigation, and who have possession or control of the relevant information or data, to gather or prepare the applicable documents, records, or electronic data to deliver to an authorized enforcement investigator. This recommendation is based on similar provisions in the Criminal Code of Canada and amendments enacted recently under the British Columbia Securities Act.

Judicial production orders are necessary because the current judicial search authorization powers are increasingly ill-suited to obtaining the evidence of electronic transactions, electronic messages and cellular communications that are the key technology utilized in modern financial crime.

The use of production orders in quasi-criminal investigations is necessary to modernize investigative tools given that information is no longer stored predominantly in paper format in specific office locations. Having production order powers available in the securities context would align the quasi-criminal investigative tools available to enforcement investigators with those used in Criminal Code investigations. Production orders (like search warrants) must be approved by judicial authority and cannot be approved by the OSC tribunal. A person or company served with a production order (i.e., a person or company not under investigation by the OSC) is under a legal obligation to produce a required document. Information produced pursuant to production orders cannot be used against the person producing the documents, unless the person falsified the documents or misled or lied to the OSC when producing the documents.

Recommendation:

In order to modernize OSC enforcement, the Taskforce recommends changes to the service provisions and the search of private residences.

1. Permit Substituted and Broader Service Provisions

To increase the flexibility of the service of summonses, the Taskforce recommends legislative amendments to revoke the personal service requirement and instead allow for summonses to be served by:

• Personal or electronic delivery (with a requirement that electronic delivery only constitutes legal service if it is confirmed by the recipient or other evidence of receipt can be shown);
• Leaving the summons at a subject’s last or usual residence with an occupant who is at least 16 years old;
• Permitting the OSC to make a substituted service order if the subject is evading service or if the last or usual address of the subject cannot be found or is unoccupied;
• Delivering to places of businesses; or
• The use of courier or registered mail.

Safeguards such as an affidavit of service and specific requirements for email transmission and acceptance should be considered as part of the legislative amendments. These measures would provide OSC Enforcement Staff with more flexibility to effect service on individuals. Modernizing securities legislation in this way would align it with s. 26 of the Provincial Offences Act, the OSC Rules of Procedure and Forms for Commission hearings and the new provisions in British Columbia.

2. Allowing Search Orders of Private Residences with a Warrant

The Taskforce recommends allowing a search order to be issued by a judge of the Ontario Court of Justice for the search of a private residence during daylight hours such as between 6:00 A.M. and 9:00 P.M. A search order could be issued by a judge of the Ontario Court of Justice if the judge is satisfied by information on oath in writing that there are reasonable grounds to believe that:

• The place or dwelling-house is a place referred to in the order authorizing a search; and
• The entry to the place or dwelling-house is necessary for the purpose of investigating under securities legislation.

This would result in more flexibility for the OSC’s Enforcement Branch to apply for private residence search orders, which is already permitted in some other Canadian jurisdictions including British Columbia, New Brunswick and Newfoundland and Labrador. It would also be consistent with the approach taken under the proposed draft legislation under CCMR.

Recommendation:

As mentioned above, the Taskforce supports OSC Enforcement Staff publishing public Document Delivery Standards Guidance that would outline how, and in what format, summons recipients are expected to deliver documents to the OSC. The Taskforce recommends two corollary statutory amendments that would benefit the efficacy of this guidance.

1. Ensuring the Preservation of Evidence

The Taskforce recommends an express statutory provision that allows OSC Enforcement Staff to require summons recipients to preserve evidence. While the Taskforce understands that OSC Enforcement Staff regularly request or direct summons recipients to safeguard documents and records in their possession or control, these requests and demands would not be enforceable themselves.

A robust regulatory tool aimed at ensuring evidence is not (inadvertently or wilfully) destroyed or altered and permitting regulatory action if it is destroyed or altered in the face of a requirement to preserve, would support the proposed guidance and the integrity of OSC Enforcement Branch investigations. This recommendation would harmonize the enforcement tools of the OSC with those in Alberta and those contemplated in the draft legislation under CCMR.

2. Addressing Assertions of Privilege

The Taskforce recommends that the enabling provisions in securities legislation be amended to give the OSC the power to make future rules, if necessary, on the process for addressing assertions of privilege in prosecutions and investigations and resolving challenges to such assertions. Such proposed rules would be subject to the usual public comment and ministerial approval process, and would ensure that the processes and procedures align, for example, with current (and future) requirements of the common law or Law Society of Ontario guidelines on dealing with privilege. Larger or more complex investigations often require significant documentary productions from summons recipients and assertions of privilege arise.

Without this enabling amendment, the OSC would be limited in its ability to address these issues if needed. Clear expectations in privilege-related matters can create efficiencies for investigations as well as provide clarity and consistency for summons recipients without abrogating privilege in any way. An OSC rule could address practical considerations that provide for a reasonable progression of an investigation that limits undue delay, while respecting each party’s right to make properly founded assertions of privilege.

Recommendation:

The Taskforce recommends an amendment to add a provision that the OSC may register a lien for any disgorgement amount owing to the OSC, which would form a charge over the entire property of the persons named in an order, including over property in the hands of a receiver, or a trustee. By adding such a provision, the OSC would have priority over all other claims other than prior registered security interests and certain statutory claims.

This amendment would put the OSC in better standing to collect monetary sanctions and enforce its orders, thereby enhancing investor protection. However, the OSC should have the option to waive its charge or lien, particularly where there is property held by a receiver for the benefit of investors.

Recommendation:

The Taskforce recommends permitting the OSC and respondents the ability to mutually agree to extend the limitation period to commence proceedings. This amendment would preserve the OSC’s right to prosecute while permitting respondents additional time to engage with OSC Enforcement Staff and explore settlement.

Furthermore, the Taskforce recommends that the limitation period for collections-related actions be expanded and clarified such that the limitation period starts from the date of the sanction order. For collections relating to real property, the limitation period would continue to be governed by the Real Property Limitations Act (which has a ten-year limitation period) from the date a sanction order is imposed. For collections relating to money and chattels, the limitation period would be ten years from the date a sanction order is imposed. Collecting monetary sanctions is important from both a deterrent perspective and for investor protection.

The Taskforce recognizes that there is a passage of time inherent in the investigation and litigation processes, in addition to issues with assets being hidden intentionally. All these factors may delay efforts to recover amounts owing under OSC orders. It is important that legal challenges based on limitation periods not be a viable avenue to avoid those monetary obligations. Commenters were supportive of actions directed at holding respondents accountable. This recommendation would help the OSC in pursuing civil claims, such as fraudulent conveyance proceedings.

Additionally, to streamline information sharing in order to facilitate collections, the Taskforce recommends amending the confidentiality requirements in securities legislation to avoid unnecessary applications to share compelled information (information that was compelled from the target of an investigation who was later sanctioned) for all collections-related matters. This would assist in the OSC’s participation in programs facilitating collections, such as its existing participation in the CRA Set Off Program.

Recommendation:

The Taskforce recommends giving the OSC additional tools to disrupt individuals or entities who appear to be breaching securities law, including engaging in potentially fraudulent conduct online. Specifically, similar to the current process for freeze directions, the Taskforce is recommending a statutory amendment giving the OSC tribunal the ability to direct a person or company to remove or block a website or its content where there is evidence of a breach of, contravention of, or non-compliance with securities law. These orders would have to be continued by the Superior Court of Justice on notice to affected parties. A person or company affected by these orders would have a right to a hearing in front of the OSC tribunal to request a clarification, variation or revocation of these orders.

The Taskforce expects this amendment would permit the OSC to more quickly and efficiently intercede to prevent harm to Ontario investors. The orders ultimately imposed by the Court are expected to assist website and social media site providers to take down these problematic sites while mitigating their potential liability.

Recommendation:

The Taskforce recommends clarifying the scope of protection provided to persons complying with a summons. Specifically, compliance with an OSC summons would not be a basis of contractual liability against them by third parties, including for any breach of contracts that arise from the compliance.

This provision is expected to benefit both individuals and companies who are subject to summonses by providing comfort that they can freely provide information to the OSC in an investigation without concern that they may be in a breach of a contractual arrangement with a third party or may open themselves up to potential contractual liability for complying with a summons. This amendment is expected to equally benefit the OSC as certainty around this provision would permit OSC investigations to move forward more efficiently without summons recipients having to consider or address potential contractual obligations or liability.

Recommendation:

The Taskforce recommends a statutory amendment aligned with the language in the proposed draft legislation under CCMR and the recent amendments to the British Columbia Securities Act, which include prohibitions in respect of aiding, abetting, counselling or conspiring to contravene Ontario securities law. Such prohibitions would permit the prosecution of a person who counsels or otherwise assists another person or company to contravene Ontario securities law.

These prohibitions would harmonize and modernize the OSC’s enforcement tools and permit OSC Enforcement Staff to prosecute a greater breadth of securities law misconduct to increase protection of investors and instill confidence in Ontario’s capital markets.

Recommendation:

The Taskforce recommends a statutory amendment aligned with the language in the proposed draft legislation under CCMR and IIROC’s UMIR (as well as other Canadian securities legislation) that includes prohibitions on front-running (and related defences). Such prohibitions would permit the prosecution of a person or company that purchases or trades securities or derivatives ahead of their client or a connected investor with knowledge that the execution, placement, or disclosure of the client’s or connected investor’s intended trade or purchase could reasonably be expected to affect the market price of the security or derivative.

This prohibition would harmonize and modernize the OSC’s enforcement tools and will permit OSC Enforcement Staff to prosecute a greater breadth of securities law misconduct in order to increase protection of investors and instill confidence in Ontario’s capital markets.

Recommendation:

The Taskforce recommends that transparency and greater rights for persons or companies directly affected by an OSC investigation be achieved primarily by the publication of guidance, prepared by OSC Enforcement Staff in collaboration with certain stakeholders (which began in May 2019), on the investigative process (i.e., “Enforcement Investigation Guidance” and “Document Delivery Standards Guidance”).

The goal of the Enforcement Investigation Guidance is to provide more transparency around the investigative process and consistency of approach. The Enforcement Investigation Guidance would provide an overview of OSC Enforcement Staff’s practices during an investigation, and will address measures intended to facilitate cooperation and efficient investigations, including:

• Providing notice to persons or companies that have been the subject of an investigation when the investigation is being closed with no further action;
• Facilitating an examination by providing certain documents in advance to the persons served with a summons, where appropriate;
• Communicating with summons recipients or their counsel prior to sending a summons to discuss realistic timelines, production concerns, and address production options for voluminous, complex or novel requests; and
• Providing advanced notice to respondents before a public proceeding is initiated with an invitation to respond to the allegations the OSC intends to make.

This guidance would make the OSC’s investigation practices more transparent, codify best practices, and result in clearer and earlier communication between the OSC and market participants on enforcement matters.

In respect of OSC Enforcement Staff communicating with summons recipients prior to issuing a summons, the outcomes of these discussions may include providing a subset of documents, accepting rolling productions, providing an order of priority for documents, considering a different format for production, extending a deadline for production, and exploring the option of creating a document production plan for complex or novel production requests.

Importantly, the Enforcement Investigation Guidance would also include a framework for escalating summons-related issues to the CEO of the OSC under the new structure (the Chair under the current structure), where such issues cannot otherwise be resolved within the OSC’s Enforcement Branch. The Taskforce supports the CEO of the OSC under the new structure (the Chair under the current structure) requiring the OSC Enforcement Branch to issue additional guidance as needed to provide transparency concerning the use of, and experience with, this escalation process.

Additionally, following the creation of the new separate adjudicative tribunal (see Recommendatio  4 above), the Taskforce recommends consideration be given by the Ministry of Finance, the OSC and the OSC Securities Proceedings Advisory Committee to whether there is a need for a mechanism for parties to escalate summons-related issues beyond the CEO potentially to the new separate adjudicative tribunal. This process could be similar to a court case management conference or proceed by way of an application seeking advice and directions. If such an escalation mechanism is implemented, the Taskforce recommends that the process be subject to costs awards and tight timelines in order to minimize the potential misuse of the process and concomitant delays in investigations.

Furthermore, the Taskforce also supports the OSC developing Document Delivery Standards Guidance to codify best practices, including how and in which formats to produce documents (although ultimate production decisions would still rest with the summons recipient). This guidance would acknowledge that there are several challenges that may warrant a nuanced consideration of production requests (particularly those that speak to timing, costs and complexity), and therefore will incorporate flexibility to tailor the approach to document production.

The OSC currently provides an Enforcement Notice (which sets out pertinent information about the contraventions that the OSC intends to allege and the basis for those allegations) before the Statement of Allegations is issued and the Notice of Hearing is published (which, together, initiate public proceedings). The Taskforce recommends that this Enforcement Notice be sent at least three weeks in advance of public proceedings being initiated, and that the Enforcement Notice procedures (to be set out in the Enforcement Investigation Guidance) include an invitation for respondents to respond to the allegations that the OSC intend to make (as is the case currently). Upon receiving an Enforcement Notice, a respondent would be able to provide mitigating details that may not have been uncovered in the course of the OSC’s investigation or may wish to initiate settlement discussions.

Recommendation:

The Taskforce recommends incorporating additional confidentiality exceptions in securities legislation to permit disclosure under expanded circumstances. This should be done while preserving the appropriate balance between not interfering with OSC investigations and permitting the earlier involvement of, or notification to, all the appropriate parties in an investigation.

The Taskforce recommends adding exceptions in securities legislation to allow for disclosure of an investigation order, examination order or summons served by the OSC to a prudential financial regulatory authority, such as the Office of the Superintendent of Financial Institutions, and equivalent regulators, and to an expanded list of counsel that includes counsel for the person’s employer where it would facilitate responses to investigation requests and summonses in the appropriate circumstances.

Under the new OSC governance structure, the Taskforce also recommends that the CEO or their delegate would have the power to make decisions to allow disclosure in cases where an exception does not apply, as most of these decisions are routine in nature. This would allow OSC staff to efficiently make decisions where appropriate allowing disclosure through an enhanced streamlined process, including an expedited process to amend investigation orders and/or summons to permit such disclosure. This would be used by OSC staff to allow disclosure, for example, where the disclosure is necessary to comply with requests from the OSC or for sound corporate governance, such as disclosure to a company’s internal legal, compliance and governance officers, board of directors or senior management where such disclosure would not compromise the investigation.

Recommendation:

The Taskforce recommends a statutory amendment aligned with the language in the proposed draft legislation under CCMR that clarifies that nothing in that legislation is to be construed to affect the privilege that exists between a lawyer and his or her client in relation to information or records that are subject to that privilege. The Taskforce notes that respondents may opt to voluntarily share privileged information with the OSC.

On occasions where there is a challenge to the assertion of privilege, the Taskforce recommends that the OSC’s proposed Document Delivery Standards guidance sets out the OSC’s expectations for the production of a privilege log when an assertion of privilege is being made. This could include the date, author, recipient and nature of the document, and the specific basis for asserting privilege.

Recommendation:

One of the cornerstones of healthy capital markets is democratizing access to capital, while still protecting retail investors. A binding, reputable and efficient DRS framework in Ontario would be a significant improvement to the retail investor protection framework.

1. Give OSC the Power to Designate a DRS with Binding Decision Powers

The Taskforce recommends creating a statutory authorization that allows the OSC to designate a DRS that would have the power to issue binding decisions and for the OSC to establish the framework that would govern the DRS. The resulting framework will provide redress to harmed investors, in particular retail investors who have been harmed and lost an amount too low to consider a court action, would increase investor confidence in the capital markets by assuring that investors are compensated, when warranted, for financial losses that relate to the inappropriate trading or advising activity of a registered firm.

The framework would also require the DRS to have processes to provide procedural fairness for registered firms and investors and include a right of appeal to the OSC tribunal. To ensure the framework does not become unduly burdensome, the Taskforce recommends that an appeal of a DRS decision to be permitted only in limited circumstances such as when there is a question of law, or where the DRS failed to act in accordance with its policies and procedures, its mandate or the terms and conditions imposed as part of the oversight regime (see below). Parties to an appeal of a DRS decision would be the appellant and the DRS.

2. Selecting the Best DRS Approach for Ontario

Ontario needs to have a binding, reputable and efficient framework for dispute resolution that is accessible for retail investors and accepted by registrants. This would be achieved through the OSC pursuing one of these two options pursuant to the statutory authorization given to the OSC:

• Create a new DRS that is a made-in-Ontario system that would be given the power to issue binding decisions; or
• Improve OBSI by imposing requirements to further enhance OBSI’s governance structure, public transparency, and professionalism, as a condition for being given the power to issue binding decisions.

The Taskforce recommends that the OSC be mandated to present a plan to the Minister within six months of this report for achieving one of these two options, with the aim of having any required enhanced governance measures in place by January 1, 2022, and the designation of binding authority to be granted subsequently.

For either option, the OSC would work to implement a comprehensive oversight regime for the DRS. Among other components, the oversight regime would include:

• Veto power on appointments of directors and the ombudsperson; and
• Requirement to obtain approval with regards to any material amendments to the DRS’s by-laws, terms of reference, fees, or policies and procedures which may have implications on procedural fairness for registered firms or investors.

It is also critical that a DRS has the appropriate expertise and credibility from all relevant stakeholders. For example, to further bolster the designated DRS’s expertise and credibility on exempt market issues, the designation of the DRS would be conditional upon the DRS:

• Having a tailored loss calculation methodology to deal with exempt market cases;
• Hiring investigators with exempt market experience;
• Working with the relevant industry association(s) to develop a training program on exempt market issues for its investigators; and
• Adding exempt market representation to its Board, having regard to the overall composition and size of the Board.

3. Limits for DRS Compensation Decisions

Under either option for a DRS in Ontario, the Taskforce recommends that the limit on the designated DRS’s compensation decisions be $500,000 initially with subsequent increases every two years based on a cost of living adjustment calculation.

Recommendation:

The Taskforce recommends requiring disgorgement order amounts collected by the OSC to be distributed to harmed investors through a Court-supervised process in cases where there is sufficient evidence to establish that investors suffered direct financial losses.

1. Description of Process

The process would be run by a Superior Court appointed receiver where significant funds are available for distribution. In circumstances where there are a small number of investors or funds, the Superior Court could appoint an OSC employee as administrator. There would be a publication requirement to communicate information to the public relating to potential distributions.

This model would apply to disgorgement amounts that are collected by the OSC only. It would not contemplate the distribution of administrative penalties or voluntary payments to investors, which would continue to be allocated to third parties or used for other purposes authorized in securities legislation.

The OSC, when implementing this recommendation, should develop criteria to use to determine when the appointment of a receiver would be sought, and how to communicate to the public information relating to potential distributions. It will be important to ensure that the receivership process is used in circumstances where it is efficient to do so (e.g., not for amounts that are too little or if the evidence is insufficient).

2. Streamline Information Sharing

The Taskforce recommends amending the confidentiality requirements in securities legislation, to avoid unnecessary applications to share compelled information (information that was compelled during an investigation) for information that is necessary to facilitate returning money to harmed investors. It would permit the OSC to share information such as investor lists with the receiver to facilitate a more efficient notice and claims process. This services to streamline information sharing to facilitate returning money to harmed investors.

Recommendation:

The Taskforce recommends providing for both automatic reciprocation and streamlined reciprocation to help ensure that respondents who have been sanctioned in other jurisdictions are kept out of Ontario’s capital markets more promptly and efficiently than they are currently.

1. Automatic Reciprocation

The recommendation to automatically reciprocate sanction orders resulting from the contested hearings and settlements of other Canadian capital market regulators means that such orders would apply in Ontario as if they were made by the OSC, without a separate OSC order. The Taskforce does not recommend distinguishing between orders resulting from breaches of Ontario securities laws or conduct contrary to the public interest. Automatically reciprocated orders could, among other things, impose limitations on or suspension of registration, or limitations on being an officer or director of an issuer. Cease trade orders from other Canadian capital market regulators would also be automatically reciprocated.

2. Streamlined Reciprocation

With respect to orders by Courts relating to capital markets, foreign capital markets regulators, SROs and exchanges, the OSC tribunal under the new structure (or the Commission under the current structure) would be able to reciprocate them on a streamlined basis, and within their discretion without respondents being granted an opportunity to be heard. When contemplating making such an order that would reciprocate a decision made outside Canada, the OSC tribunal under the new structure (or the Commission under the current structure) would make an assessment when making a streamlined order and, if circumstances warrant, it would grant a respondent an opportunity to be heard.

3. In General

This recommendation is predicated on the idea that a fair hearing has already been provided, making an OSC hearing or an opportunity to be heard unnecessary. Reciprocated orders or settlements would not have automatic effect in Ontario unless the OSC has the power to make a similar order or settlement. Monetary sanctions or voluntary payments agreed to in a settlement would not be reciprocated. If an automatically reciprocated order is overturned, vacated, revoked or otherwise held to be of no effect in the originating Canadian jurisdiction, that order will cease to apply in Ontario.

This amendment would eliminate the need for firms or individuals sanctioned in another jurisdiction to participate in an additional hearing in Ontario that routinely imposes the same or similar sanctions.

4. Preserving Rights of Market Participants

As part of the recommended changes to reciprocation, the Taskforce recommends also implementing the following requirements to help preserve the rights of market participants. The OSC should:

• Publish all orders reciprocated by the OSC; and
• Provide a clarification right (in lieu of an appeal right) to the OSC tribunal (under the new structure, or the Commission under the current structure) for automatically reciprocated orders.

Recommendation:

The Taskforce recommends a statutory amendment to provide an explicit protection from disclosure for information subject to a freedom of information request that would identify a whistleblower. This statutory provision would lead to enhanced investor protection by ensuring the full effectiveness of the OSC whistleblower program, as whistleblowers would be fully confident that their identity as a whistleblower would be kept confidential from any FIPPA request. This recommendation is based on similar statutory amendments enacted recently in Alberta. This recommendation is also consistent with the protection provided under U.S. federal law to whistleblowers who make disclosures to the Securities and Exchange Commission.