The OSC wants faster dispute resolution.

In October 2011, the OSC proposed changes to its enforcement model via OSC staff notice 15-704. These changes would help resolve securities matters more efficiently.

“There are currently more than 80 cases in litigation, and OSC staff spent more than 300 days sitting on panels over the last year,” Tom Atkinson, director of the OSC’s Enforcement Branch, said at yesterday’s public enforcement initiatives hearing.

The hearing offered those who submitted comments on the proposals the chance to elaborate in front of an OSC panel, which consisted of vice-chair Mary Condon, vice-chair James Turner and committee chair Judith Robertson.

The regulator wants to put in place:

  1. A new program for no-enforcement action agreements: Under these, a party would not be subject to OSC enforcement action in exchange for reporting matters that may involve breaches of Ontario securities law or activities that would be considered contrary to the public interest, and for cooperating in an investigation.
  2. A new no-contest settlement program: Protective orders could be made in the absence of a specific admission by the respondent of a breach of the Securities Act. Reps don’t have to admit or deny charges.
  3. A clarified process for self-reporting: Under the OSC’s credit-for-cooperation program, parties would be better informed on know how to come forward with information.
  4. Enhanced public disclosure of credit granted for cooperation: This would provide greater certainty of potential outcomes for all parties that may consider self-reporting.

Ahead of the enforcement hearing, the OSC provided updates on each of these initiatives. On June 13, 2013, it said it had “reviewed public comments…we have also been actively monitoring developments in the United States, where the use of [no-contest settlements] by the SEC (and other federal regulators) have recently been the subject of judicial consideration, legislative inquiry and media comment.”

The OSC also released a research paper on how these developments south of the border may affect the proposed no-contest settlement program here in Canada.

This was particularly important since many industry players are primarily concerned no-contest settlements offer reps “a free pass, [but] this isn’t the case,” stressed Atkinson at the opening of the hearing. “A settlement will still be filed and there will still be sanctions and reputational damage” despite the fact they don’t have to admit or deny guilt.

Read: 5 reasons for a national regulator, for more on no-contest settlements

He adds the settlements would only be granted if tough requirements were met, and the OSC needs to find ways to speed its litigation process since regulators “are [increasingly] dealing with more complex cases due to cross-border issues and the use of multiple markets,” among other developments.

Following his statements, five industry players commented on the proposed enforcement measures. While all participants supported an efficient enforcement process, there was clear division between industry and investor advocates. This was especially the case when it came to no-contest settlements.

Here’s an overview of their comments:

FAIR

The group fears investor compensation won’t be a priority if reps don’t have to admit guilt, citing the OSC’s annual report that revealed fines are only paid by approximately 6% of those sanctioned.

In addition, the organization doesn’t support sharing case information and facts at private hearings between OSC staff and respondents during no-contest settlement cases. Instead, all facts of a case should be revisited in front of the hearing panel approving the settlement. This would ensure they’re not simply “rubber-stamping a staff decision.”

What’s more, Staff Notice 15-704 also mentioned a whistleblower program, yet nothing has been developed. Read FAIR’s comment letter.

Read: UK to punish bankers more harshly

BLG (on behalf of industry consortium)

This group supports the no-contest settlement program in applicable cases. In the group’s comment letter, it said, “no-contest settlements add an option for Staff and [OSC] to facilitate meeting their securities regulatory obligations in…an economic [and timely] manner.” It should only be one tool they use, however.

The consortium adds it’s not necessary for the regulator to prioritize fine repayment when approving settlement agreements. That’s because “the OSC isn’t a collection agency and civil courts offer a chance for investors to recoup losses.”

Canadian Bankers Association

CBA says we need faster hearings and better communication, which would mean reps are handed sanctions soon after their transgressions, rather than years later when problems may have already been fixed. No-contest settlements are one way to cut down on the time reps spend fighting over allegations and the language in settlements.

The association added there wasn’t enough detail in the proposal about the credit-for-cooperation program. Read CBA’s comment letter.

Read: Fraud slipping past Canadian regulators

Siskinds

The two representatives present from Siskinds are involved in class-action securities lawsuits, and they don’t support no-contest settlements.

They said reps are concerned that if they admit guilt in a settlement agreement, their alleged victims could use that as evidence against them in civil court. Hence, the move toward no-contest proposals.

But Siskinds recently studied whether admissions of guilt in regulatory settlements are used in civil proceedings. It found few agreements have been brought into evidence in civil cases over the past six years. That’s partially because all evidence has to satisfy strict requirements, and regulatory settlements often occur long before civil cases—settlement agreements are only viable in courts three years after they’re made public by regulators. Read the firm’s comment letter.

Compliance Support Services

The company says reps who report or admit guilt earlier in an investigation should be rewarded more than those who admit later.

The company also says no-contest settlement agreements are crucial. Currently, financial firms are struggling with the costs of regulation. With faster hearings and more efficient processes, regulators will have more resources. And firms won’t to have cover the high administrative costs of drawn-out proceedings. Read the comment letter.