The ever-increasing complexity of the securities markets is making fraud harder to detect and making whistleblowers more essential than ever before. With insider knowledge, whistleblowers can help enforcement officials detect fraud and apprehend fraudsters much quicker than otherwise. Whistleblowers who approach authorities take tremendous risk, including the risk of ruining their careers. Incentivizing whistleblowers to take these risks, as well as controlling the risks with greater anti-retaliation protections, is to the benefit of law enforcement agencies and the markets they regulate.
Two major securities regulators have passed rules that allow them to reward whistleblowers for providing them with tips. The United States Securities and Exchange Commission (SEC) launched its program in 2010, amid sweep legislative changes in the wake of the great recession. In addition to a rewards system, the program also includes greater anonymity and anti-retaliation protections for financial industry whistleblowers. A company can even be fined for just trying to discourage whistleblowing, even without committing the underlying violations of securities laws.
The program authorizes the SEC to pay an award to individuals who come forward with information that leads to an enforcement action in which over USD $1M in sanctions are ordered. The size of the reward ranges from 10% to 30% of the total sanction. Since the program’s inception, the SEC has collected over USD $975M in sanctions based on information provided to it by whistleblowers. Out of those sanctions, it has awarded roughly USD $160M to 46 individuals, including several foreign nationals. This year, the program has received over four thousand tips. Over the life of the program, Canadians have reported more tips to the program than any nationality other than Americans or Brits, including sending in 73 tips in Fiscal Year 2017 alone. Both the awards and tips have been growing steadily since the program’s launch in 2010.
Largely following the SEC model, the Ontario Securities Commission (OSC) enacted its own whistleblower award program in July 2016. Under the OSC program, which like the SEC, provides enhanced protections to whistleblowers, a whistleblower is eligible to receive 5% to 15% of any administrative proceeding collection in which over CAD $1M of sanctions are ordered. Unlike the SEC program, the OSC caps its awards at CAD $5M. The OSC program has not issued an award (it took the SEC almost two years from the launch of its program to issue its first), but did receive over 30 tips in the first two months of its existence.
Other provinces are also taking steps to increase whistleblower protections. In June 2016, Quebec’s securities regulator, the Autorité des marchés financiers (AMF), launched a program to offer new protections to whistleblowers, but declined to put an award system in place. The Alberta Securities Commission (ASC) is now actively considering a launch of new anti-retaliation protections for tipsters.
In this changing legal landscape, the British Columbia Securities Commission (BCSC) has fallen behind. Enacting a program that protects and rewards whistleblowers would greatly assist the Commission in keeping the securities markets it regulates fair, accountable, successful, and worthy of public confidence.
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