On July 29, 2016, the Ontario Securities Commission approved its fifth no-contest settlement. Three bank dealers, Scotia Capital Inc., Scotia Securities Inc. and Holliswealth Advisory Services Inc (collectively, the “Scotia Dealers”) agreed to pay $20 million in compensation to harmed clients and to make voluntary payments of $800,000 to the OSC to advance the OSC’s mandate of investor protection and $50,000 in respect of costs incurred by OSC Staff. This no-contest settlement followed the Scotia Dealers self-reporting of certain inadequacies in their internal control systems which resulted in clients who held certain fund units and structured products paying excess fees over a six year time period. This settlement provides confirmation of the benefits of self-detection and self-reporting of issues and the OSC’s continued commitment to early resolution of certain matters without requiring admissions of liability.
In approving the settlement agreement, the OSC noted certain mitigating factors including: the Scotia Dealers provided prompt, detailed and candid cooperation to the Commission Staff, no evidence of dishonest conduct by the Scotia Dealers and the internally formulated intention to pay appropriate compensation to their clients when they self-reported the inadequacies. The Scotia Dealers had also undertaken a review and correction of their compliance system to ensure that the errors did not recur. In its order, the OSC also approved certain go-forward reporting requirements designed to ensure that the revised compliance procedures worked appropriately and to address any issues that may arise down the road.
The OSC’s approval of five no-contest settlements over the past two years confirms the regulator’s commitment to cautious use of this enforcement tool and dispels the floodgates concerns raised by detractors. “No-contest” settlements were introduced in 2014 through OSC Staff Notice 15-702: Revised Credit For Cooperation Program in an effort to achieve more timely and efficient resolution of enforcement matters. Such settlements do not require respondents to admit facts alleged by enforcement staff, a contravention of the Securities Act (Ontario) or that the alleged conduct is contrary to the public interest. The OSC’s approach in this case demonstrates a firm recognition that no-contest settlements are an effective tool which offer the flexibility needed to achieve finality in settlement negotiations.
For more information on the OSC’s approval of previous no-contest settlements see our Securities Litigation Outlook: Trends to Watch for Capital Markets Participants.