In July 2016, the Ontario Securities Commission (OSC) launched the Office of the Whistleblower (OWB), the first paid whistleblower program created by a securities regulator in Canada. The Analyst interviewed Heidi Franken, chief of the OWB and deputy director, enforcement, at the OSC, to learn more about the program and its ambitions.

What was the driving force behind this initiative?

Enforcement is critical to the proper functioning of our capital markets, and our programs focus on meeting three goals: investor protection, accountability, and credible deterrence. It’s also an area where we continue to innovate, and the whistleblower program is one of the initiatives we created to aid in resolving matters more quickly and effectively.

We conducted extensive research in Canada and around the world, and held consultations with stakeholders, academics, and other regulatory agencies. We then designed a program specific to Ontario’s needs that offers incentives for whistleblowers to report misconduct and includes important protective measures so they can feel comfortable coming forward.

What protections are available to those who do come forward and provide information? How is compensation determined?

We recognize that whistleblowers consider a number of factors when deciding whether or not to report a violation, and we’re committed to fostering a safe environment for them. Our research showed that whistleblowers are motivated by a desire for misconduct to stop, but are concerned about the potential for retaliation.

To encourage employees to report possible violations of securities law, robust protections are critical. These measures have been built directly into the Securities Act through legislative amendments and apply equally to whistleblowers who report internally, to the OSC, to a self-regulatory organization, or to a law enforcement agency.

We have a two-pronged approach to protecting whistleblowers. First, the whistleblower protections allow the OSC to take enforcement action against employers that seek to retaliate or take reprisals against whistleblowers. A reprisal under the Securities Act is broadly defined and includes measures that adversely affect an individual’s employment, such as intimidation, disciplinary action, and termination. The OSC will take action against employers that have sought to retaliate against a whistleblower.

The second prong renders any employment contractual provisions aimed at silencing whistleblowers unenforceable. To that end, the OSC works to identify restrictive provisions in employment contracts, including confidentiality agreements, which seek to prohibit employees from reporting violations.

We believe the payment of a financial incentive is critical to the program’s success. Whistleblowers who report information that leads to an OSC administrative proceeding resulting in monetary sanctions and/or voluntary payments of $1 million or more may be eligible for a financial award of up to $5 million. The program has eligibility criteria, as well as factors that may increase and decrease the amount of the awards—this determination is made by the Commission—with input from staff. We aimed to create a sustainable program with powerful incentives.

How do you measure the effectiveness of the program? What are some of the successes to date, and, conversely, where do you anticipate challenges?

The implementation of this new program, and the early feedback, has been positive. The program has been productive out of the gate and has generated credible, high-quality information, which is a key marker of its effectiveness.

The OWB has received valuable information from whistleblowers concerning a broad range of securities-related misconduct in areas like financial reporting and disclosure. We’re encouraged by the early results, including the nature and quality of information being provided and the co-operation of whistleblowers.

We expect to encounter the ongoing challenge that whistleblowers may fear reprisal when reporting misconduct, which is why we’ve implemented robust protections to mitigate these risks.

Do you expect paid whistleblower programs to be adopted by other securities regulators in Canada and/or internationally?

We’re the first program of its kind in Canada and the first province to offer financial incentives.

Many regulators around the world are looking to improve their whistleblower programs, and we’ve been asked to share information about how we developed ours both domestically and internationally.

How do you see the program evolving?

One of our goals is to change the culture around whistleblowing in Canada. We want companies to implement measures that encourage employees to come forward if they see misconduct, and we want whistleblowers to feel protected if they choose to take these steps.

Tell us a bit about your background and how you came to lead this program.

I’ve spent some of my career in the private sector and two decades at the OSC, initially working in the Office of the Chief Accountant. I then served in a variety of senior roles with the corporate finance branch and the enforcement branch [of the OSC]. I currently oversee the enforcement branch’s Office of the Whistleblower, as well as three investigation and litigation teams that specialize in securities-related misconduct. I’ve been involved in the implementation of the OSC’s whistleblower program from its inception and truly believe this program is a game-changer for the industry.