The Ontario Securities Commission (“OSC”) has published final rules (the “Final Rules”) that will create a new statutory framework to facilitate the distribution of funds that the OSC receives under disgorgement orders to harmed investors.
Background
As we discussed in a previous post, Bill 146, Building a Stronger Ontario Together Act (Budget Measures), 2023 (“Bill 146”) introduced amendments to the Securities Act (Ontario), Commodity Futures Act (Ontario) and Securities Commission Act, 2021 (Ontario) that establish a new statutory framework for distributing money received under disgorgement orders to investors who have incurred direct financial loss as a result of the contravention of Ontario securities or commodity futures laws (the “Amendments”). Bill 146 received Royal Assent in December 2023; however, the Amendments will come into force on a future date.
The Amendments provide that regulations will address, among other matters, requirements relating to investor eligibility and the circumstances in which funds received by the OSC must be distributed. In July 2024, the OSC published for comment Proposed OSC Rule 11-502 Distribution of Amounts Paid to the OSC under Disgorgement Orders and Proposed OSC Rule 11-503 (Commodity Futures Act) Distribution of Amounts Paid to the OSC under Disgorgement Orders (collectively, the “Proposed Rules”) and related companion policies.
Key Changes to the Proposed Rules
While the Final Rules generally follow the Proposed Rules, the OSC incorporated certain feedback that it had received during the public comment process and made other clarifying changes. Notable changes include:
- Titles of the Final Rules and companion policies: The titles of the Final Rules and companion policies have been updated to reflect that the framework also covers the payment of related administrative costs;
- Definition of “eligible applicant”: Guidance has been added to the companion policies to clarify that in circumstances where an investor is unable to participate in the claims process due to illness or incapacity, a trustee, executor or other legal representative may file a claim on behalf of the investor;
- Requirement to distribute: The distribution requirement will not apply where the deadline for filing an appeal of the decision that gave rise to the disgorgement order has not yet expired or an appeal process is ongoing. Guidance has been added to the companion policies to clarify that in circumstances where there are multiple respondents, disgorged amounts received from any settling respondents will be held for future distribution pending the conclusion of proceedings involving the other respondents;
- Publication of disgorged amounts and notice of claims process: The OSC will be required to issue a press release when a notice of claims process is posted on the OSC’s website. A new online system will be used to provide investors with timely notice of distributions;
- Claim determinations: The guidance in the companion policies that had referred to OSC staff’s role in administering the claims process was removed as operational processes may evolve;
- Opportunity to provide additional supporting documentation: Revised language clarifies that applicants have 35 days from the date of the notice informing them that the OSC intends to deny all or part of their claim to provide additional supporting documentation to substantiate the claim. The provision describing when such notice is deemed to have been delivered has been removed; and
- Residual funds: Guidance has been added to the companion policies to clarify that payments will generally be deposited directly into an applicant’s bank account. Cheques may be issued in exceptional circumstances.
Subject to ministerial approval, the Final Rules will come into force on the later of: (i) August 26, 2025; and (ii) the day on which the Amendments are proclaimed into force.
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