Streamlining enforcement of minor infractions: The British Columbia Securities Commission’s ‘traffic ticket’ style mechanism
On April 26, 2023, the B.C. Securities Commission (the BCSC) introduced its newest mechanism for levying administrative monetary penalties without a hearing for contraventions of certain regulations or BCSC decisions. This new enforcement tool – called Administrative Penalties Imposed by Notice (APIN) – vests the BCSC with the authority to impose significant monetary penalties for less serious violations of securities rules through issuing notices to alleged contraveners.
While the APIN tool will allow the BCSC to streamline some enforcement efforts to allow it to focus its investigative and adjudicative resources on more serious violations, market participants who do not properly follow the stated processes to dispute such notices will be subject to sanction without a hearing. Market participants should be mindful of the timely steps that must be followed upon receipt of a notice and the considerable consequences that flow from a lack of an adequate response.
The APIN tool was first introduced on October 21, 2019 through the introduction of the Securities Amendment Act, 2019 (Bill 33). Bill 33 provided for substantial amendments to the Securities Act, R.S.B.C. 1996, c. 418 (the Act), including wide-ranging amendments targeted at strengthening the enforcement powers of the BCSC. Osler previously reported on the proposed amendments to the Act and related legislation, providing our perspectives on the possible implications flowing from those changes.
The changes proposed in Bill 33, including the introduction of the APIN tool, were characterized by then B.C. Minister of Finance Honourable Carole James as “landmark changes” that would “give the B.C. Securities Commission the strongest powers across Canada to protect people and crack down on white-collar crime.” Bill 33 ultimately received Royal Assent on November 28, 2019 and came into force on March 27, 2020.
Contraventions subject to administrative penalties by notice
Pursuant to section 162.01 of the Act, the Executive Director may provide a written notice requiring a person to pay an administrative penalty if, based upon information derived from a review, investigation or any source, the Executive Director considers that a person has contravened a provision of the Act, regulation or a decision of the BCSC or Executive Director, or considers it to be in the public interest.
Not all securities contraventions in British Columbia can be enforced by the APIN tool, and the matters that are addressed by this mechanism are limited. Despite these apparently sweeping powers, at present the Executive Director can only issue a notice of administrative penalty for contraventions of regulations (including instruments and rules), or decisions of the BCSC or the Executive Director.
In quantifying the amount of the penalty to be imposed, pursuant to section 162.02(1) of the Act the Executive Director must consider both the facts and circumstances leading to the offence, as well as the following factors:
- The person’s past conduct.
- The seriousness of the conduct.
- Factors that mitigate the person’s conduct.
- The need to demonstrate the consequences of inappropriate conduct to those who access the capital markets.
- The need to deter those who participate in the capital markets from engaging in inappropriate conduct.
- Orders made by the commission in similar circumstances in the past, and
- Any other matters relevant to the public interest.
These factors are substantively similar to the factors applied by panels in BCSC decisions for all breaches of the Act. Fines issued under the APIN tool can be levied in the amount of up to $100,000 per violation for individuals and $500,000 per violation for entities. There is no power to make orders restricting conduct as are often made in BCSC decisions, such as restricting an individual from acting as a director or officer, acting in an investor relations capacity, or prohibiting trading in securities.
Process for issuing administrative penalties by notice
In its notice issued on April 26, 2023, the BCSC outlines the process by which notices of administrative penalties are issued. These penalties may be commenced by a staff member of the BCSC who detects an eligible contravention in the course of their work. The staff member is then entitled to submit a report to the Executive Director to both establish the alleged contravention and recommend that the Executive Director issue a notice of administrative penalty.
If the Executive Director considers that the person has contravened an eligible provision or decision, and it is in the public interest to impose a penalty, the Executive Director will deliver a written notice to the person specifying each contravention, the amount of the administrative penalty assessed for each contravention (using the factors outlined above), and stipulate the date by which the person must either pay or dispute the penalty. Notably, the Executive Director is not required to provide a person with an opportunity to be heard prior to issuing such a notice.
Process for disputing administrative penalties by notice
Fortunately, notices of administrative penalties are disputable. Upon receipt of the notice, affected persons have the opportunity to pay the penalty by the due date or, alternatively, request to dispute the notice by way of a hearing if they take issue with either the Executive Director’s findings of a contravention or the quantum of the penalty. There is a 30-day window to request to dispute the notice. In the event the person either pays the penalty or the 30-day window lapses without payment or dispute, the person is deemed to have committed the contravention.
Following a hearing of a disputed notice, the Executive Director will issue an order confirming whether the person committed the contraventions in question and, if confirmed, reduce, revoke or confirm the administrative penalty outlined in the notice. Any notices or orders imposing monetary penalties will be published and made publicly available on the BCSC’s website.
If the Executive Director confirms the securities contravention and administrative penalty, the affected party may request that the Commission conduct a full hearing and review the Executive Director’s decision. As with all decisions of the Commission, their decision can be further reviewed on appeal at the B.C. Court of Appeal.
In the event a party is in default of paying administrative penalties imposed upon them, the BCSC and the Executive Director may impose increasingly harsh collections mechanisms.
The introduction of the APIN tool reflects the BCSC’s intention on strengthening its enforcement powers and using them effectively and efficiently. The initiative better allows the BCSC to free up resources by streamlining the process for dealing with less serious and less egregious wrongdoing, and focus greater efforts on more severe securities misconduct. The built-in process for disputing such notices allows persons to dispute allegations without giving the Executive Director carte blanche to impose penalties.
While there is not a clear picture of what constitutes an eligible contravention, we assume they would be more in the nature of a routine noncompliance, rather than what one would consider a more serious infraction. It will be interesting to observe how this apparently broad discretion will be exercised by BCSC staff, and how affected parties respond to a denial of traditional defence processes under various circumstances.
The APIN enforcement tool carries with it certain risks for market participants. The short 30-day window to dispute such a notice puts pressure on market participants to quickly respond to allegations – failing which they will be deemed to have committed the contravention in question. In addition to the steep monetary penalties of up to $100,000 for individuals, or $500,000 for companies, the fact that undisputed notices and penalties imposed will be published online generates the possibility for significant reputational damage if notices are not properly (or unsuccessfully) responded to.
Notably, the Investment Industry Regulatory Organization of Canada proposed a similar administrative penalty initiative in 2019. This initiative was ultimately disbanded after a consultation raised concerns about the lack of clarity and certainty that may flow from it. While this new enforcement tool is currently confined to British Columbia, it will be interesting to follow whether other securities regulators across Canada follow suit.