Amendments to British Columbia’s Securities Act expand enforcement powers
On October 21, 2019, British Columbia introduced Bill 33 (Securities Amendment Act, 2019), which provides for substantial amendments to the British Columbia Securities Act (the Act), including wide-ranging amendments targeted at strengthening the enforcement powers of the British Columbia Securities Commission (the BCSC). British Columbia’s Minister of Finance, The Honourable Carole James, stated the following regarding the introduction of Bill 33: “[o]ur government is taking action to make sure we have the strongest protections in Canada for people who are investing and tough penalties for those who are abusing the system”.
Overview of Amendments to the Act and related legislation
The amendments to the Act and related legislation introduced in Bill 33 (the Amendments) expand the BCSC’s investigative authority, provide the BCSC with new collection powers, increase penalties for offences under the Act, and codify protections for whistleblowers. The Amendments also bring British Columbia’s regulation of derivatives in line with other Canadian jurisdictions including Alberta and Ontario.
Expanded investigative authority
The Amendments provide the BCSC and its investigators with considerably expanded investigative powers. They make it easier for investigators to enter business premises and residences to conduct investigations of potential contraventions of the Act and impose obligations on the owners or occupiers to assist investigators. They also grant the BCSC new powers to authorize investigations into property transactions that may have been implemented to avoid the enforcement of orders under the Act. To encourage co-operation with securities-related investigations, the Amendments provide for potential fines or imprisonment for failing to comply with preservation or production orders made under the Act.
New collection powers
Many of the Amendments are aimed at improving the BCSC’s fine collection rate, which has been the subject of recent criticism. Among other things, the Amendments: (i) entitle the BCSC to expend funds collected through enforcement proceedings to assist with further collection activities; (ii) give the BCSC a lien over all of a person’s property for amounts that person has been ordered to pay to the BCSC; (iii) establish a mechanism by which a person’s driver’s license and license plates can be withheld if that person fails to pay amounts owing to the BCSC; and (iv) grant the BCSC the power to seize registered retirement savings plans for the purposes of enforcing orders made under the Act.
Further, the Amendments provide the BCSC with new preservation and collection powers with respect to property transferred to third-parties in attempts to avoid the enforcement of BCSC orders. Where a person suspected of contravening the Act transfers property at below market value to a family member or third-party, the BCSC has authority to make orders regarding the preservation and disposition of that property. The BCSC may also apply for court orders declaring recipients of property transferred at below market value liable for the amount they benefitted from the transfer or ordering the forfeiture of the transferred property.
Low collection rates have been a consistent theme amongst both statutory regulators and self-regulatory agencies. By way of example, the Ontario Securities Commission recently reported [PDF] that it secured a collection rate of just 35% for fiscal 2018-2019. Similar collection difficulties at the Investment Industry Regulatory Organization of Canada (“IIROC”), Canada’s national capital markets self-regulatory organization, led to IIROC recently obtaining statutory powers to collect fines in a number of provinces, marking a departure from its otherwise contractual-based powers.
The Amendments provide for increased maximum penalties and new mandatory minimum penalties for offences committed under the Act. First, the Amendments increase the maximum fine for committing an offence under the Act from $3 million to $5 million and increase the maximum term of imprisonment from three years to five years. Second, the Amendments introduce a minimum sentence of one-year imprisonment for individuals who commit serious or multiple fraud offences. Third, the Amendments provide for the imposition of an administrative penalty of up to $5 million for contraventions of the Act’s record keeping requirements
Relatedly, the Amendments introduce a mechanism for levying administrative monetary penalties without a hearing for contraventions of certain regulations or BCSC decisions.
The Amendments codify important protections for individuals who report potential securities law violations to authorities or regulators. Under the Amendments, employers are expressly prohibited from taking retaliatory actions against employees who disclose or seek advice about disclosing securities-related misconduct perpetrated by their employers.
Note that the BCSC has not implemented a program for paying awards to whistleblowers who provide it with information on securities-related misconduct. In this way, the BCSC’s approach to whistleblowers remains distinct from the approaches taken by certain other regulators, including the OSC and the U.S. Securities and Exchange Commission.
The Amendments reflect a concerted effort on the part of British Columbia legislators to crack down on white-collar crime. As we have discussed previously, authorities have been generating mixed-results in their recent white-collar enforcement efforts in British Columbia.
Following the introduction of the Amendments, chair and CEO of the BCSC, Brenda Leong, stated, “[w]e now have new and better tools to go after the bad actors who break the law and cause significant harm to investors and the capital markets.” We will continue to monitor the implementation of the Amendments and the ways in which the regulator makes use of them.