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Anita Anand and Andrew Green are professors and Matt Alexander is a JD student at the University of Toronto Faculty of Law.

The Ontario Securities Commission's recent no-contest settlements with RBC Dominion Securities Inc. and Manulife Securities Inc. are the most recent in a string of settlements reached with Canada's major financial institutions regarding the overcharging of clients. All in all, nine no-contest settlements have been finalized with financial institutions under which approximately $354-million in aggregate will be paid to clients.

Many people will praise these settlements for returning money to clients. Even the financial institutions penalized under the settlements may feel like winners because they do not need to admit guilt or other forms of culpability. Indeed, no-contest settlements are an attractive option for those who wish to avoid taking the hit to reputation that often accompanies an OSC prosecution. However, no-contest settlements raise important questions of process and law that suggest their use may not be in the public interest.

The OSC started using no-contest settlements in 2014, around the same time the U.S. Securities and Exchange Commission reduced its use of them. Since that time, the OSC arguably has concluded enforcement actions more efficiently. However, efficiency is not synonymous with efficacy. When examining no-contest settlements, it is crucially important to examine if they further pertinent goals of enforcement, such as deterrence.

OSC staff may recommend that an enforcement matter be resolved with a no-contest settlement after considering a number of factors, such as: the extent of the respondent's co-operation during the investigation; the degree and timeliness of self-reporting; remedial steps taken by the respondent such as providing compensation to investors; and any disgorging of the amounts obtained. Eligibility for a settlement will not be prohibited if the respondent has previously been subjected to enforcement activity.

OSC staff and respondents may then negotiate and agree upon facts and sanctions in a no-contest settlement, and respondents do not need to make formal admissions with respect to alleged misconduct. A panel of OSC commissioners must ultimately adjudicate on whether the no-contest settlement is in the public interest prior to approving it.

This process appears to be distinct from determining the appropriate client compensation made pursuant to the settlement. In the recent cases with financial institutions, figures relating to compensation appear to have been tabled by each institution in a "compensation plan" for the OSC to approve. The implication is that the OSC itself does not determine the ideal amount to which investors are entitled, but relies on financial institutions' calculations. Does this process ensure that investors are fully and justly compensated? Without more information, we cannot be sure whether amounts paid out are less than amounts overcharged.

The bottom line is that it is not clear whether recent no-contest settlements involving financial institutions are in the public interest. Why not? First, to the extent that a settlement involves agreed-upon facts, fewer charges and no admission of guilt, other regulated parties and the general public may not know the basis for the sanction, thus lessening general deterrence.

The media sometimes state that institutions' clients were "mistakenly charged," and these mistakes were uncovered by "routine compliance reviews." But "routine compliance reviews" seems to be an inaccurate term. For example, no-contest settlements have been used to address the overcharging of fees. These charges have occurred over time spans ranging from two to 14 years, depending on the product, with each major bank having at least one issue that spanned eight years or more. Truly routine compliance reviews should have picked up these issues earlier.

After the no-contest settlement with TD Waterhouse Private Investment Counsel Inc. and related entities became public at the end of 2014, six other major financial institutions reached settlements based on near identical issues and proposed compensation plans. The odds that each of these institutions independently undertook "routine compliance reviews" and detected the same issues in the same short time span seem low.

Second, and relatedly, no-contest settlements raise concerns about the law's development. They are negotiated and discussed in camera and may result in fewer precedents for investors to use as a basis for future actions or for regulated parties to rely on in protecting themselves. Because of this black-box process, certain types of misconduct may never come to light, remaining obfuscated in a settlement.

Third, this lack of transparency can allow perverse incentives to creep through. Our country's major financial institutions may now believe that if they engage in egregious misconduct, perhaps conduct that violates the law, all that needs to be done is to pay their own version of appropriate compensation to their customers and a voluntary fine to the OSC. They can rest assured that the market will lack a factual, detailed account of events, and they will not suffer a major reputational blow as no reports of a hearing will be dragged through the daily news cycle.

There may be a legitimate role for NCS in Ontario securities law but issues regarding the process and relevant law raise serious concerns.

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