On June 12, 2025, the Ontario Securities Commission (OSC) published final rules to facilitate the implementation of a new statutory framework for distributing amounts collected by the OSC under disgorgement orders to harmed investors. Traditionally, investors harmed by the wrongdoing of securities law violators had to find redress in the court system or through statutory ombud services. While securities regulators were permitted to issue disgorgement orders, there was no framework in place to distribute disgorged funds to harmed investors nor any requirement for the regulator to do so.
The final rules provide harmed investors with a streamlined path to restitution, through the regulators themselves. As always, time will tell whether the implementation of the statutory framework will successfully fulfill the intended purpose of making harmed investors whole. Nonetheless, the final rules represent a positive step towards meeting the OSC's mandate of protecting investors.
Under the previous statutory framework (which will continue in force until the implementation of the new statutory framework and the final rules), the Capital Markets Tribunal and the Ontario Superior Court of Justice had the authority to make disgorgement orders pursuant to the province's Commodity Futures Act (the CFA) and Securities Act (the OSA) when the Capital Markets Tribunal (or a court) determined that securities law has been contravened. However, there was no requirement on OSC Staff to distribute such funds to investors harmed by the conduct of the wrongdoer that formed the basis of the securities law violation, nor a specific mechanism or infrastructure for doing so. In this absence, disgorged funds could be allocated for a variety of specific and limited purposes, such as for the benefit of approved third parties (ordinarily for educational purposes).
Introduction of legislative amendments
On December 4, 2023, the Building a Stronger Ontario Together Act (Budget Measures) (Bill 146) received royal assent. Bill 146 provides for amendments to the OSA, the CFA and the Securities Commission Act, 2021. The legislative amendments will establish a new statutory framework governing the distribution of money received by the OSC under disgorgement orders to investors who incurred direct financial losses as a result of the contravention of Ontario securities law or Ontario commodity futures law. These amendments will come into force at a later date to be named by proclamation of the Lieutenant Governor.
The final rules and associated companion policies provide the regulatory framework to implement these legislative amendments. It is anticipated that the final rules and the companion policies will come into force at the same time as the legislative amendments.
Development of the final rules
The OSC published proposed versions of the final rules (the proposed rules) and the companion policies (the proposed companion policies) for public review and comment on July 11, 2024 (which we have previously written about). The final rules and the companion policies incorporate feedback received from this public review and commentary.
The OSC received submissions from eight commenters, who all expressed support for the proposal to modernize the framework for distributing disgorged funds to harmed investors. The commenters recommended certain changes to aspects of the proposed rules and proposed companion policies. Some of these persuasive non-material changes were incorporated into the final rules and final companion policies. Among other things, these changes included
- updates to the titles of the final rules and companion policies
- additional guidance to clarify that where an investor is unable to participate in the claims process, a person such as a trustee, executor or other legal representative may file a claim on behalf of the investor
- an additional exception to clarify that the distribution requirement will not apply in circumstances where the deadline for filing an appeal of the decision that gave rise to the disgorgement order has not yet expired, or where an appeal of the decision has been filed and the appeal process is ongoing
- revisions to the wording of the final rules to clarify that whether the OSC will proceed with a distribution of amounts received or will not proceed on the basis that the amount is too small is fact dependent rather than based on a specific monetary threshold
- additional notice requirements that the OSC must abide by
Framework under the final rules
The final rules seek to provide the following four key clarifying factors for the implementation of Bill 146:
- the circumstances in which money received by the OSC under disgorgement orders is required to be distributed
- the eligibility requirements for investors seeking payment from the disgorged amounts received by the OSC
- a process for distributing disgorged amounts to eligible investors in cases where a court-appointed administrator is not used
- the use of other monetary sanctions and settlement payments received by the OSC to pay certain administrative costs in relation to the distribution of disgorged amounts
Under the final rules, money received by the OSC in connection with a disgorgement order is required to be distributed to harmed investors, unless one of three exceptions applies:
- the money has been received under a disgorgement order in violation of section 76 of the OSA (insider trading and tipping prohibitions)
- the amount received under the disgorgement order is too small to justify the cost of distributing it, in the opinion of the OSC
- the deadline for filing an appeal of the decision that gave rise to the disgorgement order has not yet expired, or the appeal process is ongoing
Upon receiving money under a non-exempt disgorgement order, the OSC must publish notice on its website stipulating the amount of money received. If there is to be a distribution of the money, the OSC must also post on its website (and distribute a press release) setting out the claims process for eligible applicants and the period within which eligible applicants may file a claim.
Eligible applicants (i.e., harmed investors under the disgorgement order) may then submit an application within the applicable claims period. The application must detail the direct financial loss incurred by the applicant and the amount claimed, and it must be accompanied by supporting evidence. The OSC will not distribute any funds until all claims filed under the final rules have been considered and the amount to be paid to each applicant has been quantified. Payments to eligible applicants may be made either by a court-appointed administrator or by the OSC itself.
Additionally, the final rules provide a framework for the payment of administrative costs. These administrative costs, referred to in subsections 128.1(9) and (12) of the OSA, broadly involve costs incurred by the administrator in carrying out the disgorgement order. The payment of administrative costs will be made in the following order:
- first, from any administrative penalty or settlement money received by the OSC in relation to the proceeding that gave rise to the disgorgement distribution
- second, from the allocation of other penalty or settlement money held by the OSC in such an amount that the OSC considers appropriate
- third, from the disgorged amount that is subject to the distribution
Once the full sum of money received under a disgorgement order has been fully distributed, the OSC must publish a report within 60 days containing a variety of information in connection with the money distributed.
If 180 days have passed since payments were issued to eligible applicants and the OSC is unable to distribute an amount approved for payment, the amount will become the property of the OSC.
Implications
The investor advocate community has consistently and understandably raised concerns regarding the lengthy and involved process for harmed investors to seek — and only potentially obtain — financial remediation for losses incurred due to securities law contraventions. With the introduction of Bill 146 and the final rules, harmed investors will only be required to submit a claim to the OSC to obtain reparation. As a result, in finalizing and publishing the final rules, the OSC has taken a step towards remediation rather than merely protecting investors.
However, an increase in claims submitted to the OSC by harmed investors promises to increase the OSC's workload, including work directed at responding efficiently and proactively to prevent wrongdoing and investor harm. While providing harmed investors with access to disgorged funds is an appropriate objective, bringing a statutory regulator into the realm of restitution could redirect resources from its core functions. This is a risk that the regulator will need to manage when implementing this new regime, which will largely have to be mitigated by increasing its resources.
The new statutory regime and the final rules may also have interesting consequences. For example, courts (including the Supreme Court of Canada in AIC Limited v. Fischer) have previously certified securities class actions, notwithstanding pre-existing regulatory settlements. These cases have found that these regulatory settlements and the associated OSC proceedings, which include the distribution of funds to aggrieved investors, provided limited participation rights for investors and did not provide sufficient information regarding how OSC Staff assess investor compensation. As such, the regulatory settlements did not foreclose exposure to follow-on class proceedings and could not guarantee finality. This may have led to some hesitancy in resolving the matter with the regulator until the scope of civil exposure could be determined. If the greater certainty associated with this new statutory system for distributing amounts collected by the OSC under disgorgement orders to harmed investors limits the availability of class actions for investors, this could increase the attractiveness of resolving matters more promptly with the regulator.
In any event, it is apparent from this initiative, as well as the CSA's ongoing efforts to modernize the overall dispute resolution system (which will be the subject of another post), that regulators and the governments that support them continue to seek to strengthen the redress available to harmed investors and consumers as a key component of their mandate.
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