At-a-Glance - Aon

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At-a-Glance In this Issue 1

Ontario releases details about New Ontario Retirement Pension Plan

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Toshiba executives resign as a result of company accounting scandal



SEC scrutiny of financial institutions results in almost $15-million fine for BNY MellonMellon

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Items of note

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Contacts

Issue 42

August 2015

Ontario releases details about New Ontario Retirement Pension Plan The Ontario government released details this month about the new Ontario Retirement Pension Plan (ORPP) that is expected to come into effect in 2017. The intended goal of the plan is to ensure that all employees have a predictable source of retirement income for life. Therefore, participation in the plan is mandatory unless employers currently sponsor a Defined Benefit (DB) or Defined Contribution (DC) pension plan that is “comparable” to the ORPP. The government has indicated that the legislation will contain specific criteria that must be met before an existing DB or DC plan will be deemed comparable to the ORPP such that the employer and its employees will be exempt from participation. Where an employer’s pension plan only covers some employees in Ontario, the employer will be required to contribute to the ORPP at the maximum employer/employee contribution rate (1.9%) for each employee that is not covered by the pension plan. Employers that have an existing workplace pension plan that does not meet the criteria to be deemed comparable, or that have a plan that does not cover all employees in Ontario, will have until January 1, 2020 to make plan design changes. Enrollment in the ORPP will be phased, with the start date for employers determined based on the number of employees and whether there is already a pension plan in place. For employers with no pension plan program and 500 or more employees, the requirement to contribute to the ORPP will begin on January 1, 2017. Employers with no pension plan and 50-499 employees will begin contributions on January 1, 2018. Employers with no pension plan and 50 or fewer employees will begin contributions on January 1, 2019. Employers (of any size) with an existing pension plan that does not meet the comparability test will have until January 1, 2020 to change the plan design or commence contributions to the ORPP. Group registered retirement savings plans and deferred profit sharing plans will not be considered to be comparable plans under the ORPP. Employers providing only these savings plans will have to contribute to the ORPP or establish a comparable pension plan program prior to the date of commencement for their ORPP contributions. It is anticipated that the process of verifying comparable workplace pension plans and enrolling employers will begin in 2016.

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At-a-Glance

Employers that offer a pension or benefit plan should be aware that those responsible for administering the plan can be held personally liable for losses incurred as a result of their alleged errors or omissions, or breach of their fiduciary duties. Thus, employers opting not

to participate in the ORPP and instead intending to establish their own plan should consider purchasing fiduciary liability insurance. This insurance is a risk management tool that can protect against the personal liability imposed upon directors,

officers and employees who oversee pension and other benefit plans, as well as the company that sponsors such plans.

Toshiba executives resign as a result of company accounting scandal In July of this year, Toshiba’s CEO and vicechairman announced their resignation from the company, along with six other members of the company’s board. Since April 2015, Toshiba has been embroiled in an accounting scandal that involved a number of members of senior management engaged in a scheme to inflate the company’s profits over a period of approximately six years. The doctored accounting began after top executives set unrealistic profit targets that compelled employees to delay booking losses or push forward sales. While the company CEO and vice-chairman conspired to hide the accounting irregularities from outsiders

to the company, the fraud was exposed when securities regulators uncovered issues in the company’s balance sheet. Toshiba has announced that it will have to restate its profits for the period between April 2008 and March 2014. An independent panel appointed by Toshiba has suggested that the firm overstated its operating profit by a total of $1.22 billion. Since news of the accounting scandal broke, Toshiba’s stock has fallen about 20 percent and multiple class-action lawsuits have been launched in the U.S. on behalf of Toshiba investors. Directors’ and officers’ (D&O) liability

insurance can be crucial to executives in a situation like that of Toshiba. In the event of a securities claim, a D&O insurance policy can provide insurance coverage for defence costs, judgments and settlement amounts incurred by the insured entity, the entity’s cost to indemnify its directors and officers, as well as the costs incurred by directors and officers in the event that they are denied indemnification by the corporation. Further, a D&O policy can provide defencecosts coverage to directors and officers accused of fraudulent or dishonest activity until such time that there is a final and binding finding of guilt in a court of law.

SEC scrutiny of financial institutions results in almost $15-million fine for BNY Mellon The SEC’s industry-wide investigation of sovereign wealth funds and financial institutions has resulted in bribery charges and a significant fine for Bank of New York Mellon (“BNY Mellon”) in the amount of USD 14.8 million. The SEC levied the fine pursuant to the Foreign Corrupt Practices Act (FCPA), alleging that BNY Mellon’s hiring practices violated the act’s anti-bribery provision. The FCPA makes it illegal for companies to offer foreign public officials anything of value as a means of exerting influence to acquire or retain business. According to the SEC, BNY Mellon agreed to hire three interns who were related to senior Financial Services Group | August 2015

officials of a wholly-owned sovereign wealth fund in a Middle Eastern country. The interns were hired following specific requests by the foreign public officials and the determination by BNY Mellon that the hiring was required to win the fund’s business. The interns were not subject to the normal hiring criteria for the internship program and were provided with experiences that went above and beyond those normally given to interns. In light of this case, financial institutions subject to regulation by the SEC should closely review their internal controls to ensure that adequate measures are in place to prevent improper hiring and other

practices that could constitute the provision of a bribe. However, the BNY Mellon example should also be of interest to Canadian issuers that are subject to Canada’s Corruption of Foreign Public Officials Act (CFPOA). The CFPOA contains broad language, similar to the FCPA, which extends the definition of bribe to include a “benefit of any kind.” Thus, a wide scope of conduct or activities could result in a violation of the CFPOA. In addition, many Canadian financial institutions face the risk of enforcement from both the SEC and Canadian authorities. While any criminal fines and penalties levied for violations of the CFPOA will 2

At-a-Glance

be uninsurable under the law, a properly constructed D&O insurance policy can assist individual directors or officers by providing defence costs to defend against allegations under the act. Further, robust D&O policies may also provide investigative costs coverage which could cover legal costs

incurred by directors and officers as a result of an RCMP investigation. With respect to the entity, a distinction is made between the coverage provided to private versus public organizations. A private organization could have coverage under its D&O policy to defend against allegations under the CFPOA,

depending on the terms and conditions of the policy; whereas a public organization will not have coverage unless a specialized public company endorsement is purchased.

• A recent report commissioned by Ontario’s Ministry of Government and Consumer Services, the Business Law Agenda, has been released. The report considers 19 different corporate and commercial statutes in Ontario and contains a number of recommendations intended to identify areas of legislation that require review. Of note, is a recommendation that legislation should provide greater certainty about the standards to which directors and officers will be held, the liabilities to which they are exposed and defences and protections available to them. This could potentially result in changes to the current standards that directors and officers are required to meet under the Ontario Business Corporations Act and other corporate statutes. The Ministry is seeking comments from the public on the report’s recommendations until October 16, 2015.

• In a recent settlement related to its 2013 cyber breach, Target has agreed to pay up to $67 million to Visa and other financial institutions that issued new cards to Target customers whose information had been compromised. However, Target is still facing class-action litigation from a separate group of banks over breachrelated losses after an attempt to reach a similar deal with Mastercard in May of this year, with a proposed $19 million settlement, did not garner sufficient support from all affected banks and credit unions.

Items of note • The Securities Exchange Commission (“SEC”) in the U.S. has adopted a new rule that will require U.S. traded companies to disclose the ratio of their CEO’s compensation to the median compensation of the company’s other employees. Emerging growth companies, Canadian MJDS issues and other foreign private issuers are exempt. The SEC has not established a methodology that must be used to calculate the ratio, but companies must use all types of employees in the calculation, including full-time, part-time, temporary and seasonal. Most issuers will be required to disclose the ratio as part of their executive compensation disclosure for 2018 annual reports. Issuers in Canada that are also traded in the U.S. may elect to voluntarily disclose this information although it is not currently required by Canadian securities regulators.

Financial Services Group | August 2015

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Prepared by Jennifer Drake LL.B Financial Services Group Legal and Research Practice t +1.416.868.2432 [email protected]

Key Contacts Brian Rosenbaum LL.B Senior Vice President and National Director Financial Services Group Legal and Research Practice t +1.416.868.2411 [email protected] Desiree Money, CAIB, CRM Vice President and Regional Manager Financial Services Group t +1.403.267.7754 [email protected]

Marie-Frédérique Senécal Senior Vice President and National Broking Manager t +1.514.840.7820 [email protected] Denise Hall Senior Vice President t +1.416.868.5815 m +1.416-953-3280 [email protected]

Catherine Richmond, LL.B., CRM Senior Vice President and Regional Manager t +1.604.443.2429 m +1.604.318.547 [email protected]

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