When the Ontario Securities Commission (OSC) first floated the idea of no-contest settlements, there was an outcry, from both the plaintiffs’ bar and investor advocates, about the potential negative consequences for investors.

Critics of the idea warned that allowing firms to settle enforcement allegations without admitting to any wrongdoing would harm investors by taking away a common foundation for followup civil lawsuits from harmed investors, making lawsuits much more difficult.

But the OSC’s recent no-contest settlement with TD Waterhouse Private Investment Counsel Inc., TD Waterhouse Canada Inc. and TD Investment Services Inc. shows how the regulator’s newfound power to settle cases without admissions of guilt actually can benefit investors.

First, no-contest settlements lead to faster resolutions. In this case, the bank first reported its discovery that it had been overcharging certain clients in May of this year, and reported further discoveries as recently as September. By early November, TD had settled the case with the OSC, and, more important, has already begun the process of compensating clients.

Second, no-contest settlements are no “get out of jail free” card. They are available only in specific circumstances, such as cases in which firms voluntarily report their violations to the regulator, co-operate with any subsequent investigation and compensate investors, if appropriate.

Thus, firms are encouraged to come forward and resolve possible systemic issues rather than covering them up. These settlements also facilitate investor compensation, which can be difficult otherwise, and change the tone of the relationship between the regulator and the regulated from adversarial and combative to collegial and co-operative.

No-contest settlements benefit firms, too, by enabling them to resolve possible enforcement issues quickly and fairly. Firms avoid costly legal battles and can save face with clients by promptly doing the right thing – possibly preserving more of those relationships than firms would otherwise.

There are risks in allowing no-contest settlements. But – at least, in this case – those risks are outweighed by the rewards for harmed investors.

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