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Securities

CSA 2019-2020 Enforcement Report

Sep 30, 2020

In September 2020, the Canadian Securities Administrators (CSA) released its 2019-2020 Enforcement Report. This annual report highlights actions taken across Canada to deter and sanction wrongdoing in the capital markets.

Review the report on the CSA's website.

AMF publishes annual summary of corporate finance oversight and regulatory activities

Sep 24, 2020

On September 24, 2020, the Autorité des marchés financiers (AMF) published its annual Summary of Oversight and Regulatory Activities, which details the key initiatives of the Direction principale du financement des sociétés (“Corporate Finance”) for the 2019-2020 fiscal year.

After presenting a profile of companies for which the AMF is the principal regulator, the summary outlines the outcomes of reviews of continuous disclosure documents and prospectuses filed by the companies. The summary also presents findings of reviews relating to AMF regulations and the guidance set out in international financial reporting standards.

In a spirit of openness and transparency, the summary also provides the market with information on the representation of women on boards and in executive officer positions and ongoing regulatory initiatives relating to company financing and continuous disclosure requirements.

The last part of the summary describes the many innovations that have been implemented by the AMF over the past year—particularly in response to the pandemic, which has had an impact on company disclosures and their analysis.

Review the press release and report on the AMF's website.

Canadian securities regulators propose changes to the offering memorandum prospectus exemption

Sep 17, 2020

On September 17, 2020, the Canadian Securities Administrators (CSA) published for comment proposed changes to the offering memorandum prospectus exemption. The changes are reflected in proposed amendments to National Instrument 45-106 "Prospectus Exemptions" (NI 45-106), as well as proposed changes to Companion Policy 45-106CP "Prospectus Exemptions".

The proposed amendments set out new disclosure requirements for issuers that are engaged in “real estate activities” or issuers that are “collective investment vehicles”. These include a new requirement for issuers with real estate activities to provide an independent appraisal of the real property, if it discloses a value for the real property other than in its financial statements, will use a material amount of the proceeds to acquire an interest in real property, or acquire an interest in real property from a related party. It is proposed that issuers that are collective investment vehicles will need to provide better disclosure to investors about the issuer’s investment decision-making process and the composition and performance of the issuer’s portfolio.

Many issuers using the offering memorandum prospectus exemption are issuers that would meet these proposed definitions, and some already provide disclosure that would meet the proposed requirements. The new requirements are intended to set out a clearer framework for these issuers, giving them greater certainty as to what they must disclose, while giving investors more complete and relevant information.

In addition, the proposed amendments include a number of general amendments, which are meant to clarify or streamline parts of NI 45-106 or improve disclosure for investors.

The CSA Notice and Request for Comment setting out the proposed amendments can be found on the websites of CSA members. Comments should be submitted in writing by December 16, 2020.

Review the press release on the CSA's website and the proposed changes on the OSC's website.

Canadian securities regulators reduce regulatory burden related to business acquisition reports

Aug 20, 2020

On August 20, 2020, the Canadian Securities Administrators (CSA) published amendments to the business acquisition report (BAR) requirements for reporting issuers that are not venture issuers.

The amendments aim to reduce regulatory burden and address certain concerns expressed by stakeholders.

For reporting issuers that are not venture issuers, the amendments will change the criteria for determining whether a completed acquisition is significant, based on three tests set out in National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102). The amendments:

  • require that at least two of the three existing significance tests in NI 51-102 are triggered (previously, only one test had to be triggered)
  • increase the significance threshold in those tests from 20 per cent to 30 per cent.

The amendments are being adopted following an extensive consultation process, including comment letters and other stakeholder feedback, as well as consideration of historical data on past BAR filings and exemptive relief granted to assess the impact of the amendments.

Provided all necessary ministerial approvals are obtained, the amendments are effective on November 18, 2020.

Review the press release on the CSA's website and the amendments on the CSA members’ websites.

Ontario introduces interim registration and prospectus exemptions to facilitate start-up securities crowdfunding

Jul 30, 2020

On July 30, 2020, the Canadian Securities Administrators (CSA) announced that in light of COVID-19 and the challenges it presents to small businesses seeking to raise capital, the Ontario Securities Commission (OSC) made an interim local order that adopts the start-up crowdfunding regime currently in place in certain other Canadian jurisdictions (the Interim Order).

The Interim Order, which takes effect in Ontario on July 30, 2020, provides registration and prospectus exemptions for start-up crowdfunding that are substantially similar to the local exemptions in British Columbia, Alberta, Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia.

On February 27, 2020, the CSA published for comment National Instrument 45-110 Start-Up Crowdfunding Registration and Prospectus Exemptions (the Proposed National Instrument), which will replace and harmonize the local start-up crowdfunding exemptions in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick and Nova Scotia (as well as those in Ontario adopted through the Interim Order). The comment period on the Proposed National Instrument ended on July 13, 2020.

The Interim Order can be found on the OSC’s website and remains in effect until the Proposed National Instrument is adopted or until 18 months from the effective date of the order. Other jurisdictions will make corresponding updates to their local guidance documents to include Ontario.

Review the press release on the CSA's website and the interim order on the OSC's website.

FRC publishes thematic review findings on financial reporting effects of COVID-19

Jul 21, 2020

On July 21, 2020, the UK Financial Reporting Council (FRC) has published the results of a thematic review looking at company reporting since the onset of the COVID-19 pandemic. The review found that some – particularly interim reports - would have benefited from more extensive disclosure

The review analyzed a sample of March 2020 interim and annual reports and accounts and found that although companies provided suf­fi­cient in­for­ma­tion to enable a user to un­der­stand the impact COVID-19 had on their per­for­mance, position and future prospects, some - par­tic­u­larly interim reports - would have benefited from more extensive dis­clo­sure.

The FRC reminds companies that they should: 
 

  • explain the sig­nif­i­cant judge­ments and estimates made in preparing their accounts and provide mean­ing­ful sen­si­tiv­ity analysis or details of a range of possible outcomes to support any disclosed es­ti­ma­tion un­cer­tainty;
  • describe any sig­nif­i­cant judge­ments made in de­ter­min­ing whether there is a material un­cer­tainty about their ability to continue as a going concern;
  • ensure that as­sump­tions used in de­ter­min­ing whether the company is a going concern are com­pat­i­ble with as­sump­tions used in other areas of the financial state­ments;
  • apply the re­quire­ments of IAS 1 to any ex­cep­tional or similar items, with income statement sub-to­tals com­pris­ing only items recog­nized and measured in ac­cor­dance with IFRS;
  • apply existing accounting policies for ex­cep­tional and other similar items to COVID-19 related income and ex­pen­di­ture con­sis­tently and should not split income and expenses between COVID-19 and non-COVID-19 financial statement captions ar­bi­trar­ily; and
  • prepare interim reports that provide suf­fi­cient in­for­ma­tion to explain the impact that COVID-19 has had on their per­for­mance, position and future prospects.

For further details, refer to the FRC press release and the Review Report.

AcSB publishes its Response Letter to the CSA on Proposed National Instrument 52-112

Jul 13, 2020

On July 13, 2020, the Accounting Standards Board (AcSB) published its response letter to the Canadian Securities Administrator’s (CSA) Second Notice and Request for Comment on Proposed National Instrument 52-112. This Notice sets out disclosure requirements for non-GAAP financial measures and other financial measures when presented outside of an issuer’s financial statements.

Overall, the AcSB commends the CSA for taking into consideration the comments received on the first version of the Proposed National Instrument to improve the application of these proposals. The response letter also highlights the AcSB’s support for the CSA’s objective of ensuring investors receive appropriate disclosure without unduly increasing regulatory burden on issuers. In particular, the letter encourages the CSA to consider the interaction of the CSA’s Proposed National Instrument and the IASB’s Primary Financial Statement project proposals. It also highlights the AcSB’s willingness to stand ready to work with stakeholders and the CSA to help clarify application challenges that may arise.

Re­view the response letter dated June 29, 2020 on the AcSB's web­site.

Ontario seeking input on modernizing capital markets

Jul 09, 2020

On July 9, 2020, the Ontario government announced that it is continuing to seek advice and input from people and organizations on modernizing Ontario's Capital Markets and supporting economic growth and job creation with the posting of the Capital Markets Modernization Taskforce initial consultation report.

Over the last few months, the Taskforce listened to over 110 stakeholders about the challenges they face, including financial institutions, small and large publicly-listed companies, independent investment dealers, industry associations, law firms and investor advocacy groups. The Capital Markets Modernization Taskforce consultation report outlines their findings and more than 47 policy proposals to modernize the province's capital markets.

The Capital Markets Modernization Taskforce will provide recommendations to the Minister of Finance on how to transform the regulatory landscape for capital markets. Following this consultation, a final report will be submitted to the Minister before the end of the year. The consultation will end on September 7, 2020.

Review the press release on the Ontario government's website.

IASB Board member discusses benefits and costs of digital reporting (XBRL)

Jul 07, 2020

On July 7, 2020, IASB Board member Ann Tarca delivered a speech at the virtual annual conference of the Accounting & Finance Association of Australia and New Zealand (AFAANZ). She discussed digital reporting and included questions for practitioners, standard-setters and researchers.

Ms Tarca began her speech by talking about what XBRL is and who uses it. She explained about tagging financial statements, the different versions of XBRL, and gave examples of different uses in the US, in the EU, in the UK, in Japan, in Denmark and in Australia.

This led her to four questions: Why have we been slow to embrace digital financial reporting, when the benefits of technological innovation have been profound in other areas of accounting and finance? What does research tell us about the US experience from a company preparer/auditor perspective? Do investors want digital reporting? Are there benefits for capital markets?

On the first question, Ms Tarca explained that when lodging annual reports in XBRL format is not mandatory, listed companies need a compelling case to take on an activity that consumes resources as tagging financial statements will involve software, systems, expertise, staff and consultants.

On the second question, Ms Tarca mentioned experiences at the SEC pointing to some significant problems relating to the accuracy of tagging and excessive or erroneous use of extensions. However, later errors became less prevalent and some ‘learning’ took place.

Turning to the third question, Ms Tarca pointed at the fact that there seems to be low demand from investors for regulators to make tagged data mandatory as the financial data investors use is already digital in many cases as they get it from database providers. Tagging of data would, therefore, likely help the database providers, who could then focus more on ‘standardizing’ and ‘normalizing’ data and providing their various other value-adding activities for their clients.

Finally, in discussing the fourth question, Ms Tarca noted research that concluded that XBRL has the potential to decrease information risk and information asymmetry through greater transparency and leads to reduced information processing costs. However, she warned that because of limited use of XBRL data by financial statement users research in this area is still in its early stages.

Ms Tarca concluded her speech mentioning some opportunities for further research around comparability, quality, financial statement presentation, and disclosures.

Please click to access the transcript of her speech on the IASB website.

Position paper calling for a global standard-setter for non-financial reporting

Jul 06, 2020

On July 6, 2020, the Eumedion Foundation has published a position paper 'Towards a global, investor focused standard setter for corporate non-financial reporting' calling on the IFRS Foundation to establish such a standard-setter.

Eumedion is a non-profit organization based in the Netherlands that monitors listed companies in the Nether­lands and in Europe on their ESG-per­for­mance and looks at risk man­age­ment, re­mu­ner­a­tion, trans­parency and reporting. Eumedion operates as a rep­re­sen­ta­tive of the interests of in­sti­tu­tional investors in the field of corporate gov­er­nance and sus­tain­abil­ity.

The position paper published concludes the final views of Eumedion, following the pub­li­ca­tion of Eumedion’s Green paper in October 2019, the feedback received during the Eumedion Con­fer­ence 2019, the formal and informal responses received and the insights shared during the round table that Eumedion organized together with Ac­coun­tancy Europe on March 9, 2020.

Key messages of the position paper are:

  • Investors struggle to un­der­stand how a company creates long-term value and how a company lives up to the valid needs of society where non-fi­nan­cial per­for­mance matters.
  • There is a need for an International Non-fi­nan­cial reporting Standards Board (‘INSB’) to ensure that en­force­able and con­sis­tent in­vestor-rel­e­vant non-fi­nan­cial in­for­ma­tion is faith­fully reported.
  • Eumedion calls on the IFRS Foun­da­tion to establish the INSB, as a second separate board next to the International Accounting Standards Board (IASB).
  • External auditors should provide at least limited assurance on the in­for­ma­tion reported; this would enhance the re­li­a­bil­ity of corporate non-fi­nan­cial reporting.

The position paper states that the EU needs to be credited for its important role in ac­cel­er­at­ing the adoption of IFRSs to the current near-global level and expresses the belief that the EU could play a similar role for international non-fi­nan­cial reporting standards. Eumedion also urges the EU to adhere to its lead­er­ship role in the field of non-fi­nan­cial reporting. However, the paper quotes ESMA Chair Steven Maijoor in warning that: “It would not only be short-sighted but also detrimental for investors – who typically operate in global financial markets – to build a set of corporate ESG disclosure standards that is only regional.”

Please click to access the full position paper on the Eumedion website.

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