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AcSB Response – Canadian Securities Administrators (CSA) Notice and Request for Comment on Proposed National Instrument 52-112

Jan 24, 2019

On January 24, 2019, the Accounting Standards Board (AcSB) released its response to the CSA’s Request for Comment on Proposed National Instrument 52-112, which sets out disclosure requirements for non-GAAP financial measures and other financial measures when presented outside of an issuer’s financial statements.

Overall, the letter strongly supports global comparability in financial reporting. It also urges the CSA to weigh the benefits of leading in this area against increasing the regulatory disclosure burden on Canadian issuers beyond that of other jurisdictions. Accordingly, the letter encourages the CSA to:

  • closely consider the requirements of other global securities regulators to ensure that Canadian issuers are providing comparable information to issuers in other jurisdictions; and
  • work with regulators in other jurisdictions to ensure that Canadian issuers are not at a competitive disadvantage when compared to their international peers, as the result of the proposed increase in disclosure requirements.

Review the press release and comment letter on the AcSB's website.

2019 ISS and Glass Lewis updates to canadian proxy voting guidelines

Jan 22, 2019

On January 22, 2019, Bennett Jones LLP released a summary of the updates issued by Institutional Shareholder Services ("ISS") and Glass, Lewis & Co ("Glass Lewis") to their respective Canadian proxy voting guidelines for the 2019 proxy season. The ISS updates apply to shareholder meetings of publicly traded Canadian companies occurring on or after February 1, 2019, while Glass Lewis updates apply to meetings that are held on or after January 1, 2019.

Recommendations from proxy advisory firms such as ISS and Glass Lewis can have a significant impact on the outcome of business conducted at shareholder meetings, especially if institutional investors comprise a significant component of the company's shareholder base. Canadian public companies should review the updates with their legal counsel to determine the likely impact and take steps to mitigate any potential adverse voting recommendations from ISS or Glass Lewis.

The guideline includes an update to the ratification of the auditor: Glass Lewis has codified specific factors it will take into consideration when reviewing auditor ratification proposals. Specifically, Glass Lewis will assess an auditor's tenure, patterns of inaccurate audits, and any ongoing litigation or significant controversies that call into question an auditor's effectiveness. These factors may contribute to a negative voting recommendation against auditor ratification in limited circumstances.

Review the summary on Bennett Jones LLP's website.

IOSCO issues good practices to assist audit committees in supporting audit quality

Jan 17, 2019

On January 17, 2019, the Board of the International Organization of Securities Commissions (IOSCO) published the "IOSCO Report on Good Practices for Audit Committees in Supporting Audit Quality", which seeks to assist audit committees in promoting and supporting audit quality.

The quality of a company's financial report, supported by an independent external audit, is key to market confidence and informed investors, and to the effective functioning of capital markets. While the auditor has primary responsibility for audit quality, the audit committee should promote and support audit quality and thereby contribute to greater confidence in the quality of information in the listed company’s financial reports. The good practices report can assist audit committees in considering ways in which they may be able to promote and support audit quality.

The report sets out good practices regarding the features that an audit committee should have to be more effective in its role, including matters such as the qualifications and experience of audit committee members.

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

OSC taking action to reduce regulatory burden for Ontario market participants

Jan 14, 2019

On January 14, 2019, the Ontario Securities Commission (OSC) published OSC Staff Notice 11-784: Burden Reduction, which outlines plans to broadly consult Ontario market participants on ways to further reduce regulatory burden and improve the investor experience.

Key areas of focus for the OSC’s consultation include but are not limited to: Operational changes, rules that may have become outdated or unnecessary, and opportunities to streamline and improve disclosure provided to investors, who ultimately bear the cost of unnecessary or outdated regulations.

The consultation follows the OSC’s November 2018 establishment of a Burden Reduction Task Force, which has a mandate to consider and act on suggestions to eliminate unnecessary rules and processes while protecting investors and the integrity of Ontario’s capital markets. This initiative also builds on the OSC’s efforts, since 2016, to reduce regulatory burden across the country through its ongoing work with the Canadian Securities Administrators on projects to reduce burden in public markets and in the investment fund space.

The OSC encourages interested stakeholders to submit written comments on new initiatives that it should consider to reduce regulatory burden by March 1, 2019.

Review the press release and Staff Notice on the OSC's website.

CSA cautions issuers about problematic promotional activities

Nov 29, 2018

On November 29, 2018, the Canadian Securities Administrators (CSA) published CSA Staff Notice 51-356, "Problematic promotional activities by issuers", cautioning companies to avoid promotional activities that may artificially increase an issuer’s share price or trading volume, or may mislead investors.

The notice outlines CSA Staff’s concerns with certain promotional practices, including dissemination of unbalanced or unsubstantiated material claims. Such practices have been observed among issuers in the venture market, though expectations about disclosure and promotional activities apply to all issuers.

Examples of promotional activities that may be misleading include:

  • Disseminating presentations, marketing materials, social media posts, or other information that describe early-stage plans with unwarranted certainty, or make unsupported assertions about growth of markets or demand for a product;
  • Announcing an issuer name or business change to reference an emerging industry or technology without a supporting business plan or comprehensive risk disclosure;
  • Compensating third parties who use social media and general investing blogs to promote issuers, but do not disclose their agency, compensation or financial interest.

CSA members will continue to monitor promotional activities undertaken by, or on behalf of, issuers, and will take action as necessary, including ordering a clarifying news release, a removal of overly promotional language from company communications, or a re-filing of disclosure documents.

Review the press release on the CSA's website and the Staff Notice on the CSA members’ website.

OSC publishes report on exempt market activity

Nov 29, 2018

On November 29, 2018, the Ontario Securities Commission (OSC) published "Ontario Exempt Market Report 2018", which outlines capital raising activity by corporate (non-investment fund) issuers in Ontario’s exempt market during 2017. The report also provides a snapshot of key trends, particularly with respect to investors and issuers.

Institutional investors account for approximately $89.4 billion (or 98%) while individual investors contributed $2.2 billion (or 2%) of the total capital invested in Ontario’s exempt market.

The report revealed increased activity in Ontario’s exempt market, especially among Canadian issuers and small businesses. In 2017, approximately $37.6 billion was raised from Ontario investors by about 1,890 Canadian issuers. Approximately 37% of Canadian issuers that participated in Ontario’s exempt market were small issuers with under $5 million in assets and having raised less than $1 million.

The report also found that, collectively, prospectus exemptions introduced since 2015 have continued to gain traction among issuers and investors. Total capital raised under the offering memorandum and family, friends and business associates exemptions doubled in the last year to $327 million.

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

Canadian 2019 proxy season: what lies ahead

Nov 28, 2018

In November 2018, Norton Rose Fulbright published a summary of their recommendations when preparing for the upcoming proxy season.

Their recommendations include:

  • ESG: Take the lead on ESG, especially on environmental disclosure.
  • Diversity: When reviewing or adopting a diversity policy, keep in mind the definition of “designated group” and consider adopting a specific target relating to gender diversity. Review skill matrices and lists of potential board candidates.
  • Board renewal: Do not let your board become stale. Be proactive in reviewing its composition.
  • Directors: Balance the benefits of having well-known executives and busy corporate directors on the board versus the risk of lower engagement due to other commitments. Take proxy advisors’ voting guidelines into account when making nominations.
  • Proxy access: Stay abreast of developments regarding director appointments, including proxy access.
  • Directors’ elections: Review articles and by-laws, as well as majority voting policies. Consider vulnerability of directors.
  • Say-on-pay: Take your say-on-pay results seriously, have a strategy in place in cases of low approval rates and be ready to implement it when required.
  • Executive compensation: Do not underestimate shareholders’ interest in compensation.
  • Non-GAAP financial measures: Re-evaluate disclosure practices on non-GAAP financial measures in light of the proposed National Instrument and stay tuned for its entry into force.
  • Information to shareholders: Balance the benefits of physically mailing the materials to shareholders versus the savings to be made when only posting documents online.
  • Virtual shareholder meetings: Favour hybrid meetings to enjoy the benefits of both virtual and physical meetings, if you can afford the costs.
  • Accessibility: Ensure you meet the new online disclosure requirements and consider translating documents for shareholder convenience.
  • Director-shareholder engagement: Adopt an engagement strategy and identify topics for a productive discussion with shareholders.

Review the summary on Norton Rose Fulbright's website.

BCSC releases 2018 Compliance Report Card

Nov 28, 2018

On November 28, 2018, the British Columbia Securities Commission (BCSC) released its annual report on compliance. The annual report card. The BCSC is finding more deficiencies among portfolio managers, investment fund managers and exempt market dealers, as the commission becomes increasingly precise in choosing which firms to closely scrutinize.

Inadequate policies and procedures – including questionable risk management, outdated manuals, and weak cybersecurity policies and procedures – were the single most common category of deficiencies. Other common problems included inadequate disclosure, especially about the registrant-client relationship, and patchy efforts to ensure the suitability of investments for each client.

As a result of the compliance exams, the BCSC imposed extra restrictions on two firms, one of which decided to surrender its registration as a result. Two other firms chose to give up their registrations while still being examined.

The BCSC is increasingly referring the most egregious cases of non-compliance to its enforcement team for further investigation and possible penalties, including suspension or bans from the capital markets, as well as fines. In 2018, the BCSC opened investigations into four cases that began as compliance reviews.

Review the press release and Compliance Report Card on the BCSC’s website.

ASC announces the addition of a whistleblower program to its expanding enforcement toolbox

Nov 20, 2018

On November 20, 2018, the Alberta Securities Commission (ASC) announced the creation of its whistleblower program and the Office of the Whistleblower (OWB) through the adoption of "ASC Policy 15-602 Whistleblower Program" and accompanying amendments to the Securities Act (contained within Bill 20).

The program allows whistleblowers to safely and easily report potential breaches of Alberta securities laws. A whistleblower is an employee, including a person who is a contractor or a director of that organization, who voluntarily provides information to the ASC about an alleged securities law violation by their employer.

Employees are encouraged to provide good faith tips on securities-related misconduct by their employer, which can be a person or company. Tips could include information on insider trading, market manipulation, fraud, or issues relating to corporate disclosure or financial statements.

Along with new mechanisms and processes to make reporting easier, the program provides rigorous protections for whistleblowers. These include:

  • Heightened protection of the identity of whistleblowers. New provisions in the Securities Act (Alberta) mandate that a whistleblower’s identity is confidential and can only be disclosed in limited circumstances.
  • Protection from reprisal. It is against the law to take a reprisal against an employee, or a relative of the employee, for acting as a whistleblower to the ASC. Examples of a reprisal include dismissal from employment, demotion or harassment, among others. This protection is further strengthened by the ASC’s ability to take enforcement action in the event a reprisal occurs. The Securities Act establishes civil liability for an employer, or fellow employee, who takes a reprisal against a whistleblower.

Review the press release and policy on the ASC's website.

Decision of the Supreme Court of Canada - The AMF will continue to fully assume its role as an integrated regulator

Nov 09, 2018

On November 9, 2018, the Autorité des marchés financiers (AMF) acknowledged the decision handed down by the Supreme Court of Canada today, which has validated the constitutionality of the system proposed by the federal government and certain provinces involving the establishment of a new capital markets regulatory body. The AMF reiterated the view of the Québec Minister of Finance in his news release issued earlier today in which he reaffirmed, in particular, that the proposed system is not in the interests of Québec and Québec investors.

The AMF announced that it will continue to fully assume its role as an integrated regulator and focus its efforts on oversight of Québec’s markets and the protection of Québec consumers. Although a new regulatory body may eventually be created that does not involve all the provinces and territories, the AMF advised that it stands ready to do what it is currently doing as a member of the Canadian Securities Administrators—work with its peer regulators across the country to ensure the stability and efficiency of Canada’s markets and maintain a level of cooperation critical to the development of harmonized regulation that is at least as effective as the existing structure.

The AMF also advised that it will closely follow developments in this matter and continue its work with the same determination and concern for quality that have always made it a strong regulator that has influence with its provincial and territorial peers.

Re­view the press re­lease on the AMF's web­site.

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