Federal Budget Round-Up, Russia and Belarus Sanctions, Cyber-related Securities Litigation and More: Timely Topics - May 2023
Timely Topics with McCarthy Tétrault curates the latest market trends on a monthly basis to help you stay informed of developments that can affect your business. This content is current as of May 2nd , but please connect with us if you have any questions on any of the topics below.
Here are this month’s trending topics:
1) McCarthy Tétrault Federal Budget Round-Up
On March 28, 2023, Canada’s Deputy Prime Minister and Minister of Finance, Chrystia Freeland delivered the Liberal Government’s federal budget, “A Made-in-Canada Plan: Strong Middle Class, Affordable Economy, Healthy Future” (“Budget 2023”).
Outlining the federal government’s economic vision to combat inflation and the lingering effects of the COVID-19 Pandemic, Budget 2023 contains fiscal updates relevant to business leaders and policymakers across Canada.
As part of McCarthy Tétrault’s commitment to keep our clients apprised of the legal and policy developments relevant to their businesses, we have published a variety of Budget 2023 related materials, outlined below:
McCarthy Tétrault’s industry-leading Tax Group has prepared a detailed analysis of tax measures in Budget 2023 that are most relevant to businesses and their owners in their 2023 Canadian Federal Budget Commentary – Tax Measures and 2023 Canadian Federal Budget Commentary – Clean Energy and Tax Incentives publications.
Budget 2023 also contains significant changes that employers will want to keep in mind. In particular, there are provisions that will amend the Canada Labour Code (“CLC”), change pensions and benefit programs, and create new reporting requirements for employers. The CLC applies to federally regulated employers only, so those changes will not affect provincially regulated employers. Our Labour & Employment and Pensions, Benefits, & Executive Compensation practice groups have teamed up to highlight the key provisions for employers to note in their article titled: Federal Budget 2023: What Employers Need to Know.
Budget 2023 also outlines a number of measures that will have a significant effect in the international trade and investment domain. McCarthy Tétrault’s International Trade and Investment Law Group has prepared a useful summary of the key proposals impacting companies subject to Canada’s economic sanctions, customs, supply chain, forced labour and food and drug regulatory regimes.
Additionally, Budget 2023 demonstrates the federal government’s commitment to incentivize the development of projects related to clean energy and technology. Emerging clean technologies, including small modular reactors (“SMRs”), will increasingly have an important role to play in attracting investment and securing Canada’s position as a leader in the clean energy economy. As outlined in an article from McCarthy Tétrault’s National Energy Group, Budget 2023 contains exciting developments related to the expansion of SMR technology and investment in Canada.
Finally, Budget 2023 also includes a number of measures directed to the financial services sector, explained and summarized by McCarthy Tétrault’s Financial Institutions Regulatory Matters Group in their Budget 2023: Financial Institutions Update.
For further information on what Budget 2023 means for you and your business, please contact your trusted McCarthy Tétrault advisor.
2) Canada Unveils New Russia & Belarus Sanctions
On April 5, 2023, amendments to the federal Special Economic Measures (Russia) Regulations (the “Russia Sanctions”) and the Special Economic Measures (Belarus) Regulations (the “Belarus Sanctions”) came into force. These sanctions expand on Canada’s previously enacted economic sanctions against Russia and Belarus in response to Russia’s illegal invasion and occupation of Ukraine.
The sanctions identify certain persons (the “Designated Persons”) with whom persons in Canada or Canadians anywhere are prohibited from having any dealings in property, wherever situated, that is owned, held or controlled by or on behalf of a Designated Person, entering into or facilitating any dealing related to such property, providing financial or related services in respect of a dealing in such property or to or for the benefit of a Designated Person, or making any goods available to a Designated Person. The Russia Sanctions list 14 new individuals as Designated Persons who the Canadian government has identified as “financial elites” and “senior mangement at Russian companies that provide military services to Russia”, including individuals with known ties to the Wagner Group. The Russia Sanctions also list 34 new entities as Designated Persons, described as “largely military technology and logistics companies” either with ties to the Wagner Group or operations in the aviation industry. The Belarus Sanctions list nine new Belarussian financial instutions, identified as “Russian and Belarussian-owned banks in Belarus”, as Desiganted Persons.
Canadian companies and companies with operations or other connections in Canada should review their dealings and update their sanctions screening protocols, including by adopting robust due diligence practices, to ensure they are not engaged in any transactions involving any of these Designated Persons or any entites or property controlled by them. There remains some uncertainty over the threshold for establishing “control” by a Designated Person, but the involvement of a Designated Person financial institution at any step in the transaction, even if only as an originating or intermediary bank for the movement of funds belonging to another party, can trigger the application of the sanctions prohibitions.
If you’d like to speak about how the sanctions impact your business, please connect with a member of our International Trade and Investment Law Group.
3) Is Cyber-Related Securities Litigation Coming to Canada?
The prevalence and sophistication of cyber attacks are an emergent risk for public companies and other capital market participants. As a result, there is heightened scrutiny by stakeholders, who are increasingly challenging the adequacy of cybersecurity-related disclosures following a cybersecurity incident, both through class action litigation and complaints to regulators.
Currently, in Canada, any material cybersecurity risks or cybersecurity incidents must be disclosed under general disclosure requirements. However, Canadian securities regulators have not imposed enhanced mandatory disclosure about cybersecurity risk management, a company’s cybersecurity posture or cyber attacks.
In the United States, the US Securities and Exchange Commission (SEC) has recently proposed new cybersecurity-specific rules that, if implemented, will impose significant new disclosure obligations. If the SEC’s new rules are implemented, companies’ increased disclosure obligations may provide more fodder for class action plaintiffs and counsel, in an already developing area of class action law in the United States.
Trends in the United States are often a harbinger of what may be coming to Canada. Given these developments, we anticipate that Canadian plaintiff’s counsel will follow the trend in the United States, and commence securities-related class actions based on inadequate cybersecurity disclosures. Given the heightened risk of, and enterprise impacts from, a cyber attack, issuers should anticipate that Canadian securities regulators are either already, or will soon be, considering increasing their regulatory reach over issuers’ cybersecurity and disclosure obligations, and Canada may begin to see cyber-related securities class actions.
4) The Race to Green: A Perfect Storm for Heightened Scrutiny and Litigation
The increasing prevalence of physical, financial and social impacts arising from the climate crisis has shifted stakeholder sentiment and created a unique opportunity for value creation in the transition to a net zero economy. This “race to green” is happening against the backdrop of a rapidly evolving landscape for sustainability-related disclosures and a growing wave of greenwashing litigation against companies and their directors and officers.
This evolving disclosure landscape and the lack of any global baseline for consistent comparable mandatory sustainability-related disclosures created unique challenges for issuers and asset managers, including increased risk of scrutiny by stakeholders for greenwashing. In Canada, mandatory climate-related disclosure requirements are still relatively limited.
McCarthy Tétrault’s ESG & Sustainability and Securities Litigation groups detail the regulatory enforcement and global upswing of civil litigation in their recently published article. Furthermore, with the expected continued growth in sustainability-related litigation, complaints, and regulatory enforcement action, the article outlines what Canadian issuers and their directors can do to mitigate such risks.
If you are interested in additional ESG related articles including ESG-related shareholder activism, we encourage you to read our latest insights or connect with a member of our multidisciplinary ESG and Sustainability team.
This newsletter is designed to provide general information only. This newsletter does not provide legal advice on specific issues. You are encouraged to consult with legal counsel should you require assistance in addressing a particular issue or concern.
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