Canadian Securities Administrators Provide Update on Projects Aimed at Reducing Regulatory Burden on Issuers in the areas of Prospectus Filings and Continuous Disclosure
The Canadian Securities Administrators (CSA) recently issued Staff Notice 51-353 – Update on CSA Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers (Staff Notice). The Staff Notice reports on a consultation paper that the CSA issued last year, which consultation paper was aimed at identifying areas of Canadian securities legislation where the regulatory burden for non-investment fund reporting issuers could be reduced, while still balancing the need for investor protection and capital market efficiency.
The Staff Notice summarizes comments received in response to the consultation paper, and identifies six options for initial policy projects to be undertaken by the CSA in the “near term”.
This blog posts summaries those six initial policy projects.
Initial Policy Projects
- Potential alternative prospectus model. The CSA continues to consider whether there should be an alternative prospectus offering model for reporting issuers to the current short form prospectus regime, with such alternative relying on disclosure that is “more concise and focused” than the requirements of the short form prospectus rules. As a next step, certain CSA jurisdictions are going to explore potential alternatives to the short form prospectus regime.
- Facilitating at-the-market offerings. In the Staff Notice, the CSA noted that while Canadian securities laws do establish rules for at-the-market offerings under shelf prospectuses, those rules do not provide a comprehensive framework because they do not exempt at-the-market offerings from some of the securities legislation applicable to all prospectus offerings. The result is that reporting issuers doing an at-the-market offering need to first obtain exemptive relief from the securities commissions. Comments in response to the consultation paper noted that the requirement to obtain exemptive relief may contribute to the infrequency of at-the-market offerings in Canada, and suggested that some of the current restrictions on at-the-market offerings should be relaxed or eliminated. As a next step, the CSA intends to initiate a policy project in the area of at-the-market offerings.
- Revising the primary business requirement. Comments in response to the consultation paper suggested that the CSA revisit the interpretation of the rules which outline the historical financial statement requirements for initial public offering prospectuses, and eliminate inconsistencies in how these rules are interpreted across the CSA. As a next step, the CSA is looking at ways to clarify the interpretation of this requirement so that issuers preparing an IPO prospectus have greater clarity.
Continuous Disclosure Requirements
- Removing or modifying the criteria to file a business acquisition report. Reporting issuers are currently required to file a business acquisition report (often referred to as a “BAR”), in a specified form, upon the completion of a significant acquisition. In the Staff Notice, the CSA acknowledged that reporting issuers frequently apply for and are granted relief from the BAR requirements and that the BAR can entail significant time and cost. Comments in response to the consultation paper questioned the value of the BAR disclosure, and offered suggestions on how the CSA can reduce the regulatory burden associated with the BAR requirements. As a next step, the CSA intends to initiate a policy project in the area of BAR requirements.
- Revisiting certain continuous disclosure requirements. Comments in response to the consultation paper supported the: (i) elimination of duplicative disclosure among the financial statements, MD&A and other requirements of National Instrument 51-102 – Continuous Disclosure Obligations; (ii) consolidation of two or more of the financial statements, MD&A and annual information form into one reporting document; and (iii) reduction of the volume of information in annual and interim filings to prevent excessive disclosure from obscuring key information and otherwise improve the quality and accessibility of disclosure. As a next step, the CSA intends to review certain continuous disclosure requirements to determine where the regulatory burden on issuers can be reduced, and usefulness and understandability for investors enhanced.
- Enhancing electronic delivery of documents. In the consultation paper, the CSA acknowledged that some market participants are of the view that significant costs are associated with printing and delivering various documents required under Canadian securities laws. Comments in response to the consultation paper were generally supportive of developments that would further facilitate electronic delivery of documents. As a next step, the CSA intends to initiate a policy project in this area, but noted that certain legal aspects of electronic delivery are outside the scope of its mandate.
Reporting issuers are likely to welcome the reduction in regulatory requirements contemplated by the policy projects noted above. There is no assurance that the policy projects will result in any regulatory changes and any proposed amendments will be subject to public comment. We will continue to monitor the status of these policy projects and provide updates as they progress.