On April 6, 2017 the Canadian Securities Administrators (“CSA”) released CSA Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers. The goal of the paper is to identify and consider areas of securities legislation applicable to non-investment fund reporting issuers that could benefit from a reduction of undue regulatory burden, without compromising investor protection or the efficiency of the capital market. The CSA has raised a number of possible areas of reform to “support” public companies and to reduce regulatory burdens.
2.1 Extending the application of streamlined rules to smaller reporting issuers
The CSA is considering reducing reporting requirements for smaller reporting issuers based on a different metric other than venture / non venture exchange issuer, such as a size-based distinction (for example, by the size of its assets, revenue, market capitalization or a combination of criteria). These streamlined reporting requirements would include longer filing deadlines for annual and interim financial statements, a higher threshold for significant acquisition reporting, no requirement to file an annual information form (AIF), ability to file a quarterly highlights document to meet interim management’s discussion and analysis (MD&A) requirements, different corporate governance requirements and reduced certification requirements.
2.2 Reducing the regulatory burdens associated with the prospectus rules and offering process
(a) Reducing the audited financial statement requirements in an IPO prospectus
The CSA is considering allowing issuers that intend to list on a Non-Venture Exchange to present a reduced number of years of audited financial statements (three to two years) in their IPO prospectus if they have pre-IPO revenues under a certain threshold. Alternatively, the CSA is considering allowing all issuers to do so.
(b) Streamlining other prospectus requirements
The CSA is considering removing or modifying other prospectus requirements to reduce the issuer’s preparation costs including increasing BAR thresholds for non-venture issuers, removing the requirement for interim financial statements to be reviewed by an auditor, removing the requirement to include pro forma financial statements for significant acquisitions; and tailoring disclosure requirements for non-IPO prospectuses to focus on: the issuer’s business, the issuer’s management, conflicts of interest, securities distributed, and risks.
(c) Streamlining public offerings for reporting issuers
(i) Short form prospectus offering system
The CSA is considering eliminating or modifying existing short form prospectus disclosure requirements where such requirements are duplicative, are not providing potential investors with timely, relevant information or may be misaligned with current market practices (for example, risk factor disclosure and the required disclosure of price ranges and trading volumes). The CSA is also considering extending the short form prospectus offering system to additional reporting issuers not currently qualified to use it.
(ii) Potential alternative prospectus model
The CSA is considering limiting the disclosure in a prospectus to relevant items concerning the offering and the offered securities, such as a detailed description of the securities offered, intended use of proceeds, the plan of distribution, consolidated capitalization, earnings coverage, material risk factors associated with the offering and the offered securities, conflicts of interest and investors’ statutory rights of withdrawal, damages and rescission.
(iii) Facilitating at-the-market (ATM) offerings
The CSA is considering whether some of the current restrictions on ATM offerings could be relaxed or eliminated. An ATM offering is a continuous distribution by a reporting issuer of equity securities into a public trading market, such as the TSX, at prevailing market prices. Currently, a reporting issuer wishing to conduct an ATM offering must obtain exemptive relief from the appropriate regulatory authority and onerous conditions are imposed including limiting the number of securities that may be sold on any given trading day (as a percentage of the aggregate daily trading volume) and requiring monthly reports in respect of sales made through the ATM offering.
(d) Other potential areas
The CSA is also considering other areas for reducing regulatory burden associated with capital raising, including facilitating cross-border offerings and further liberalizing the pre-marketing and marketing regime.
2.3 Reducing ongoing disclosure requirements
(a) Removing or modifying the criteria to file a Business Acquisition Report (“BAR”)
The CSA is considering changes to the BAR requirements such as removing the requirement to file a BAR entirely in certain circumstances, removing one or more of the significance tests, increasing the threshold applied to the three significance tests for non-venture issuers and providing alternative tests based on specific industry criteria.
(b) Reducing disclosure requirements in annual and interim filings
The CSA is considering ways to refocus annual and interim filings including removing the discussion of prior period results from the MD&A, removing the summary of quarterly results for the eight most recently completed quarters in the MD&A and allowing all reporting issuers to meet interim MD&A requirements by preparing a “quarterly highlights” document
(c) Permitting semi-annual reporting
The CSA is considering providing reporting issuers the option to report on either a quarterly or semi-annual basis to all reporting issuers, or limit this option to smaller reporting issuers.
2.4 Eliminating overlap in regulatory requirements
The CSA is considering the removal of some or all of the overlap in the disclosure requirements of IFRS and Form 51-102F1 Management’s Discussion & Analysis in the following areas: financial instrument, critical accounting estimates, change in accounting policies and contractual obligations.
2.5 Enhancing electronic delivery of documents
Finally, the CSA is considering whether new methods of electronic delivery should be permitted to further reduce the use of paper to fulfill delivery requirements under the “notice and access method”.
Submissions on the above proposals are due by July 7, 2017. CSA Consultation Paper 51-404 is available for download from the websites of participating jurisdictions.
For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.
