Canadian Securities Administrators proposes amendments to streamline continuous disclosure requirements
By Lindsay Cox and Ben Otto
On May 20, 2021, the Canadian Securities Administrators (the CSA) published a notice (the Notice) asking for comments on proposed amendments to National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) and other amendments and changes to related securities laws and policies in respect of the annual and interim filings of non-investment fund reporting issuers (collectively, the Proposed Amendments). The Notice also seeks feedback on a proposed framework for semi-annual reporting for venture issuers on a voluntary basis (the Proposed Framework).
Aim to reduce the burden on issuers
The Proposed Amendments stem from comments received in response to the CSA Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers, comparable requirements in other countries and other stakeholder feedback about disclosure requirements and annual and interim filings. By implementing the Proposed Amendments, the CSA aims to increase reporting efficiency by reducing the regulatory burden on reporting issuers' continuous disclosure obligations and increase the quality and usefulness of the information investors receive. In particular, the Notice provides that the Proposed Amendments are intended to:
- streamline and clarify certain disclosure requirements in management's discussion and analysis (MD&A) and the annual information forms (AIF) for non-investment fund reporting issuers;
- eliminate certain requirements that are redundant or no longer applicable;
- combine the financial statements, MD&A and, where applicable, AIF into one reporting document called the annual disclosure statement for annual reporting purposes, and the interim disclosure statement for interim reporting purposes; and
- introduce a small number of new requirements to clarify and address gaps in disclosure.
The CSA notes that some of the Proposed Amendments are to align certain prospectus form requirements with the continuous disclosure form requirements.
Streamline the disclosure requirements
The Proposed Amendments aim to eliminate disclosure requirements that are duplicative or redundant or can be consolidated with other disclosure requirements. For example, the CSA proposes to eliminate situations where an issuer is required to disclose certain information that is readily available elsewhere, including in the issuer's previous continuous disclosure documents. The CSA notes that this is intended to reduce the burden on reporting issuers from having to repeat certain information, and investors can better focus on key information as they will generally have less disclosure to read. For example, the Proposed Amendments would eliminate certain MD&A and AIF form requirements in respect of critical accounting estimates, off balance sheet arrangements and dividends and distributions paid, as such information would already be disclosed in the reporting issuer's financial statements under Canadian GAAP, and information that can be easily obtained by investors from the reporting issuer's prior filings and other sources, such as financial information for the reporting issuer's previous eight quarters from the MD&A form and three year business history, prior sales and security trading information from the AIF form.
The Proposed Amendments also seek to clarify disclosure requirements that are vague or otherwise unclear by providing clear expectations of the CSA with the goal of reducing the likelihood of reporting issuers disclosing unnecessary information to ensure they are not in default of their disclosure requirements.
The Proposed Amendments seek to reduce the disclosure burden for reporting issuers by combining the annual financial statements, MD&A and AIF required under NI 51-102 for non-venture issuers, and the annual financial statements and MD&A required under NI 51-102 for venture issuers, into a single reporting document called the "annual disclosure statement for annual reporting purposes". Similarly, the Proposed Amendments seek to combine the interim financial report and MD&A into a single filing called the "interim disclosure statement for interim reporting purposes". The CSA are of the view that the new combined documents will improve usability for investors and analysts as all of the information will be combined in one place, and will be more intuitive for cross-border investors as the presentation in a single reporting document will resemble the Form 10-K, which is required to be filed in the U.S. with the U.S. Securities and Exchange Commission (SEC).
Given that the annual financial statements, MD&A and AIF required under NI 51-102 for non-venture issuers, and the annual financial statements and MD&A required under NI 51-102 for venture issuers will be combined into a single document, the Proposed Amendments will modify the requirement for delivery of annual information to investors in NI 51-102, such that the combined single document (which for non-venture issuers would include the AIF) will be required to be delivered to investors. In light of the "access equals delivery" model currently being considered by the CSA, the Proposed Amendments would allow the reporting issuer to effect the delivery of the document by providing electronic access to the annual disclosure documents and publishing a related notice that the document is available.
Address gaps in disclosure
The Proposed Amendments also introduce a small number of new requirements, many of which are to clarify CSA staff expectations that have previously been communicated in staff notices or comment letters. For example, it is proposed that venture issuers be required to provide a description of their business in their MD&A.
Effective date of the Proposed Amendments
Subject to the comment process and required approvals, the Proposed Amendments are expected to be published in September 2023 and become effective on December 15, 2023. The CSA proposes that issuers will be required to file an annual disclosure statement for its first financial year ending on or after December 15, 2023.
Semi-annual reporting for venture issuers on a voluntary basis
Although the CSA did not propose amendments to introduce semi-annual reporting for venture issuers, they did request feedback on the Proposed Framework. The Proposed Framework would allow all venture issuers that are not SEC issuers, regardless of their market capitalization, to elect to report on a semi-annual basis as opposed to a quarterly basis while providing alternative disclosure through news releases for each interim period where the issuer does not file an interim disclosure statement to:
- provide an update on the issuer's operations, majority operating milestones, commitments, unexpected events, risks that are likely to materially affect operations going forward and explain any significant changes from previous disclosures regarding the use of proceeds from any financings; and
- disclose information and events that are material, including those related to the issuance or cancellation of any securities, new or modified litigation or liabilities, new or modified financing arrangements, defaults under financing arrangements, changes to the financial condition of the issuer, the inability to pay debts as they become due and related party transactions.
The CSA notes that the Proposed Framework would allow venture issuers the optionality of quarterly or semi-annual reporting depending on the resources available to them and the expectations of their investors, and if they choose semi-annual reporting, the ability to reduce the regulatory and financial burden and allow them to reallocate resources from reporting to operational matters. The CSA also noted that venture issuers may need to be more diligent in administering their insider trading policies, as there is a risk that selective disclosure could increase under a regime of semi-annual reporting.
Feedback on the Proposed Amendments and Proposed Framework
The CSA asks that any comments regarding the Proposed Amendments or the Proposed Framework be submitted in writing by September 17, 2021.
Please contact any member of our Business Law group to discuss any of the Proposed Amendments or the Proposed Framework and any comments that you may have for the CSA.
This bulletin is general information only, not legal advice, and is intended to be a summary only of the information contained in the Notice. The full text of the Notice is available here.