On March 9, 2017, the Canadian Securities Administrators (CSA) published Staff Notice 51-348 Staff’s Review of Social Media Used by Reporting Issuers (Staff Notice), which reported on the social media disclosure (Facebook, Twitter, YouTube, LinkedIn, Instagram and GooglePlus postings, amongst others, as well as disclosure on issuers’ own websites, including any message boards or blogs hosted on such sites) of 111 reporting issuers to determine if they were consistent with the principles of National Policy 51-201 Disclosure Standards (NP 51-201) and the requirements of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102). As a result of the CSA’s review, 30 per cent of the reporting issuers reviewed were required to take corrective action to improve their social media activities.
As discussed in our August 2015 Blakes Article: Applying Canadian Securities Laws to Social Media: A Square Peg in a Round Hole (OWTTE) and our August 2016 Blakes Viewpoint: Canadian Securities Laws, Issuer Websites and Social Media: Do The Evolution), Canadian regulations do not specifically address social media-based disclosure. This is starkly in contrast to the United States, where issuers are permitted to release material information via their websites and social media if certain procedures are followed.
While publication of the Staff Notice makes it clear that social media is on the CSA’s radar, the Staff Notice did not give any indication that a review of Canadian securities laws relating to continuous disclosure is pending. Accordingly, the guidance in NP 51-201 (which was originally implemented in 2002), that “investors’ access to the Internet is not yet sufficiently widespread such that a Web site posting alone would be a means of dissemination ‘calculated to effectively reach the marketplace’” remains the published position of the CSA. Public issuers in Canada can therefore carefully use social media as a tool for marketing, promotions and customer outreach, but need to have robust procedures in place to avoid unintended breaches of securities laws.
The review identified three key areas where issuers are expected to improve their social media disclosure practices:
- Selective or early disclosure when investors receive material information through social media that other investors do not receive because it is not generally disclosed
- Misleading or unbalanced social media disclosure where information is not sufficient to provide a complete picture or is inconsistent with information already disclosed on the System for Electronic Document Analysis and Retrieval
- Insufficient social media governance polices in place to support social media activity
Selective or Early Disclosure
The CSA clarified in the Staff Notice that when issuers disclose material information they must ensure it meets the “generally disclosed” standard under NP 51-201, regardless of the method of communication. Similar to the restrictions under NP 51-201 from releasing material information on an issuer’s website, the CSA are of the view that posting information on social media alone is insufficient to meet the “generally disclosed” standard. Issuers must therefore first report the material information via a press release before they can use social media to further disseminate the news. Issuers must exercise patience and coordinate their social media efforts with other public announcements.
In particular, the CSA identified several instances of material forward-looking information (FLI), such as revenue or earnings per share targets, the timing of future product launches or the amount of time before an asset can begin generating revenue, being posted only on social media, resulting in significant share price increases in situations where not all investors may be aware of the facts.
The CSA also advised that issuers should ensure that normal disclosure requirements with respect to disclosing FLI, such as disclosing the material factors and assumptions supporting the FLI and updating the FLI for future events, equally apply to social media posts. This could be problematic, as some social media platforms limit the length of a post (for instance, the 140-character limit on Twitter).
Misleading or Unbalanced Disclosure on Social Media
As with other disclosures, social media disclosure cannot be overly promotional or exaggerated and it must use a balanced tone. Disclosure should include sufficient detail for investors to be able to understand the substance and significance of the events being discussed.
During the course of its review, the CSA identified a number of instances where an issuer’s social media postings were, individually or in the aggregate, sufficiently promotional or unbalanced that they raised concerns that they could mislead investors. In particular, the CSA highlighted as an issue misleading disclosure in social media posts relating to financial results, such as disclosing non Generally Accepted Accounting Principles (GAAP) financial measures that had not previously been disclosed in any regulatory filings or any other disclosure outside social media (creating a possible selective disclosure issue) and for which adequate context, including a quantitative reconciliation of the non-GAAP measure to its most directly comparable GAAP measure, was not provided so that investors could understand the full meaning and significance of the non-GAAP measure.
While the CSA acknowledged, without blessing, the practice of supplementing a social media post with a link to more fulsome disclosure, it also identified issues with unbalanced disclosure occurring where issuers posted links to analyst reports or other articles on their social media accounts. When issuers provide copies of reports from independent analysts, the CSA confirmed that the issuer should ensure that it is providing the names and/or recommendations of all independent analysts who cover the issuer to prevent issuers from only disclosing favourable analyst reports. The CSA also noted that if the linked report or article includes FLI about the issuer, then the issuer may be required to update such FLI in the future, since linking to the report or article in the social media post may be seen as an implicit endorsement of such report or article. As a result, those managing the social media accounts for issuers should carefully consider whether reports and articles from third parties should be posted (either directly or by inclusion of a link) prior to positing and issuers may want to put in place policies for pre-approving any such postings.
Insufficient Social Media Governance Policies
The CSA recommend that issuers develop specific policies and procedures for the use of social media. According to the CSA, a strong social media policy should include at least the following items:
- Who can post information about the issuer on social media
- What type of sites (including personal social media accounts vs. corporate) can be used
- What type of information about the issuer (financial, legal, operational, marketing, etc.) can be posted on social media
- What, if any, approvals are required before information can be posted
- Who is responsible for monitoring the issuer’s social media accounts, including third-party postings about the issuer
- What other guidelines and best practices are followed (for example, if an employee posts about the issuer on a personal social media site they should identify themselves as an employee of the issuer)