The Ontario government has amended Ontario’s Securities Act (Act) to expand the scope of prohibited insider trading and enhance the record-keeping requirements imposed upon capital market participants in the province. This bulletin focuses on the new record-keeping requirements, while our companion June 2015 Blakes Bulletin: Ontario Expands Scope of Prohibited Insider Trading considers the amendments to the insider trading prohibitions.
NEW RECORD-KEEPING REQUIREMENTS’ BROAD APPLICATION
The new amendments significantly expand the record-keeping obligations set out in section 19 of the Act. Pursuant to the new requirement, Ontario market participants are now subject to a broad obligation to keep “such books, records and other documents as may reasonably be required to demonstrate compliance with Ontario securities law.”
Given the broad definition of “market participants” set out in subsection 1(1) of the Act, the new record-keeping obligation will apply to a wide range of companies and individuals, including both registrants and persons exempted from the requirement to be registered, as well as reporting issuers and their directors and officers, and several other categories of persons.
Given the broad nature of the record keeping-obligation itself and the expansive application of the new requirement to all market participants, the potential scope of the situations in which record keeping may “reasonably be required to demonstrate compliance with Ontario securities law” will conceivably become very broad. The expansiveness of this new obligation raises concerns of legislative over-reach, particularly given that the proposed Provincial Capital Markets Act expands the definition of “market participant” even more broadly. For more information, see our April 2015 Blakes Bulletin: Too Many Changes, More Consultation Required: Comments on Proposed Capital Markets Legislation.
POSSIBLE NEW DUE DILIGENCE OBLIGATION
The new record-keeping requirement carries significant implications for the prosecution and defence of securities enforcement proceedings in Ontario. In particular, Ontario Securities Commission’s enforcement staff may seek to present the new record-keeping obligation as constituting an effective reverse onus obligation on Ontario market participants, by which those participants must present “books, records and other documents” to prove their compliance with Ontario’s securities laws.
As well, these expanded requirements may provide new avenues of attack for class action plaintiff lawyers in bringing claims under the civil liability provisions of securities legislation.
For this reason, the new obligation is likely to prove controversial in the years to come, with the scope of what is “reasonably required” to show compliance with Ontario securities law likely to be particularly hotly contested. Market participants in Ontario should be mindful of the new record-keeping obligation and carefully reassess their record-keeping policies and practices in light of it.