When the Canadian Securities Administrators ("CSA") released a re-written National Policy 11-201 Electronic Delivery of Documents ("NP 11-201") in November 2011, the potential impact of the amendments may have slipped by, relatively unnoticed by dealers.
The impending implementation of Stage 2 of the point of sale ("POS") disclosure framework, as proposed in amendments to National Instrument 81-101 Mutual Fund Prospectus Disclosure ("NI 81-101"), provides a perfect pretext to revisit electronic delivery of documents.
Stage 2 will require dealers to deliver the correct Fund Facts documents ("FF"), in place of the simplified prospectus, to purchasers of mutual funds within two days of the purchase. Given that new back-office processes on the part of dealers will be required under Stage 2, it may be an opportune time for dealers to take another look at NP 11-201, and consider embracing electronic delivery for not only the FF, but other documents and disclosure required to be sent to investors.
Background of NP 11-201
When NP 11-201 was first introduced in 2000, delivery by post was the norm, and the policy contained fairly rigid requirements for the use of electronic delivery.
Since that time, the CSA has recognized that there have been changes to corporate and privacy legislation which impinge on the electronic delivery of documents. As a result, NP 11-201 was significantly amended to take into account the interaction between securities legislation and other legislation dealing with electronic commerce. The CSA has also recognized that the use of electronic communications has become increasingly widespread and accepted by investors and consumers. The amendments result in a policy which is far less prescriptive in nature and much more principles-based.
Relaxed Consent Requirements
Securities legislation does not statutorily require an entity obligated to make certain deliveries (such as a dealer or an issuer) to obtain the consent of the recipient. However, statutory requirements with respect to consent are generally found in electronic commerce, corporate and privacy legislation. In view of this, NP 11-201 has been amended to require simplified procedures for obtaining consent from investors for the receipt of electronic documents. Many of the detailed requirements that previously existed as to the manner and form of consent have been removed, including the sample consent form in Appendix A of the original version of NP 11-201.
While express consent is not required for effective electronic delivery under securities legislation, the CSA warns that electronic commerce legislation may such require consent. In fact, section 3 of the Ontario Electronic Commerce Act states that no person is required to accept a document in electronic form if they have not provided consent.
The CSA also emphasize that the process of obtaining express consent, and delivering the document in accordance with that consent, may assist in achieving some of the four basic components required for effective electronic delivery under NP 11-201.
Four Basic Components of Electronic Delivery
NP 11-201 provides that the delivery requirements of Canadian securities legislation can generally be satisfied through electronic delivery if each of the following elements is met:
- Notice – The recipient of the document must receive notice that the document has been, or will be, delivered electronically. Notice may be provided in any manner, whether electronic or non-electronic, as long as the recipient is advised of the proposed electronic delivery.
- Access – The recipient of the document must have easy access to the document. The deliverer should ensure access is not burdensome or complicated. Further, the recipient should be able to retain a permanent record of the document and the document should be accessible for an appropriate period of time.
- Unaltered Document – The document that is received by the recipient must be the same as the document delivered. The deliverer is required to take reasonable steps to prevent alteration or corruption of the document (i.e. implementing security measures to prevent third-party tampering).
- Evidence – The deliverer of the document must have evidence that the document has been delivered. Internal processes should be in place on the part of the deliverer to show that delivery of the document has been attempted. If electronic delivery cannot be accomplished, an alternative method should be attempted.
If any one of the four components is absent, the effectiveness of the delivery will become uncertain.
The more flexible consent requirements, when combined with the new requirements for delivery of Fund Facts documents contemplated by POS Stage 2, create a convergence of events. Now may be an opportune time for dealers to consider moving to electronic delivery to meet their compliance obligations. Electronic delivery may provide not only significant cost savings, in the form of reduced material and delivery costs, but properly implemented, it has the potential to greatly enhance a dealer's compliance and internal control systems.