Should Canada do better to become a leader of innovation in electronic communication with security holders, including the delivery of documents, given the apparent Canadian propensity to spend our time online?
According to a March 2011 Globe & Mail report, Canadians spend more time online than the residents of any other country. It seems Canadians don’t just spend more time, Canadians spend almost double the average.
Earlier this month, the Canadian Securities Administrators announced changes to National Policy 11-201, Delivery of Documents by Electronic Means. The comment period yielded only eight submissions, suggesting, perhaps, that there is no great urgency to making electronic delivery the standard.
The changes to NP 11-201 are meant to alert market participants to e-commerce legislation and other laws that may affect the electronic delivery of documents, to simply the guidance regarding security holder consents, and to reduce technology-related references. NP 11-201 applies to “prospectuses, financial statements, trade confirmations, account statements and proxy-related materials that are delivered by securities industry participants or those acting on their behalf, such as transfer agents.”
NP 11-201 continues to provide that (subject to any other laws), electronic delivery will satisfy delivery requirements in securities legislation if each of the following are met:
- The recipient of the document receives notice that the document has been, or will be, delivered electronically.
- The recipient of the document has easy access to the document.
- The document that is received by the recipient is the same as the document delivered by the deliverer (that is, the document is reasonably secure from being tampered with during delivery).
- The deliverer of the document has evidence that the document has been delivered.
NP 11-201 cautions that if any one of these components is absent, the effectiveness of the delivery may be uncertain.
NP 11-201 also cautions that electronic commerce legislation may require the consent of a recipient to electronic delivery. NP 11-201 also states that without express consent, it may be more difficult to demonstrate that the intended recipient had notice of, and access to, the document, and that the intended recipient actually received the document. However, in simplifying guidance on consent requirements, the sample express consent form has been eliminated from NP 11-201. This consent form had been identified by the Securities Transfer Association of Canada (STAC) as a barrier to increasing demand for electronic delivery.
Given the consequences of a finding that documents required to be delivered under securities laws and regulations were not properly delivered, it is unlikely that we will see a great rush to electronic delivery with these changes to NP 11-201. In addition, any concerted effort to move to electronic delivery must comply with Canada’s Anti-Spam Legislation (CASL), which is likely to come into force next year.
Five years has passed since the Task Force to Modernize Securities Legislation in Canada published commissioned research study by Professor Dimity Kingsford Smith regarding Importing the e-World into Canadian Securities Regulation. Canada has not progressed very far in terms of developing electronic delivery as a standard method of delivery. The question is why?
As STAC points out, the complexities of obtaining consent is part of the explanation. This has been partially remedied by NP 11-201 . The issue of establishing delivery is also part of the explanation. The revision to NP 11-201 has clarified the issuer’s responsibilities to have internal processes showing that delivery was attempted. However, NP 11-201 also requires that the issuer must attempt other delivery methods (presumably mail) if the issuer receives a delivery failure notification, notwithstanding consent to delivery by electronic means.
Another issue might simply be that demand is not there for electronic documents delivered in currently available formats. We must be cautious of drawing inferences but broad statistical evidence from Statistics Canada surveys suggests that the percentage of at-home internet users who report conducting investment research online has remained relatively stagnant from 2005 to 2009 with less than 1/3 reporting that they engaged in that activity. Online bill paying, by contrast, grew throughout that period.
The current inflexibility with respect to the form of the electronic version of documents might contribute to low take up of electronic delivery. NP 11-201 permits flexibility in technical format. However, electronic documents must essentially follow the prescribed forms for paper documents. One of the great advantages of electronic documents is the ability to layer information so that the user can review information on a graduated basis. If participants are limited essentially to an electronic version of a massive printed document, this curbs innovation as well as ease of use.
Of course, any move to electronic delivery as a standard must ensure that investors have access (and timely access) to equivalent information. There are, after all, significant regional differences in home internet usage rates. Home internet usage by residents of British Columbia was reported to be 16 percentage points higher than in New Brunswick according to an October 2011 Financial Post article.