• OSC staff guidance for emerging market issuers
  • Eight key areas of concern identified
  • TSX, TSX Venture, IIROC and CPAB additional requirements expected

The Ontario Securities Commission’s Staff Notice 51‑720 – Issuer Guide for Companies Operating in Emerging Markets provides guidance to emerging market issuers and their directors on governance and disclosure practices. The guide is part of a broader regulatory review of the issues facing emerging market issuers and focuses on companies with management or principal active operations in areas such as Asia, Africa, South America and Eastern Europe.

While the guide does not create new legal obligations or modify existing ones, it highlights areas of risk and outlines OSC staff’s expectations regarding management and director compliance with existing disclosure requirements. Accordingly, it is of interest to emerging market issuers as it will be the basis for continuous disclosure and prospectus reviews as well as enforcement proceedings. Given that the guide addresses requirements of general application, it is useful guidance for all Canadian public companies.

OSC staff identify eight key areas for consideration by companies operating in emerging markets and provide examples of disclosure with sufficient detail to satisfy the disclosure standard identified by staff (as well as examples of “boilerplate” disclosure to be avoided). The guidance is as follows:

Business and Operating Environment

The directors and management of an emerging market issuer are expected to understand the political, cultural, legal and business environments of the emerging market in which the company operates. Directors and management should have the appropriate orientation on Canadian capital markets requirements to ensure adherence to Canadian regulatory requirements.

Language and Cultural Differences

The board should include members who are familiar with the emerging market and should consider adopting practices to address language and cultural differences, including using independent translators, obtaining independent input on local issues and making site visits.

Corporate Structure

The board should carefully consider the risks associated with complex corporate structures and ensure that the Canadian reporting entity has effective continuing control and ownership over foreign operating entities and their assets.

Related Parties

As transactions with companies in the same group or parties linked to shareholders, directors or management may represent a heightened risk for emerging market issuers, companies should consider quantitative and qualitative factors in complying with disclosure requirements for related party transactions.

Risk Management and Disclosure

The board should have a full understanding of the legal, regulatory, political and cultural risks facing the issuer and evaluate these risks in the context of the particular emerging market, rather than through a North American lens. This may require implementing risk analysis and management techniques that are specialized for the emerging market.

Internal Controls

Directors should implement strong internal controls to overcome the challenges of overseeing a company where operations are located in a foreign jurisdiction. The challenges include remoteness, different time zones, languages and cultural differences.

Use of and Reliance on Experts

The board should evaluate experts’ credentials to determine whether they are comparable to what would be expected in a Canadian context.

Oversight of the External Auditor

The board’s audit committee should oversee the external auditor and evaluate its expertise, experience and methods, and pay particular attention to unusual management intervention in the audit process in overseeing the work of the external auditor.


The issuer guide is part of a broader regulatory review with respect to emerging market issues. Earlier this year, OSC staff issued a report on its in-depth review of the public disclosure record of selected emerging market issuers. The Toronto Stock Exchange and TSX Venture Exchange are expected to propose new listing requirements for emerging market issuers in November 2012. The OSC is working with the Investment Industry Regulatory Organization of Canada as it reviews underwriting due diligence standards and with the Canadian Public Accountability Board on improvements to the audit function.

Emerging market issuers should take into account the guide when preparing offering and continuous disclosure documents. For all issuers, the guide provides guidance on the OSC’s view on appropriate actions and disclosure to discharge their responsibilities.