The Ontario Securities Commission provides us with a glimpse into its plans for 2020 through publication of its regulatory burden reduction initiatives.
- Key initiatives include: developing a process for the confidential filing of prospectuses, updating the OSC’s position on “primary business” disclosure and streamlining continuous disclosure requirements.
On November 19, 2019, the Ontario Securities Commission (OSC) published “Reducing Regulatory Burden in Ontario’s Capital Markets” (the Report), a report outlining the OSC’s plans for reducing regulatory burden for Ontario capital markets participants. The Report outlines the OSC’s Burden Reduction Task Force’s (the Task Force) work to date and summarizes 107 initiatives (the Initiatives) - completed, in progress and planned – that the OSC and the Task Force believe will reduce regulatory burden. The Report identifies concerns raised by market participants in the consultation process, categorized by stakeholder group, and then outlines the specific Initiatives that are expected to address and remedy the concern. Target dates and progress with regard to the Initiatives have also been reporting, giving market participants a good sense of the OSC’s (and in some cases, the collective Canadian Securities Administrators) plans for the coming year.
Uncertainty in Prospectus Reviews
Concerns about the uncertainty in prospectus filings were raised by stakeholders during the Task Force’s consultation process. In an effort to increase deal certainty, the OSC has identified, and in some cases completed, the following initiatives that would represent a welcome change to the prospectus filing process:
Pre-Filing Reviews of Technical Reports. As previously discussed, in June 2019, the OSC published OSC Staff Notice 43-706- Pre-filing Review of Mining Technical Disclosure encouraging mining issuers to request reviews of their technical disclosure prior to filing a preliminary short form prospectus.
- Confidential Reviews of Prospectuses. The OSC intends to develop a process for issuers to request confidential staff review of a prospectus prior to the announcement of an offering. This would bring the OSC’s review process in line with that of the U.S. Securities and Exchange Commission (the SEC) which already permits issuers to confidentially submit a draft registration statement for non-public review. The ability to confidentially file and address comments prior to public filing of a prospectus should create significant opportunities for issuers, including those in novel industries or with novel structures. The OSC aims to complete this Initiative in summer 2020.
- Financial Statements for an Issuer’s Primary Business. By fall 2020, the OSC intends to have completed the harmonization of the requirements for financial statements to be included in a long form prospectus relating to acquisitions made by an issuer in the lead-up to its prospectus fling that may be considered a “primary business” and therefore require a full three years of audited financial statements (two years for venture issuers). The OSC’s interpretation of the financial statement requirements of Form 41-101F1 Information Required in a Prospectus has, in some cases, been broader than that taken in other jurisdictions, requiring audited historic financial statements to be included in a prospectus for acquisitions that may not otherwise be considered significant.
Duplicative Continuous Disclosure Documents
Stakeholders commented that some continuous disclosure requirements are duplicative or not meaningful to investors creating unnecessary cost and time burdens for issuers. As discussed in the Report, the OSC intends to:
- Amend AIF and MD&A Disclosure Requirements. The OSC will focus on streamlining annual information form (AIF) and management’s discussion and analysis (MD&A) disclosure requirements to alleviate duplicative and unnecessary disclosure. The OSC aims to have completed this Initiative by Fall 2020.
- Amend Significant Acquisition Tests. As previously discussed, the CSA has proposed amendments to National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) which would implement a two-trigger significance test with an increased significance threshold of 30% for non-venture reporting issuers. Such proposal is intended to reduce the number of instances where financial statements are required to be filed for significant acquisitions in business acquisition reports (BAR) and other disclosure. The comment period on the proposed BAR amendments closed on December 4, 2019 and the OSC targets finalizing BAR amendments by Fall 2020.
Inflexible and Cumbersome Prospectus Offering Requirements
While some commenters urged the OSC to exercise caution in making changes to existing prospectus rules, an overarching concern that the disclosure, marketing and other requirements relating to prospectus offerings are too inflexible, making capital raising in Ontario a lengthy and costly process. In order to address these concerns, the OSC has identified the following Initiatives:
- Amend the Rules for ATM Offerings. In May 2019, the CSA published proposed amendments to National Instrument 44-102 – Shelf Distributions (NI 44-102) aimed at easing regulation of “at-the-market” offerings (ATMs), as we previously discussed here. If adopted, public issuers would be able to conduct ATM offerings without having to obtain prior exemptive relief from prospectus delivery obligations, among other things. The OSC has targeted Fall 2020 for completion of this Initiative.
- Propose Cost-Saving Amendments to Prospectus Rules. The OSC aims to develop and publish proposals to make it more cost-effective for issuers to conduct a prospectus offering by Fall 2020.
Disharmony in Canadian Securities Laws
A key concern impacting all market participants is the disharmony between securities laws, rules and regulations in Ontario as compared to the other Canadian jurisdictions.
- Recommend Amendments to the OSA. The OSC has already recommended that the Securities Act (Ontario) (OSA) be amended to permit the making of blanket orders by the OSC which would apply to multiple market participants.
- Relocate Provisions of the OSA. The OSC has begun to consider whether to relocate provisions of the OSC into National Instruments in order to harmonize rules across Canada.
Concerns Affecting Investment Funds
The OSC identified five categories of concerns related to investment funds: (i) the prospectus regime; (ii) continuous disclosure requirements; (iii) operational requirements; (iv) routine applications for exemptive relief; and (v) engagement with investment fund stakeholders. In response to these concerns, the OSC’s Initiatives focus on:
- Streamlining the investment funds prospectus regime. In Fall 2020, the OSC expects to public a consultation paper discussing the reduction of prospectus filings for investment funds issuers and subsequently implement changes to reduce the frequency of prospectus filings. In addition, the OSC has set a target date the OSC plans to consider potential options for adopting a shelf prospectus system applicable to investment finds, among other things.
- Streamlining investment fund continuous disclosure requirements. The OSC intends to streamline duplicative continuous disclosure requirements over the next three years. It will also seek to develop and implement an alternative to the annual notice reminder requirement in NI 81-106 and the material change reporting regime for investment funds. This is consistent with the proposed amendments recently published in the CSA’s Notice and Request for Comment Reducing Regulatory Burden for Investment Fund Issuers – Phase 2, Stage 1 (the CSA Investment Funds Notice) which, as we previously discussed, proposed amendments intended to remove redundant information in selected investment fund disclosure documents and use web-based technology to provide certain information about investment funds.
- Codifying routine exemptive relief to eliminate the need to file exemptive relief applications. Consistent with the CSA’s outlined plan to codify exemptive relief that is routinely granted discussed in the CSA Investment Fund Notice, the OSC plans to finalize amendments to National Instrument 81-10 Mutual Fund Prospectus Disclosure, National Instrument 81-102 Investment Funds, National Instrument 81-106 Investment Fund Continuous Disclosure, and National Instrument 81-107 Independent Review Committee for Investment Funds to codify exemptive relief granted in respect of (i) notice-and-access applications, (ii) conflicts applications, (iii) pre-approval criteria for investment fund mergers, and (iv) Fund Facts delivery. The OSC aims to finalize these amendments by Fall 2020.
Other OSC Initiatives
Additional Initiatives included in the Report address concerns with respect to registrants, as well as markets, trading and clearing and derivatives participants.
A History of Burden Reduction Initiatives
The OSC’s publication of the Report follows a lengthy review of capital markets both on a national and provincial level. In 2017, the Canadian Securities Administrators (CSA) launched a national burden reduction initiative outlined in CSA Staff Notice 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers and CSA Staff Notice 81-329 Reducing Regulatory Burden for Investment Fund Issuers. Following a consultation process, the CSA outlined six policy projects in CSA Staff Notice 51-353 Update on CSA Consultation Paper Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers. Following in the CSA’s footsteps, the OSC published OSC Staff Notice 11-784 Burden Reduction in January 2019 soliciting suggestions as to how it might reduce regulatory burden for capital markets participants, with the goal of enhancing competitiveness for market participants. The related consultation period was open until March 1, 2019 with three roundtable discussions being held in late-Spring 2019.