Canada is an attractive public market for emerging market issuers—issuers whose mind and management are largely outside of Canada and whose principal active operations are outside of Canada. The receptiveness of the Canadian capital markets to funding resource and other businesses with limited, if any, connection to Canada, has resulted in an increasing number of emerging market issuers choosing Canada as a jurisdiction in which to go public. However, the recent and notable failure of certain emerging market issuers has resulted in increasing regulatory focus on this market segment.

On November 9, 2012, the Ontario Securities Commission (OSC) published Staff Notice 51-720 – Issuer Guide for Companies Operating in Emerging Markets. The Guide is the result of OSC Staff Notice 51-719 – Emerging Markets Issuer Review dated March 20, 2012, in which the OSC reported the findings of its review of selected emerging market issuers that began in July 2011. The Emerging Markets Issuer Review identified material disclosure deficiencies in 15 of the 24 emerging market issuers reviewed by the OSC.

The Guide provides emerging market issuers with direction as to the application of existing continuous disclosure requirements to their unique circumstances. Specifically, the Guide identifies eight areas of risk that are likely to be the subject of increased scrutiny. Emerging market issuers should review their policies, procedures and continuous disclosure, to ensure they are responsive to the concerns raised in the Guide, and seek legal advice to address any potential shortcomings.

Key Risk Areas

The following highlights the OSC's recommendations as contained in the Guide.

  1. Business and Operating Environment

An issuer's board and management must have a thorough understanding of the political, cultural, legal and business environments in which the company operates.

Foreign directors and management should become familiar with Canadian regulatory requirements, including seeking assistance from Canadian directors and advisors.

An issuer's public disclosure should highlight with reasonable specificity the issues, risks and characteristics unique to the market in which the company operates.

  1. Language and Cultural Differences

An issuer's board should include members that have appropriate experience in the emerging market.

The board should also devise appropriate policies to overcome language and cultural barriers, such as the use of an independent translator, and develop mechanisms to obtain independent input in addition to the input of local management or local directors who are not independent.

  1. Corporate Structure

While there may be important political, legal or cultural reasons that dictate the corporate structure of an emerging market issuer, the board should consider the risks that may flow from complex corporate structures. In particular, complex structures may obscure the misappropriation of assets or other fraudulent activities or convey a false impression of financial performance or condition through distorted financial statements. The issuer should have appropriate controls in place to address such risks.

An issuer's public disclosure should contain a clear and understandable description of its structure, together with an explanation of how that structure facilitates the company's business and aligns with the parameters of its operating environment. Any risks associated with the structure should be described, along with how those risks are managed.

  1. Related Party Transactions

Due to differences between local business practices, cultural norms, and legal requirements, when compared to North American standards, related party transactions (RPTs) may present a heightened risk for emerging market issuers. Therefore, management and the board should implement appropriate policies, procedures and scrutiny for the identification, evaluation and approval of RPTs.

An issuer's public disclosure should not merely repeat the disclosure included in its financial statements. Meaningful disclosure contributes to an investor's understanding of RPTs by disclosing, at a minimum: (i) the relationship and identity of the related persons or entities; (ii) the business purpose of the transaction; (iii) the recorded amount of the transaction and the measurement basis used; and (iv) any ongoing contractual or other commitments resulting from the transaction.

An issuer's public disclosure should also include information that is necessary to understand the business purpose and economic substance of RPTs.

  1. Risk Management and Disclosure

Boards should adopt a written mandate that explicitly acknowledges responsibility for, among other things, the identification of principal risks and oversight of risk management systems.

Board members should have a sufficient understanding of the legal, regulatory, political and cultural risks impacting the issuer and evaluate and manage such risks in the context of the particular emerging market.

An issuer's public disclosure should identify specific risks of operating in an emerging market and describe the process used by the board to oversee risk management.

  1. Internal Controls

Boards should adopt a written mandate acknowledging responsibility for the stewardship of the company, including responsibility for internal control and management information systems.

A committee of the board should actively oversee the monitoring of any identified weaknesses in internal controls and the risks created by these weaknesses.

Any material weaknesses in internal controls that are identified must be disclosed in reasonable detail.

  1. Use of and Reliance on Experts

An issuer should be aware of risks associated with the use of, and reliance on, experts in emerging markets. In particular, service providers in the emerging market may not be subject to equivalent rules of professional conduct and standards of care as they would in the Canadian market.

When an expert is retained to assist in matters that are material to the issuer, a board must assess the quality of the advice provided and the board's ability to rely on the advice.

  1. Oversight of the External Auditor

The audit committee must evaluate the external auditor's approach in auditing the areas that present risks specific to the issuer and ascertain whether the auditor has fulfilled its responsibility to obtain sufficient audit evidence in these areas of risk. The audit committee should maintain frequent informal communications with the external auditor to obtain information regarding the audit on a real-time basis.


The publication of the Guide highlights the OSC's intent to increase regulatory focus on emerging market issuers. Therefore, while Canadian markets continue to be receptive to emerging market issuers, such issuers should undertake a review of their policies, procedures and disclosure in light of the expectations set out in the Guide.