On September 7, 2023, the Canadian Securities Administrators (the CSA) released its first consolidated Year in Review [PDF] (the Report), which reviews activities of provincial and federal regulators between July 1, 2022, to June 30, 2023. The Report highlights the CSA’s progress towards fulfilling its mandate to improve, coordinate and harmonize regulation of the Canadian capital markets and achieving the strategic goals outlined in their 2022–2025 Business Plan [PDF].

As regulators, individually and as part of the CSA (the Ontario Securities Commission just published its proposed Statement of Priorities [PDF] on November 16, 2023), move into planning for the years ahead, it is worthwhile to consider the CSA’s perspective of its achievements over the prior fiscal year.

Key initiatives

The Report highlights the CSA’s key initiatives in 2022–2023, which include, but are not limited to the following.

1. Creation of CIRO and a new CIPF

As part of its effort to strengthen and modernize the capital markets regulatory system, the CSA oversaw the amalgamation of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) into a single Self-Regulatory Organization (SRO) called the Canadian Investment Regulatory Organization (CIRO).

As discussed in a previous blog post, CIRO’s newly unveiled annual priorities build upon the objectives of its two legacy organizations. These include harmonizing its regulatory approach with that of the CSA, finalizing a fee model, bolstering education programs and updating key rules. Changes to the National Registration Database (NRD) mean that dual registered firms can register with CIRO using one NRD number.

The CSA also guided the merger of the MFDA Investor Protection Fund and the former Canadian Investor Protection Fund (CIPF) into a single investor protection fund. The fund reimburses investors, up to certain prescribed limits, for assets held by member firms in the event of a firm’s insolvency. Both CIRO and the new CIPF officially launched on January 3, 2023.[1]

2. Enhanced fee transparency and total cost reporting

On April 20, 2023, the CSA published final amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and changes to Companion Policy 31-103CP Registration Requirements, Exemptions and Ongoing Registrant Obligations to enhance total cost reporting (TCR) disclosure for investment funds and individual segregated fund contracts.

As previously discussed in this regulatory Update, these enhancements improve investors’ awareness of the ongoing costs of owning mutual funds, ETFs, scholarship plans and segregated funds. The amendments will take effect January 1, 2026. Registrants and issuers must deliver the first enhanced annual reports to investors by December 31, 2026.

On June 13, 2023, the CSA and Canadian Council of Insurance Regulators (CCIR) announced the creation of a TCR implementation committee, with the participation of CIRO. The implementation committee will offer guidance and respond to inquiries from industry stakeholders, while also keeping regulators informed about the progress made by the industry during the transition period, which concludes on December 31, 2025.

3. Compliance with CFRs

On August 3, 2023, the CSA and CIRO released joint Staff Notice 31-363, which sets out the findings of their review of conflicts-of-interest practices at 172 firms across various registration categories. The purpose of the review was to assess registrants’ compliance with obligations under the Client Focused Reforms (CFRs) that were implemented through amendments to National Instrument 31-103 and its companion policy.

As discussed in more detail in our earlier blog post, Staff Notice 21-363 highlights several common deficiencies, including a failure to adequately identify conflicts of interest, incomplete disclosure and inadequate policies and procedures. Throughout the remainder of 2023, the CSA and CIRO will conduct additional reviews to assess registrants’ compliance with CFR obligations.

4. Diversity disclosure

On April 13, 2023, the CSA published proposed amendments to Form 58-101F1 Corporate Governance Disclosure and proposed changes to National Policy 58-201 Corporate Governance Guidelines relating to diversity, director nomination processes and board renewal.

As discussed in more detail in this Osler update and blog, the CSA sought public comment on two alternative approaches that address diversity disclosure with respect to characteristics beyond gender. The “Form A” approach provides issuers with the flexibility to define “identified groups” (other than women) and to design tailored strategies to meeting diversity targets. The “Form B” approach is more prescriptive, mandating disclosure on targets and the representation of defined “designated groups.”

Osler tracks disclosure provided by issuers in Canada and publishes its findings annually in its Diversity Disclosure Practices report.

5. Enforcement statistics

The Report also reviews key enforcement statistics in 2022–2023 as compared to 2021–2022.

In 2022–2023, there were 40 matters commenced and 57 matters concluded, down from 69 matters commenced and 52 matters concluded in 2021–2022. However, the CSA increased fines and bans in the latest fiscal year. For instance:

  • Fines and administrative penalties ordered and voluntary payments made (pursuant to settlement agreements) amounted to $18.5 million, up from $16.1 million in 2021–2022.
  • Restitution and disgorgement ordered and investor compensation made (pursuant to settlement agreements) amounted to $20.9 million, up from $14.9 million in 2021–2022.
  • 81 individuals and 23 companies were banned from participating in the capital markets, up from 44 individuals and 13 companies in 2021–2022.
  • Six criminal cases were commenced against 10 individuals, up from five in 2021–2022.
  • Regulators took enforcement action in 16 crypto-related matters compared to 14 in the previous year.
  • 758 investor alerts,[2] 17 interim cease-trade and 15 asset-freeze orders were issued, up from 236 investor alerts, down from 46 interim cease-trade orders and on par with 15 asset-freeze orders issued in 2021–2022.

This trend demonstrates that the CSA is increasing compliance oversight and enforcement actions where necessary, with a notable focus on crypto-related matters.

Future developments

The Report also highlights several proposals for registrants to keep an eye on over the next year.

Modernization of public filing requirements

On September 21, 2023, the CSA announced proposed amendments to National Instrument 44-201 Shelf Distributions (WKSI amendments) and other securities law instruments which, if adopted, would implement a permanent expedited shelf prospectus regime for “well-known seasoned issuers” (WKSIs). As we discussed in a previous blog post, the WKSI amendments are an extension of the WKSI pilot program launched on January 4, 2022, and are designed to reduce the regulatory burden for well-known issuers with established public reporting records in Canadian capital markets.

To qualify as a WKSI, issuers must have been reporting issuers in at least one Canadian jurisdiction for the previous three years and meet the $500-million public equity threshold.[3] Once qualified, issuers can file a WKSI base shelf prospectus, which becomes effective immediately upon filing and remains valid for up to 37 months, subject to certain requirements. WKSIs must confirm their status and eligibility annually to utilize the WKSI regime. The CSA is seeking comments [PDF] on the WKSI amendments until December 20, 2023.

The CSA has also published for comment proposed amendments to National Instrument 41-101 General Prospectus Requirements and National Instrument 81-101 Mutual Fund Prospectus Disclosure. These amendments would introduce a two-stage system to modernize the prospectus filing model for investment funds.

The first stage would allow investment funds in continuous distribution to file a new prospectus every two years instead of annually, while also repealing the requirement to file a final prospectus within 90 days of receiving a preliminary prospectus receipt. The second stage involves seeking public comments on a proposal to introduce a new base shelf prospectus filing model that would apply to all investment funds in continuous distribution.

Access model for corporate issuers and investment funds

The CSA published for comment a proposal for implementing an “access equals delivery” model for prospectuses, financial statements, interim financial reports and related MD&A for non-investment fund reporting issuers. The comment period for this proposal ended on July 6, 2022. Under the proposal, businesses would not automatically have to deliver a prospectus, but would have to provide access upon request.

A similar proposal for comment was published on September 27, 2022, that would require investment fund reporting issuers to post continuous disclosure documents on their designated websites, alert investors when new documents are available by issuing a news release and send paper or electronic copies upon request. These proposals are in line with recent changes to British Columbia’s Securities Act, as discussed in this previous Osler blog.

Strengthening the Ombudsman for Banking Services and Investments

To enhance investors’ ability to seek redress in cases where registrants’ actions cause harm, the CSA is strengthening the Ombudsman for Banking Services and Investments (OBSI) as an independent dispute resolution service. The CSA is currently developing a proposal to grant OBSI the authority to make awards binding on firms.

Enhanced crypto oversight

The CSA has continued to strengthen their approach to crypto regulation by expanding the regulatory requirements imposed on crypto trading platforms (CTP). On February 22, 2023, the CSA published Staff Notice 21-332 which outlined the CSA’s expectation for investor protection commitments from CTPs in the enhanced pre-registration undertaking (PRU). CTPs were told either to provide enhanced PRU by March 24, 2023, or take steps to exit the Canadian market.

Staff Notice 21-332 also offers greater regulatory clarity on stablecoins, referred to as “Value-Referenced Crypto Assets”, and custodial arrangements, which included a new restriction on the use of foreign custodians. Read the full update on our previous blog post.

Climate-related disclosure

Due to the intensified impacts of climate change, there has been a corresponding global increase in climate-related litigation involving both private and public actors. More claims are being brought against businesses alleging a failure to mitigate climate emissions and regulatory actions taken against businesses that allegedly make false claims about the environmental sustainability of their company’s operations or investments.

Regulations are evolving alongside litigation activity, with new climate-related securities disclosure and greenwashing rules emerging in Europe and the U.S. The U.S. Securities and Exchange Commission (the SEC) proposed rule changes in 2021 that would impose climate-related disclosure obligations. Notably, California has already done so with the recent enactment of the Voluntary Carbon Market Disclosures Act.

Similarly, the CSA published a request for comment in October 2021 on proposed National Instrument 51-107 Disclosure of Climate-related Matters, which we discussed in more detail at the time. The rule is currently being reviewed in light of other rule amendment proposals by the SEC and the International Sustainability Standards Board (ISSB). More recently, the CSA has published CSA Staff Notice 51-364 [PDF] and CSA Staff Notice 81-334, both of which provide guidance regarding greenwashing and disclosure practices that relate to environmental, social and governance considerations.

Conclusion

Canadian capital markets are undergoing significant changes due to rapid advancements in technology, evolving market conditions and shifting investor preferences. As always, Osler will continue to monitor and provide updates regarding key legal developments impacting Canada’s dynamic securities landscape.