As part of their ongoing efforts to balance investor protection through sufficient disclosure with efficiency in the capital markets, the Canadian Securities Administrators (CSA) have identified potential areas of securities legislation applicable to non-investment fund reporting issuers where the regulatory burden may be reduced without compromising investor protections and the integrity of the capital markets, in Consultation Paper 51-404 – Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers, published on April 6, 2017. The CSA are considering potential reforms aimed at reducing regulatory burdens associated with both capital raising in the public markets (i.e., prospectus-related requirements) and the ongoing costs of remaining a reporting issuer (i.e., continuous disclosure requirements) that fall into the following five categories:
1. Extending the application of streamlined rules to smaller reporting issuers
Under current Canadian securities legislation, “venture issuers” that do not have their securities listed on senior securities exchanges (including the Toronto Stock Exchange) or most foreign exchanges, have less onerous continuous disclosure obligations to meet than those imposed on non-venture issuers. The CSA are considering adopting an alternative size-based distinction that would measure an issuer’s size in terms of its assets, revenues, market capitalization or a combination of criteria, to allow smaller reporting issuers listed on senior securities exchanges to make use of the reduced regulatory requirements of venture issuers. Examples of these reduced requirements could include longer filing deadlines for financial statements and a higher threshold for significant acquisition reporting. Such size-based criteria is currently utilized in the United States pursuant to the U.S. Securities and Exchange Commission’s rules and regulations and the U.S. Jumpstart Our Business Startups Act of 2012, which enables reduced reporting requirements for “emerging growth companies” with annual revenue under US$1-billion and “smaller reporting companies” with less than US$75-million in common equity public float or less than US$50-million in revenue for companies without publicly-traded equity.
2. Reducing the regulatory burdens associated with the prospectus rules and offering process
The CSA are considering various reforms to the rules governing prospectuses and the offering process, including:
- Affording issuers that wish to list on a non-venture exchange the ability to include a reduced number of years of audited financial statements in their Initial public offering prospectus
- Streamlining public offerings for reporting issuers by modifying short-form prospectus disclosure requirements and introducing an alternative prospectus model more closely linked to continuous disclosure
- Implementing rules that would further facilitate at-the-market (ATM) offerings by allowing them to be completed by reporting issuers without the need for exemptive relief from the current securities rules that make such ATM offerings impracticable or subject to conditions that make them a less attractive financing alternative
- Other rule changes to promote cross-border financings and further liberalize the existing pre-marketing and marketing rules
3. Reducing ongoing disclosure requirements
The CSA are also considering reforms of various continuous disclosure filings, including:
- Revising the requirements in respect of business acquisition reports (BARs), including removing the requirement to file BARs entirely in some circumstances, removing one or more of the significance tests, providing alternative significance tests based on specific industry criteria or increasing the significance test thresholds for non-venture issuers
- Reducing disclosure required in annual and interim filings (i.e., removing discussion of prior period results or the eight most recently completed quarters of an issuer from management’s discussion and analysis (MD&A))
- Enabling semi-annual reporting similar to the long-established practice in the U.K. and Australia for either all reporting issuers or smaller reporting issuers while still maintaining material change reporting and exchange listing reporting requirements in respect of material information
4. Eliminating overlap in regulatory requirements
Currently there is overlap in terms of disclosure requirements of the International Financial Reporting Standards to which Canadian reporting issuers must adhere and the continuous disclosure forms under National Instrument 51-102. In addition, there is also overlap of disclosure requirements as between the various continuous disclosure forms. As such, the CSA are considering either removing some of this overlap or consolidating the requirements of the annual information form, MD&A and financial statements into one document.
5. Enhancing electronic delivery of documents
In addition to the “notice-and-access” method already instituted for posting proxy-related materials and other continuous disclosure filings to a website in lieu of mailing same, the CSA are considering further methods for electronic document delivery to reduce printing and mailing costs for reporting issuers.
As part of the consultation paper, the CSA have included specific consultation questions to assist in their evaluation of the issues to be addressed. Comments on the proposed reforms and related comments must be submitted to the CSA by July 7, 2017.