The Corporate Finance Branch of the Ontario Securities Commission (“OSC”) released its 2016-2017 Annual Report (OSC Staff Notice 51-728) (the “Report”). The objective of the Report is to encourage compliance, improve disclosure in filings, and discuss trends and key policy initiatives. We highlight below some of OSC’s key findings from its compliance review of issuers and key takeaways.
By way of background, the Corporate Finance Branch of the OSC conducts two types of reviews of issuers in the context of continuous disclosure: a full review (which involves a review of financial statements, annual reports, material change reports, MD&A, etc.) and/or an issue oriented review (which targets a specific legal, regulatory or accounting issue). The OSC uses a risk-based approach when selecting an issuer for review. The majority of compliance reviews in the 2016-2017 period involved issue oriented reviews. The outcomes of the reviews included education and awareness, prospective disclosure enhancements, refiling, as well as other outcomes like enforcement action.
The Report emphasizes that many issuers struggle with providing meaningful disclosure that is both useful and understandable. The Report also reminds issuers to avoid using boilerplate disclosure and include detailed discussions about factors that affect revenues and expenses, not simply discussing changes in percentages.
The Report also encourages issuers to adopt a social media disclosure policy. The Report indicates that disclosure on social media should be simultaneous as filings on SEDAR, and social media disclosure cannot be unbalanced, insufficient or inconsistent with information filed on SEDAR.
The Report underscores the significance of disclosure of cyber security risks. In particular, disclosure by issuers whether cyber security incidents could pose a material risk to the company. The OSC highlights the importance of cyber security disclosure in light of recent cyber attacks.
The Report discusses the OSC’s review of the exempt market and identifies concerns regarding the use of the offering memorandum exemption.
Finally, the Report emphasizes the need for non-venture issues to have policies regarding women on boards and in executive officer positions, as well as it indicates that the OSC is reviewing climate change disclosure required in other jurisdictions and is considering the appropriate response for Ontario’s capital markets.