In an effort to reduce the regulatory burden for non-investment fund reporting issuers, on May 20, 2021, the Canadian Securities Administrators (“CSA”) released a notice and request for comment regarding proposed amendments to National Instrument 51-102 Continuous Disclosure Obligations (“NI 51-102”) together with consequential amendments to associated policies and applicable securities laws and regulations (collectively, the “Proposed Amendments”).
In April 2017, the CSA published CSA Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers (“Consultation Paper 51-404”) to identify and consider areas of securities legislation that could benefit from a reduction of undue regulatory burden, without compromising investor protection or the efficiency of the capital markets. The Proposed Amendments are informed by feedback received by the CSA with respect to Consultation Paper 51-404, which generally supported examining whether the volume of information in annual and interim filings could be reduced.
The Proposed Amendments
1. Streamlining Disclosure by Eliminating, Consolidating, or Clarifying Disclosure Requirements
The Proposed Amendments eliminate duplicative or overlapping disclosure requirements among a reporting issuer’s financial statements, management’s discussion and analysis (“MD&A”) and annual information form (“AIF”).
In particular, the Proposed Amendments would eliminate current:
- MD&A requirements to disclose (i) information regarding critical accounting estimates, (ii) available prior period information, (iii) summary information for the eight (8) most recently completed quarters (given this information can be located in previous disclosure filings), (iv) off-balance sheet arrangements, critical accounting policies and changes in accounting policies which are required to be included in financial statements, and (v) prior sales of securities of the reporting issuer during the most recently completed financial year; and
- AIF requirements to disclose (i) security price ranges and volumes trades on a Canadian marketplace, (ii) information regarding cash dividends or distributions declared and restrictions on payment of dividends or distributions, (iii) how the reporting issuer’s business has developed over the last three (3) completed financial years, and (iv) transfer agents, registrars and the location of the registers of transfers, since a reporting issuer is required to disclose this information in its SEDAR profile.
The Proposed Amendments consolidate requirements where a reporting issuer is required to disclose similar information in different ways or in different locations. Consolidation and relocation of disclosure requirements is expected to streamline reporting, and result in investors receiving shorter and more focused disclosure documents.
In particular, the Proposed Amendments would consolidate current:
- MD&A disclosure requirements regarding liquidity and capital resources;
- AIF disclosure requirements with respect to all relevant actual or potential self-dealing and conflict matters involving the reporting issuer, its management, its promoters, and others; and
- AIF disclosure requirements regarding research and development discussion with the MD&A requirement to discuss operations.
In addition, the Proposed Amendments would relocate sections 5.3 (Additional Disclosure for Venture Issuers Without Significant Revenue) and 5.4 (Disclosure of Outstanding Share Data) of NI 51-102 to the new Form 51-102F1 Annual Disclosure Statement so that all MD&A and AIF disclosure requirements could be found in one form (rather than in NI 51-102 itself) to reduce the risk of reporting issuers missing a disclosure requirement that applies to them.
The Proposed Amendments clarify vague or otherwise unclear requirements by specifically identifying what the CSA expect from reporting issuers through changes to the requirements or instructions. This is expected to enable reporting issuers to better understand the disclosure required, dissuade reporting issuers from providing unnecessary disclosure to ensure compliance with disclosure requirements and reduce reporting issuers’ regulatory burden.
In particular, the Proposed Amendments would clarify, among other things:
- that the discussion of a reporting issuer’s financial condition, financial performance and cash flows in the MD&A must include an analysis of the most recently completed financial year as compared to the prior year;
- that a summary from a technical report can be used to satisfy the AIF requirement applicable to a reporting issuer with mineral projects, and the entire technical report is not required to be incorporated by reference into the AIF;
- that the discussion of a reporting issuer’s “plan” in the MD&A must include a discussion of any significant milestones;
- the general instructions for Part 2 of the MD&A by adding the term “cash flows” and rearranging the order of “financial performance and financial condition” to “financial condition, financial performance, and cash flows” to allow for complete and consistent presentation of a reporting issuer’s financial disclosure requirements; and
- the requirement of a reporting issuer to focus on material information by removing the express materiality qualifiers contained in certain sections of the current MD&A and AIF forms, and specifying instead in the general instructions to the MD&A and AIF forms (subject to limited exceptions noted in the forms) that all disclosure requirements are subject to the qualification that reporting issuers are to focus on material information.
2. Combining Disclosure Documents
To increase reporting efficiency for reporting issuers and improve usability for investors and analysts, the Proposed Amendments combine certain disclosure documents into a single filing.
- For reporting issuers that are not venture issuers, the annual financial statements, MD&A and AIF would be combined into one filing.
- Where the reporting issuer is a venture issuer, the annual financial statements and MD&A would be combined into one filing.
All reporting issuers would combine their interim financial report and MD&A (or where appropriate, the quarterly highlights) into one filing.
3. Addressing Gaps in Disclosure Through New Requirements
The Proposed Amendments introduce new requirements to clarify CSA staff expectations that have been communicated in prior staff notices or comment letters.
Examples of such new requirements include:
- the requirement for a venture issuer that does not currently file an AIF to provide a general description of the business, including its lines of business, products and services and principal markets; and
- additional disclosure requirements for investment entities and non-investment entities that record investments at fair value.
4. Other Significant Proposed Amendments
The Proposed Amendments also require a reporting issuer to deliver an annual disclosure statement to its investors, which would apply to an AIF that is prepared as part of a new annual disclosure statement. This proposed amendment is in response to the CSA Consultation Paper 51-405 Consideration of an Access Equals Delivery Model for Non-Investment Fund Reporting Issuers, which outlines an “access equals delivery” model whereby electronic access to an annual disclosure statement and publication of a related notice of the disclosure statement’s availability would constitute delivery. For further information on this consultation paper, please refer to our previous legal update CSA Consider an Access Equals Delivery Model for Non-Investment Fund Reporting Issuers.
The CSA propose to modify the existing exemption provision in NI 51-102 to allow reporting issuers to rely on exemptions, waivers or approvals that relate to the requirements to prepare, file, or deliver annual or interim filings, and that were granted by a securities regulatory authority prior to the effective date of the Proposed Amendments. Any reporting issuer that is exempted from preparing, filing, or delivering annual or interim filings will also be exempted from preparing, filing, or delivering an annual disclosure statement or an interim disclosure statement, as applicable.
The CSA are soliciting comments from market participants on the Proposed Amendments for a 120-day period expiring on September 17, 2021. The final amendments, subject to the comment process and required approvals, are expected to be published in September 2023 and take effect on December 15, 2023 with appropriate transition provisions.
If you have any questions with respect to the Proposed Amendments discussed above, please contact Sanjeev Patel ([email protected]), Peter Hill ([email protected]) or any other member of Wildeboer Dellelce LLP.
This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.
If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.