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Canadian Securities Regulatory Monitor

News and Insight

UK Financial Conduct Authority Releases Guidance on Initial Coin Offerings

Posted in CSA, Fintech
Heidi GordonShauvik Shah

On September 12, 2017 the UK Financial Conduct Authority (“FCA”) released brief guidance (“FCA Guidance”) on initial coin offerings (“ICOs”). This follows earlier guidance from the Canadian Securities Administrators (the “CSA”) in August on ICOs, a summary of which can be read here.

The FCA Guidance defines an ICO as a digital method of raising funds from the public using a virtual currency (cryptocurrency). An ICO can also be known as a “token sale” or a “coin sale”.

ICO Risk Factors

The FCA Guidance notes that ICOs are high-risk, speculative investments with the following risk factors:

  • Unregulated space: most ICOs are not regulated by the FCA and many are based overseas.
  • No investor protection: investors are extremely unlikely to have access to UK regulatory protections like the Financial Services Compensation Scheme or the Financial Ombudsman Service.
  • Price volatility: like cryptocurrencies in general, the value of a token may be extremely volatile and vulnerable to dramatic price fluctuations.
  • Potential for fraud: some issuers might not have the intention to use the funds raised in the manner set out when the project was marketed.
  • Inadequate documentation: instead of a regulated prospectus, ICOs usually only provide a “white paper”. An ICO white paper might be unbalanced, incomplete or misleading. A sophisticated technical understanding is needed to fully understand the tokens’ characteristics and risks.
  • Early stage projects: ICO projects are typically in very early stages of development and their business models are experimental. There is a good chance an investor could lose their entire stake.

The FCA states that whether or not an ICO falls within the FCA’s regulatory purview is something that can only be decided on a case by case basis. While many ICOs will fall outside the regulated space, depending on their structure, some ICOs may involve regulated investments and firms which may be conducting regulated activities.

Businesses involved in an ICO are advised to consider if their activities could mean they are arranging, dealing or advising on regulated financial investments. Both promoters and exchanges are advised to consider if they need to be authorised by the FCA to deliver their services.

The FCA Guidance notes that some ICOs may share similarities with initial public offerings, private placements of securities, crowdfunding or collective investment schemes and may therefore fall within the prospectus regime.

International ICO Guidance

Other national regulators have also issued guidance or advisories on ICOs, including the CSA, U.S. Securities and Exchange Commission, the Monetary Authority of Singapore, the People’s Bank of China and the Securities and Futures Commission of Hong Kong.

Any Fintech businesses seeking to enter the cryptocurrency space in Canada should consult with counsel and be prepared to engage in detailed interaction with securities regulatory authorities.

For more information about our firm’s Fintech expertise, please see our Fintech group‘s page.


Getting Women on Corporate Boards: How Can Women Capitalize off of the Trend Toward Gender Diversity?

Posted in CSA, Industry News
Nicole RumbleAdriana Forest

In 2015, new rules were implemented which require Canadian public companies to disclose, on an annual basis, certain information regarding women in executive positions and on boards (the Gender Disclosure Rules). On September 28, 2016, the Canadian Securities Administrators published the results (the Results) of its second annual review of compliance with the Gender Disclosure Rules, which indicated, among other things, an increase in the representation of women on boards (see a previous article summarizing these results here).

Both the Results and the establishment of the Gender Disclosure Rules indicate a clear push towards improvement of gender diversity on corporate boards. But what can women do to ensure that they are able to capitalize off of this trend?


Women should endeavour to expand their network. Most of the time, the way “in” to a corporate board is through a personal connection. Women can expand their networks by joining organizations and professional associations, or using their current network to meet CEOs and executives within their field.

Speaking at Governance-Related Events

Women can further increase their network by speaking at governance-related events such as the Annual Corporate Governance Conference. This will not only provide for a resume-boost, but may lead to contacts who have similar interests.

Expressing Interest to the CEO

Women should let the CEO of their organization know that they are seeking a position on a corporate board. This will not only elicit helpful feedback on how to enhance eligibility for a position, but may lead to the CEO providing a recommendation or creating a useful connection.

Seeking Out Relevant Not-for-Profit Experience

Women should start to “maneuver” towards their end-goal of being on a corporate board by serving on the board of a large non-profit organization (e.g., a university, a national non-profit in the health sector or a prestigious arts organization). This will provide excellent experience and may also lead to important connections for the future given that the boards of such organizations often include individuals who also sit on the boards of public companies.

Starting Early

Women should start taking the above-mentioned steps and seeking out marketable experiences early in their careers. Additionally, they should strive to establish relationships with older colleagues who may be able to provide valuable assistance to them in achieving their goal of getting on a corporate board.

Canadian Securities Administrators Weigh-in on the Applicability of Canadian Securities Laws to Cryptocurrencies, including Coins and Tokens

Posted in CSA, Fintech
Heidi GordonSean SadlerAna BadourShane C. D'SouzaShauvik ShahEtienne Ravilet GuzmanPatrick Boucher

On August 24, 2017, Staff of the Canadian Security Administrators (the “CSA”) released CSA Staff Notice 46-307 Cryptocurrency Offerings (the “CSA Notice”), published in all Canadian jurisdictions except Saskatchewan.[1]

The CSA Notice addresses a number of considerations of relevance to Fintechs, investors and their advisors, including the potential applicability of Canadian securities laws to initial coin offerings (“ICOs”) and initial token offerings (“ITOs”), cryptocurrency exchanges and cryptocurrency investment funds. It follows a press release issued by the Ontario Securities Commission earlier this year confirming that Ontario securities laws may apply to any use of distributed ledger technologies (“DLTs”), such as blockchain, as part of financial products or service offerings. Our commentary on that press release is here.

The effect of the CSA Notice is to confirm the potential applicability of Canadian securities laws to cryptocurrencies and related trading and marketplace operations and to provide market participants with guidance on analyzing these requirements.

Status as a “Security” and Prospectus Requirement

The CSA Notice clarifies that regardless of whether the instrument distributed is referred to as a coin/token instead of a share, stock or equity, that instrument may still be a “security” under Canadian securities laws. The key takeaways from this clarification are:

  • The existing definitions to establish whether an instrument is a “security” also apply to coins/tokens generated from an ICO/ITO. A security includes an “investment contract”. In determining whether a coin/token is an investment contract, a four-prong test should be applied, being does the coin/token involve: (i) an investment of money (ii) in a common enterprise (iii) with the expectation of profit (iv) to come significantly from the efforts of others. Advertisement of a coin or token as a software product is not relevant in determining whether a coin or token constitutes a “security”.
  • The “investment contract” test looks at the economic realities of the circumstances and provides a very broad and flexible means of capturing new and innovative arrangements — such as ICOs/ITOs — that do not fit within other definitions of a “security”.
  • Generally, “securities” offered to the public in Canada must be offered with a prospectus, which provides details of the venture and the securities being offered and is filed with the relevant securities commissions. However, there are prospectus exemptions that allow an issuer to offer securities on a private placement basis without a prospectus. “Securities” that are coins/tokens are no different. An ICO/ITO of a coin/token that constitutes a “security” requires either the filing of a prospectus, or the use of an applicable prospectus exemption. For example, coins/tokens that meet the definition of securities could be distributed to accredited investors in reliance upon the accredited investor exemption, or could be distributed to retail investors in reliance upon the offering memorandum exemption, without the need to file a prospectus. Whitepapers are not prospectuses and do not fulfill the disclosure requirements applicable under Canadian securities laws. To date, no business has used a prospectus to complete an ICO/ITO in Canada; however, coins/tokens have been distributed in Canada on a prospectus exempt basis.

Cryptocurrency Exchanges

As mentioned in the CSA Notice, a number of jurisdictions have also been developing regulation applicable to cryptocurrency marketplaces or exchanges in other areas, particularly with respect to anti-money laundering, recordkeeping, counter-terrorist financing and identity verification requirements. Canada is no exception in this regard, having amended the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) in 2014 to include within the scope of money services businesses “dealers in virtual currencies” (these changes are not yet in force pending the publication of related regulations).  In addition, in Quebec, the Autorité des marchés financiers requires such exchanges and virtual currency ATMs to be licensed as money services businesses.

While no cryptocurrency marketplaces or exchanges have registered with securities regulators in Canada to date, CSA Staff emphasizes the need for cryptocurrency exchanges to determine whether the cryptocurrencies that they offer are “securities” and, if so, to register as a marketplace or get an exemption from registration.

Dealer Registration Requirement

The CSA Notice also addresses the following with respect to dealer registration or registration exemption and marketplace requirements:

  • Businesses that undertake an ICO/TO for a business purpose may be required to register as a dealer or get an exemption from registration. Factors to consider include whether a security is involved, a broad base of investors is being solicited, whether a considerable amount of capital is being raised from a large number of investors, the use of public forums (i.e., the internet) and participation in public events to market the sale of coins/tokens. Any businesses that meet the business purpose must fulfill know-your-client and suitability requirements and other on-going registrant obligations.
  • Platforms used for trading coins/tokens that are securities may constitute a marketplace and therefore must comply with marketplace requirements or otherwise seek an exemption from such requirements.
  • Any platform used for offering coins/tokens that constitute securities must have policies and procedures, including in respect of cybersecurity matters, in place.

Cryptocurrency Investment Funds

The CSA Notice also outlines several factors relevant to the operation of cryptocurrency investment funds. As with other funds, a cryptocurrency investment fund should register in the category applicable to it as an investment fund manager and/or adviser, or dealer. The fund should consider how the valuation method of the cryptocurrencies and securities included in the fund’s portfolio will take place, whether this method will be assessed in an independent audit and how the exchange of cryptocurrency will take place. Any exchange used to purchase or sell cryptocurrencies will have to be subject to due diligence by the fund. Moreover, where retail investors invest in the fund, some jurisdictions in Canada will not accept an offering on an exempt basis in reliance upon the offering memorandum prospectus exemption, and instead will require compliance with the prospectus requirement, investment suitability and investment fund regulations. Finally, any custodian that holds the portfolio assets of a cryptocurrency investment fund must have cryptocurrency-related expertise.

Beyond Canada

Canada is not the only jurisdiction grappling with this issue. Recently, both the Securities Exchange Commission (“SEC”) in the United States and the Monetary Authority of Singapore (“MAS”) have issued guidance addressing the applicability of securities laws to cryptocurrencies.

On July 25, 2017, the SEC issued an investigative report reminding stakeholders considering using decentralized autonomous organizations or other DLTs to raise capital to take appropriate steps to ensure compliance with U.S. federal securities laws. Like Canada, in the United States, all securities offered and sold must be registered with the SEC or must qualify for a registration exemption. To drive this point home, the SEC analyzed the distribution of tokens in 2016 by “The DAO”, an unincorporated virtual organization on the Ethereum blockchain, and concluded that: (a) DAO tokens were unregistered securities; (b) The DAO was an unregistered issuer; and (c) platforms allowing DAO tokens to trade “appear” to be unregistered exchanges. Along the way, the SEC noted that:

  • The automation of certain functions through DLT, “smart contracts,” or computer code, does not remove conduct from the purview of U.S. federal securities laws.
  • Cash is not the only form of contribution or investment that will create an investment contract. Any contribution of value, such as goods and services, may be considered an investment.
  • The marketing efforts of those involved in designing, promoting, distributing and managing the ICOs/ITOs and resulting enterprise will be considered, including their involvement in control and decision-making after the ICO/ITO.
  • To prove that investors do not rely on the managerial efforts of others, voting rights given to token holders must allow them to meaningfully control the enterprise.
  • Pseudo-anonymity and the wide dispersion of tokenholders may make it difficult for them to argue that they can meaningfully control the enterprise and do not rely on the managerial efforts of others.

The SEC elected to not pursue an enforcement action against The DAO, its co-founders and intermediaries involved in the distributed of DAO tokens.

The CSA Notice is reflective of the increasing scrutiny paid by CSA Staff to the regulation of Fintechs, and can be expected to inform the approach taken by Canadian securities regulators when considering requests for exemptive relief from Canadian securities law requirements and other issues, whether as part of the CSA Regulatory Sandbox initiative or otherwise.

Any Fintech businesses seeking to enter the cryptocurrency space in Canada should consult with counsel and be prepared to engage in detailed interaction with securities regulatory authorities.

For more information about our firm’s Fintech expertise, please see our Fintech group‘s page.


[1]      The Financial and Consumer Affairs Authority of Saskatchewan will advise of its approach in this matter after the provincial by-election in Saskatchewan on September 7, 2017.

















The State of Private Placements in Canada: OSC Publishes Update on Exempt Financings Market

Posted in Capital Markets, Exempt Market Dealers, OSC, SEC
Mark AdkinsHeidi Gordon

The Ontario Securities Commission recently published a report summarizing capital raising activity by issuers in Ontario’s exempt market. Findings from the report include:

  • increased activity in 2016
  • significant participation from foreign issuers, including the U.S.
  • no reported use of Ontario’s new crowdfunding rule

In June 2017, the Ontario Securities Commission (the “OSC”) published OSC Staff Notice 45-715 2017 Ontario Exempt Market Report (the “Report”), which summarizes capital raising activity in Ontario’s exempt market (i.e. financings made other than by way of a prospectus).

The Report is a useful resource for businesses looking to raise capital from Canadian investors, including businesses located outside of Canada, particularly in the United States.


Generally, securities offered to the public in Ontario must be offered under a “prospectus”, similar to a U.S. registration statement, which provides details of the company and securities being offered and is filed with the relevant securities commissions. However, there are some exceptions to this rule that allow securities to be offered without a prospectus, called prospectus exemptions.​ These prospectus exemptions can help an issuer raise money from investors without the time and expense of preparing a prospectus.

The “exempt market” refers to the subset of Canada’s capital markets where securities can be sold without a prospectus (private placements). One of the most commonly relied upon exemptions for private placements is the “accreditor investor” exemption, which allows issuers to distribute securities to individuals and organizations that meet certain asset or income thresholds or other prescribed characteristics.  Investors who buy securities in the exempt market are then limited in their ability to resell the securities.

Unlike the federal SEC in the U.S., each province and territory in Canada has its own securities laws and regulator, although the laws are largely harmonized. The Report focuses primarily on activity in Ontario.

More information on Ontario’s exempt market can be found here.

A summary of the key capital raising prospectus exemptions in Ontario can be found here.


The Report includes the following statistics regarding capital raising activity in Ontario over the last two years:

  • Market size. The money raised from Ontario investors grew by 40% in 2015 to reach $67 billion, and an additional 9% in 2016 to a total of $72 billion.
  • Issuer location. Two-thirds of the issuers were headquartered in Canada, with U.S.-based issuers representing the second largest group. However, foreign issuers raised the most money, with U.S.-based issuers accounting for the largest share.
  • Reporting issuers. Even though most Canadian public companies are listed on a stock exchange and, as “reporting issuers” (the equivalent of a U.S. registrant), can access capital through prospectus offerings, Canadian public companies accounted for 60% of exempt market activity by domestic issuers.
  • Prospectus exemption relied on. In 2016, 30% of Canadian issuers relied on multiple prospectus exemptions. Among these issuers, the accredited investor exemption was predominately used and also accounted for most of the capital raised under multiple prospectus exemptions. Accredited investors, mainly institutional investors, contributed over 90% of the total capital invested in the Ontario exempt market, with most of this capital being invested in large issuers, primarily foreign-based and consisting of financial entities such as private equity funds.
  • Type of securities offered. Debt offerings raised more capital than equity offerings, which was true for both Canadian and foreign issuers.
  • Financing size. Foreign issuers in the exempt market raised more capital than Canadian issuers, with 65% of foreign issuers raising an annual average of at least $5 million. Only 22% of Canadian issuers raised aggregate funds over this threshold.
  • Comparisons with broader Canadian capital market. In 2016, Canadian corporations issued $309 billion in securities through both private and public market offerings, with Canadian investors accounting for less than half of that amount. The balance was raised from foreign investors.
  • Small Canadian issuers. Approximately 57% of Canadian issuers in Ontario’s exempt market were small issuers (i.e. issuers that raised less than $1 million annually). Small issuers, however, represented less than 1% of gross proceeds raised in Ontario’s exempt market by Canadian issuers annually. In 2016, there was a notable increase in both the number of small Canadian issuers (30%) and the gross proceeds raised by these issuers (40%).


In recent years, the OSC introduced four new prospectus exemptions in Ontario (the “New Exemptions”) aimed at facilitating greater access to capital for small to medium sized businesses:

  1. existing security holder exemption, introduced on February 11, 2015;
  2. family, friends and business associates exemption, introduced on May 5, 2015;
  3. offering memorandum exemption, introduced on January 13, 2016; and
  4. crowdfunding exemption, introduced on January 25, 2016.

The Report indicates that the New Exemptions have gained traction among 25% of all Canadian issuers, with 400 such issuers making use of the New Exemptions in 2016, raising $133 million in aggregate. The Report includes the following additional statistics broken down by exemption type:

  • Family, friends and business associates exemption. This was used by 302 issuers to raise gross proceeds of $63 million. Most issuers relying on this exemption also raised capital under others, particularly the accredited investor exemption. About 70% of issuers that relied on it raised average gross proceeds of under $1 million, and most were smaller issuers.
  • Offering memorandum exemption. This was used by 103 issuers to raise gross proceeds of $68 million. Most issuers relying on this exemption also raised capital under the accredited investor exemption. About 60% of issuers that relied on it raised average gross proceeds of $1 million or higher, and most were larger issuers.
  • Existing security holder exemption. This was used by 24 issuers to raise gross proceeds of $2 million in 2016.
  • Crowdfunding exemption. Notably, the Report confirms that there has been no reported use of the crowdfunding exemption. However, “crowdfunding” in the broader sense has occurred with issuers using online funding portals to raise proceeds under the accredited investor or offering memorandum exemption.

CSA Proposals Aim to Simplify Reports of Exempt Distribution

Posted in Amendments, CSA, Proposals
Heidi GordonAndrew ParkerCristian Blidariu

On June 8, 2017, the Canadian Securities Administrators (“CSA”) published for a 90-day comment period (ending on September 6, 2017), proposed amendments (the “Proposed Amendments”) to National Instrument 45-106 Prospectus Exemptions (“NI 45-106”) that would amend the report of exempt distribution (the “Report”) set out on Form 45-106F1 Report of Exemption Distribution that must be filed following a distribution of securities in reliance on certain prospectus exemptions under NI 45-106. The current version of the Report came into effect on June 30, 2016 and requires filers to provide substantially more information than previous versions. As a result, since its introduction, the current Report has prompted some filers to express concerns and to ask for clarification regarding certain unintended effects of the form.

Last year, the CSA issued a notice (the “2016 Notice”) intended to assist issuers, underwriters and their advisors in preparing and filing reports of exempt distribution using the Report. For more information on the 2016 Notice, see our post: Revised CSA Staff Notice gives further guidance on preparing and filing reports of exempt distribution.

The Proposed Amendments now pick up on a number of matters discussed in the 2016 Notice and are intended to be responsive to concerns expressed by dealers conducting private placement offerings into Canada, and Canadian institutional investors, about the unintended effects of the certification requirement and other information requirements in the Report. The Proposed Amendments aim to: (1) provide greater clarity and flexibility regarding the certification requirement of the Report; and (2) streamline certain information requirements to assist filers in completing the Report.

Summary of Key Proposed Amendments

Certification of the Report

Currently, the Report must be certified by the issuer or the underwriter, but may not be certified “on their behalf” or by an agent. This feature of the Report raised concerns that the individual certifying the report was executing in their personal capacity instead of on behalf of the issuer or the underwriter. The Proposed Amendments would amend the Report certification requirement as follows:

  • Clarifying that the individual certifying the Report is doing so on behalf of the issuer or underwriter.
  • The information provided in the Report must be certified to be “true and, to the extent required, complete” rather than “true” as is the case under the current Report. This change is intended to address concerns with certifying completeness when not all parts of the Report are applicable, or when filers can only select one form option when multiple options might apply and there is limited ability to include additional notes in the Report.
  • Including a knowledge qualifier in respect of the certification statement, which is consistent with other CSA forms and with the due diligence defence available under securities legislation.
  • Permitting authorized agents to sign the Report certification on behalf of the issuer or underwriter, thereby permitting law firms and other filing agents who often prepare and file the Report to sign it on their client’s behalf.

Information Requirements

The Report requires filers to provide a substantial amount of information. The Proposed Amendments would reduce the burden on filers by amending the Report as follows:

  • Filers will be required to provide only the name of the exchange on which the issuer’s securities primarily trade, rather than the names of all exchanges on which the issuer’s securities are listed. This is intended to reduce the burden on filers completing the Report for issuers with securities listed on multiple exchanges globally.
  • Filers will be required to select only one applicable exemption category instead of all applicable categories when indicating how they qualify for an exemption from providing certain director, officer and promoter information. This is intended to reduce the time and analysis currently necessary to complete this part of the Report.
  • Issuers distributing securities to non-individual permitted clients will no longer be required to specify which paragraph number in the definition of “accredited investor” in section 1.1 of NI 45-106 applied to the purchaser. This is intended to reduce the burden on filers completing Schedule 1 of the Report, particularly in circumstances where an issuer is distributing eligible foreign securities only to permitted clients.

If you have questions regarding the Proposed Amendments or wish to submit a comment letter to the CSA, we invite you to contact Andrew Parker (416-601-7939).

Targeted Reforms Update – Most regulators abandon the “Best Interest Standard” but propose to proceed with refined “Targeted Reforms”

Posted in Advisors, Amendments, Broker-Dealers, Compliance and Supervision, CSA, IIROC, Industry News, MFDA, OSC, Registrants
Cristian BlidariuMichael NicholasSean SadlerRene Sorell

The Canadian Securities Administrators (CSA) issued CSA Staff Notice 33-319 (the Notice) to provide an update on the “Best Interest Standard” and “Targeted Reforms” proposed last year in an important CSA Consultation Paper that we discussed in a previous post.

Most regulators have decided to abandon the Best Interest Standard which would have introduced a “client best interest” standard against which all registrant-client obligations would be interpreted.

The CSA will still proceed with a refined set of Targeted Reforms. Even in the absence of a Best Interest Standard in most jurisdictions, the Targeted Reforms would nonetheless significantly increase the obligations of all advisers, dealers and representatives, including IIROC and MFDA members (Registrants), including in the following areas:

  • Conflicts of interest
  • Know you client procedures (KYC)
  • Know your product procedures (KYP)
  • Suitability
  • Relationship disclosure
  • Proficiency
  • Business titles
  • Use of professional designations
  • Role of the ultimate designated person and chief compliance officer
  • Statutory fiduciary duty when client grants Registrant discretionary authority.

The Notice provides the following key updates:

1. Best Interest Standard. Only Ontario and New Brunswick will continue to consider the Best Interest Standard. The other provinces will either no longer consider it at all (in the case of B.C., Alberta, Manitoba and Québec) or have concerns with its current form and will wait for Ontario and New Brunswick to complete their work before they decide whether to reconsider a Best Interest Standard (in the case of Nova Scotia and Saskatchewan).

2. Targeted Reforms. All CSA members have agreed to proceed with the Targeted Reforms, but will reconsider and revise some of the individual Targeted Reforms which were viewed by some stakeholders as impractical or overly prescriptive, including the following Targeted Reforms:

  • the requirement to collect certain tax information as part of the KYC process
  • the requirement to conduct a market investigation of ‎a reasonable universe of products as part of the KYP process
  • differentiation of KYP requirements based on whether a firm offers (i) only proprietary products or (ii) proprietary and non-proprietary products, or non-proprietary only
  • scaling back the scope of the proposed requirement ‎for Registrants to have understood and considered various aspects of every single product on their firm’s product list
  • the default requirement to conduct a suitability assessment at least every 12 months absent a triggering event
  • the requirement to perform a suitability assessment if there is a significant market event affecting the capital markets the client is exposed to
  • wording changes will be considered to the proposal that a registrant must ensure a recommendation to a client is “most likely to achieve a client’s investment needs and objectives, given the client’s financial circumstances and risk profile, based on a review of the structure, features, product strategy, costs and risks of the products on the firm’s product shelf”
  • proposed proficiency reforms may require a long-term project that will be advanced through a separate CSA project.

The Notice acknowledges concerns about a “one-size-fits-all” approach and the CSA will incorporate the concept of scalability going forward, where appropriate. For example, some of the proposals related to suitability or KYC might be made scalable based on the nature of the relationship between the client and the registrant.

3. Timing of Next Steps. Detailed notices will be published with draft proposed rule amendments and draft guidance. The work on Targeted Reforms will be prioritized over the 2017-2018 fiscal year. Ontario and New Brunswick will continue to undertake further work on the Best Interest Standard on a parallel path.

It is unclear how Ontario and New Brunswick’s support for the Best Interest Standard will be reflected once the Cooperative Capital Markets Regulatory System (CCMRS) becomes operational, possibly next year. British Columbia and Saskatchewan are also CCMRS members. The CCMRS draft uniform Capital Markets Act published for comment in 2015 revised the standard for Registrants to deal fairly, honestly and in good faith with clients to include “other such standards as may be prescribed”, apparently as a regulation-making placeholder in respect of the possible future introduction of a Best Interest Standard.

4. Coordination with Embedded Commissions Project. Given their interrelatedness, the CSA will continue to coordinate policy considerations on the Best Interest Standard and the Targeted Reforms initiative with the separate CSA project considering the discontinuation of certain investment fund embedded commissions.

We invite you to contact a member of our Securities Regulation and Investment Products Group should you have any questions regarding how the Targeted Reforms or Best Interest Standard may affect your business.

Quebec AMF Fintech Initiatives: Fintech Lab and Partnership with R3

Posted in AMF, Fintech
Laure FouinCharles-Antoine SouliereCharles-Alexandre Jobin

On April 27, 2017, the Autorité des marchés financiers (AMF) announced the creation of the Fintech Lab: a think tank equipped with exploration tools aimed at exploring the current and potential applications of new technologies by entities regulated by the AMF (e.g. financial cooperatives and other deposit-taking institutions, insurers, and market infrastructures such as stock exchanges) or in connection with activities regulated by the AMF (e.g. the business of trading in securities or advising in relation to trading in securities) and studying new technologies. Continue Reading

TSX Releases Guidance with respect to Majority Voting Policies and Advance Notice Policies

Posted in Continuous and Timely Disclosure, Industry News, Uncategorized
Nicole RumbleDavid E. Woollcombe

On March 9, 2017, Toronto Stock Exchange issued Staff Notice 2017‑001 (the “Notice”), which provides guidance with respect to the TSX’s majority voting requirements for the election of directors (“Majority Voting Requirements”) and the use of advance notice policies and by-laws.

This guidance will be noteworthy for TSX‑listed companies whose majority voting policy and/or advance notice policy or by‑law has not yet been subject to review by the TSX. Such companies should assess their majority voting policy and any advance notice policy or by-law against the guidance in the Notice as soon as possible so that any necessary amendments can be effected in a timely fashion.

  1. Majority Voting Requirements

The TSX requires that each director of a TSX‑listed issuer be elected by a majority of the votes cast with respect to his or her election, other than at contested meetings. To comply with the Majority Voting Requirements, issuers must adopt a majority voting policy, unless they otherwise satisfy the Majority Voting Requirements in a manner acceptable to the TSX.

The Notice indicates that the TSX recently conducted a review of 200 randomly selected majority voting policies (the “Reviewed Policies”) of TSX‑listed issuers for the purpose of evaluating compliance with the Majority Voting Requirements. As a result of such review and based on the TSX’s experience from the 2015 and 2016 proxy seasons, the TSX identified: (i) several deficiencies in the Reviewed Policies; and (ii) discrepancies between the Reviewed Policies and the policy objectives of the Majority Voting Requirements.

Mandatory Resignation

The review identified that certain Reviewed Policies did not require a director to tender his or her resignation if he or she is not elected by at least a majority of votes cast with respect to his or her election. The Notice confirms that issuers are expected to ensure that their majority voting policies have the effect of requiring any director not elected by at least a majority of the votes cast (each, a “Subject Director”) to tender his or her resignation immediately, absent exceptional circumstances.

Importantly, the Notice also highlights the fact that a refusal by a Subject Director to tender his or her resignation may cause the TSX to review the director’s fitness to be a director, officer or other insider of TSX‑listed issuers.

Timing of Resignation

The review identified that certain Reviewed Policies: (i) did not provide a time frame for the board to render a decision as to whether or not to accept a resignation; or (ii) provided for a time frame for such a decision that was outside the 90 day period permitted by the TSX. The Notice confirms that the TSX expects each issuer’s majority voting policy to contain a provision setting out a time period for its board to make a determination with respect to a resignation within the allotted 90 day period.

Board Determination

The Notice also addresses majority voting policies that delegate consideration of the resignation of a Subject Director to a committee of the board and specifically state that such committee is expected to recommend that the board accept the resignation of the Subject Director, absent exceptional circumstances. The Notice confirms that majority voting policies that provide for such practice are permitted, but must explicitly state that the board will accept the resignation absent exceptional circumstances.

Exceptional Circumstances

The Notice indicates that when a board determines not to accept a Subject Director’s resignation, the TSX will contact the issuer to discuss the applicable exceptional circumstances, including the steps the board is taking to prepare for the next director election. Moreover, the Notice states that exceptional circumstances are expected to meet a high threshold and provides the following examples of exceptional circumstances:

  • the issuer would not be compliant with corporate or securities law requirements, applicable regulations or commercial agreements regarding the composition of the board as a result of accepting the Subject Director’s resignation;
  • the Subject Director is a key member of an established, active Special Committee which has a defined term or mandate (such as a strategic review) and accepting the resignation of such Subject Director would jeopardize the achievement of the Special Committee’s mandate; or
  • majority voting was used for a purpose inconsistent with the policy objectives of the Majority Voting Requirements.

The Notice also confirms that the TSX generally does not consider the following factors to constitute exceptional circumstances:

  • the director’s length of service;
  • the director’s qualifications;
  • the director’s attendance at meetings;
  • the director’s experience; or
  • the director’s contributions to the issuer.

Notably, the Notice also remarks that the TSX expects that an exceptional circumstance is not a recurring event and that an issuer that determines not to accept the resignation of a Subject Director based on an exceptional circumstance one year is expected to take active steps to remedy the exceptional circumstance for the next year.

Participation by Subject Director

The Majority Voting Requirements provide that a Subject Director who tenders a resignation may not participate in any meeting of the board or any sub-committee of the board at which the resignation is considered. The Notice states that the TSX considers the phrase “participate in any meeting” to include attendance at the meeting. Consequently, a Subject Director must not attend any part of a meeting of the board or any sub‑committee of the board at which his or her resignation is discussed or a related resolution is voted upon. If the Subject Director must attend the meeting in order to satisfy quorum requirements, then the Subject Director must not speak or otherwise participate in any part of the meeting where his or her resignation is discussed or a related resolution is voted upon.

Public Disclosure

The Notice indicates that very few of the Reviewed Policies contained the requirement to provide a copy of the news release with the board’s decision to the TSX. The Notice confirms that the requirement to provide a copy of the news release with the board’s decision to the TSX may be included in the majority voting policy or another policy or procedure in order to ensure that the press release is provided to the TSX. The Notice reminds issuers that any such news release must fully state the reasons for not accepting the Subject Director’s resignation to enable security holders to understand the considerations of the board.

Circumventing the Majority Voting Requirements

The Notice reveals that the TSX found that certain Reviewed Policies contained additional requirements that may have the effect of evading the policy objectives of the Majority Voting Requirements. The Notice flags the following provisions as ones that the TSX considers to be incompatible with the Majority Voting Requirements or the policy objectives thereof:

  • a higher quorum requirement for the election of directors compared to the quorum requirement for other resolutions; and
  • majority voting policies that exclude certain nominees, such as insider nominees or incumbent directors from certain requirements or that otherwise treat certain nominees more favourably than other nominees.

TSX‑listed issuers should evaluate their majority voting policies in light of the Notice and make any necessary amendments, as soon as practicable and sufficiently in advance of the next meeting of security holders at which directors are elected, to allow nominees to comply. The timing is of particular importance because the TSX is currently conducting another review of majority voting policies adopted by TSX‑listed issuers to assess compliance with the Majority Voting Requirements.

  1. Advance Notice Policies

Many TSX-listed issuers have chosen to adopt policies and by-laws prescribing timeframes and procedures to nominate directors for election to the board (“Advance Notice Policies”), generally on the basis that nominating directors for election to a board during or shortly before a meeting of security holders may be viewed as unreasonable since it may not provide security holders with sufficient time to evaluate the new information and it may be unexpected by security holders, particularly those who have granted discretionary authority to a proxy. The TSX has previously acknowledged that issuers require adequate notice of nominees for election to the board and, accordingly, that Advance Notice Policies may be legitimately used to preserve security holder interests, provided such policies do not unreasonably limit the ability of security holders to nominate directors for election to the board.

The Notice identifies that the TSX randomly selected 25 Advance Notice Policies adopted by TSX-listed issuers for review. In its review and based on its experience from past proxy seasons, the TSX identified a number of concerns in connection with the use of Advance Notice Policies. The guidance in the Notice is helpful in clarifying the TSX’s expectations with respect to the use of Advance Notice Policies.

The Notice confirms that the TSX believes that the current guidelines published by Glass, Lewis & Co., LLC and Institutional Shareholder Services Inc. for Canada regarding notification periods prior to a meeting of security holders (whether annual or special) to nominate directors (each, a “Notice Period”) in Advance Notice Policies are generally acceptable.

The Notice presents the following examples as provisions that the TSX considers to be consistent with the policy objectives of its director election requirements:

  • in the case of an annual and general meeting of security holders at which directors are to be elected (“AGM”), a Notice Period ending at least 30 days before the meeting date;
  • if the AGM is to be held on a date that is less than 50 days after the first public announcement of the date of the AGM, a Notice Period of at least 10 days following the notice date for the meeting;
  • in the case of a special meeting called for the purpose of electing directors (whether or not also called for other purposes), a Notice Period of at least 15 days following the notice date for the meeting; and
  • requirements and procedures imposed on a nominating security holder or a nominee director that are not more onerous than requirements for management and board nominees.

The Notice highlights the following as examples of clauses in Advance Notice Policies that are viewed by TSX as being incompatible with its policy objectives:

  • requiring the nominating security holder to be present at the meeting at which his or her nominee is standing for election for the nomination to be accepted, notwithstanding the number of votes obtained by such nominee;
  • requiring the nominating security holder to provide unduly burdensome or unnecessary disclosure, such as the dates when such security holder acquired securities of the issuer or other information that is irrelevant for security holders to make an informed decision with respect to director elections;
  • requiring the nominee or nominating security holder to complete a TSX Reporting Form 4 — Personal Information Form (or its equivalent) for the nomination to be accepted, unless a PIF is also required by the issuer from management and board nominees; and
  • requiring the nominating security holder to complete a questionnaire, make representations, submit an agreement or provide a written consent in the form specified by the issuer, unless such questionnaire, representations, agreement or written consent is also required by the issuer from management and board nominees.

The Notice encourages issuers to discuss novel provisions with the TSX prior to adoption.

The Notice confirms that the TSX expects that an Advance Notice Policy will give the board the discretion to waive any provision of the Advance Notice Policy. Additionally, the TSX expects issuers to adopt Advance Notice Policies sufficiently in advance of meetings of security holders at which directors are to be elected in order to allow security holders to comply with the Notice Periods.

TSX‑listed issuers should evaluate their Advance Notice Policies in light of the Notice. Advance Notice Policies that are not compliant should be amended as soon as practicable and sufficiently in advance of the next meeting of security holders at which directors are elected.

If you have questions regarding the Majority Voting Requirements, the Advance Notice Policies or the guidance in the Notice, please contact us.

Canadian Securities Administrators Publish Report and Guidelines on Social Media Use by Reporting Issuers

Posted in Continuous and Timely Disclosure, CSA, Industry News
Claire GowdyDavid E. Woollcombe

On March 9, 2016, the Canadian Securities Administrators published CSA Staff Notice 51-348 (the “Notice”) which reports on a study of social media use by reporting issuers and provides guidance for public companies who engage with investors and other stakeholders using those channels.

Scope of Review

The review was conducted by securities regulatory authorities in Alberta, Ontario and Quebec and surveyed the social media activity of 111 reporting issuers of varying sizes and industries listed on the TSX, TSXV and CSE. The review included information on websites such as Facebook, Twitter, Instagram, LinkedIn, YouTube and others, as well as the disclosure on the issuers’ websites and blogs.


The reviewers observed that only 23% of the issuers had developed specific policies and procedures to promote compliance with securities law in relation to their use of social media. Correspondingly, the study found that the social media activity of 30% of issuers raised securities law concerns. Subsequent to the review, 25% of reporting issuers either filed clarifying disclosure, edited or removed disclosure or made prospective commitments to improve disclosure as a result of the review. Further action may be taken by the regulators in relation to a handful of more serious deficiencies. Continue Reading

Blockchain applications may be caught by Ontario’s securities law

Posted in Fintech, Industry News, OSC
Shane C. D'SouzaRene Sorell

The Ontario Securities Commission (OSC) has issued a press release advising stakeholders that Ontario securities law may apply to any use of distributed ledger technologies (DLT), such as blockchain, as part of financial products or service offerings.

The OSC emphasized that it is keen to support the innovative potential of DLT because, among other things, DLT has the potential to increase transparency and efficiencies in the capital markets. However, because of DLT’s novelty, the OSC encourages business to speak to the OSC about securities law and investor protection requirements that may apply.

The OSC has cautioned that “[p]roducts or other assets that are tracked and traded as part of a distributed ledger may be securities, even if they do not represent shares of a company or ownership of an entity.” In other words, Ontario’s securities law may apply to initial coin or token offerings and DLT-based virtual currencies.

If you are considering capital market applications of DLT/blockchain, please contact the authors of this post to discuss whether Ontario’s securities law may apply.

For more information about our firm’s Fintech expertise, please see our Fintech group’s page.