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 … Continue Reading
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 … Continue Reading
The Canadian Securities Administrators (CSA) recently released its annual report on the enforcement activities of its members. The CSA is an umbrella group of Canada’s securities regulators.
Summary of 2016 Results
Generally, enforcement and pre-enforcement activity, and monetary sanctions imposed by regulators decreased compared to 2015 but were higher than they were in 2014.
|Restitution, Compensation and Disgorgement||$349,654,379||$111,651,429||$65,717,760|
|Commenced Cases (by notice of hearing, statement of allegations, or sworn Information)||56||108||105|
|Most prevalent violations||Illegal Distributions|
IIROC is providing all dealer member firms it regulates (Firms) with a confidential cybersecurity “report card” that will include:
- an individual assessment of the Firm’s cybersecurity preparedness program
- a comparison of the Firm’s cybersecurity practices against the industry and other Firms of similar size and business model
- a list of cybersecurity areas to which the Firm should be giving priority attention.
The report cards were generated based on the results of an extensive assessment survey that Firms completed in June 2016. The survey responses were benchmarked against a National Institute of Standards and Technology cybersecurity framework that … Continue Reading
The Canadian Securities Administrators (CSA) published on July 7, 2016 their priorities for the three-year period 2016 to 2019 under four categories: “Enhanced Investor Protection”, “Fair and Efficient Markets and Reduction of Risks to Market Integrity”, “Enhancement of Enforcement Effectiveness” and “Enhancement of Information Technology”.
The CSA states its strategic objectives without once mentioning the possible impact on it of the proposed national Cooperative Capital Markets Regulatory Authority (CCMRA) some of its members support. On July 22, it was announced that the CCMRA is expected to be operational in 2018.
Enhanced Investor Protection
The CSA proposes to … Continue Reading
Les Autorités canadiennes en valeurs mobilières (les ACVM) ont publié un important document de consultation dans lequel il est proposé de rehausser considérablement les obligations de tous les conseillers, courtiers et représentants, y compris les membres de l’OCRCVM et de l’ACFM (les personnes inscrites). Les commentaires sur ce document de consultation peuvent être présentés jusqu’au 26 août.… Continue Reading
For the first time since 2014, the Ontario Securities Commission (OSC) will send Ontario registrants a risk assessment questionnaire (RAQ) that must be completed by portfolio managers, investment fund managers, exempt market dealers, restricted portfolio managers and restricted dealers registered in Ontario. Registrants will receive the 2016 RAQ tomorrow, May 18.
The OSC uses data gathered through the RAQ to apply a risk ranking to firms. Firms with higher risk rankings are more likely to be targeted by the OSC for compliance reviews. As a result, it is important that the RAQ answers be considered … Continue Reading
Des modifications importantes au régime de déclaration du système d’alerte canadien entrent aujourd’hui en vigueur (se reporter à notre article publié le 3 mars 2016 qui s’intitule Les règles du système d’alerte du Canada se resserrent en mai). Nous mettons ici l’accent sur les exigences nouvelles et plus rigoureuses liées à la description de l’objectif de l’acquisition.… Continue Reading
Recently, the Canadian Securities Administrators (CSA) released an important Consultation Paper that proposes to significantly increase the obligations of all advisers, dealers and representatives, including IIROC and MFDA members (Registrants). Comments on the Consultation Paper can be made until August 26.
The CSA is proposing two distinct categories of changes that, if adopted, will significantly impact the economics of existing Registrant business models and Registrant compliance costs:
1. Best Interest Standard: A “client best interest” standard against which all Registrant-client obligations would be interpreted.
2. “Targeted Reforms”: A comprehensive set of so-called “targeted reforms” will affect … Continue Reading
Effective today, significant amendments to the Canadian early warning reporting (EWR) regime (EWR Amendments) come into force (see our March 3, 2016 publication, Canada’s Early Warning Rules Get Tougher in May). Here we focus on the new, more stringent requirements to describe the purpose of acquisitions.
The new EWR Amendments require the filer to describe any plans or future intentions it might have with respect to 11 specific potential corporate actions:
- the acquisition of additional securities of the reporting issuer, or the disposition of securities of the reporting issuer;
- a corporate transaction, such as a merger, reorganization or liquidation,
The Ontario Securities Commission (OSC) released its draft Statement of Priorities for 2016-2017. The comment period ends May 9th.
Investor Protection Priorities
Advance Best Interest Standard – The OSC will recommend and conduct consultations on regulatory provisions to create a “best interest” standard for advisors. This standard is controversial for some industry participants but the OSC is committed to it. The OSC will also continue to focus on advisor compensation practices and identify those that are inconsistent with a “best interest” standard.
Compensation Arrangements in Mutual Funds – The OSC will regulate embedded commissions and … Continue Reading
On April 6, IIROC published Notice 16-0068 – Managing Conflicts in the Best Interest of the Client (the 2016 IIROC Notice). IIROC intends to strengthen compliance by Dealer Members (DMs) with IIROC’s conflicts of interest rules, with a particular focus on the management of compensation-related conflicts.
Specifically, IIROC announced that it will take the following actions:
- Immediately enhance its compliance test procedures to more closely examine compensation grids, supervisory oversight of advisors recommending products with high commissions, and the monitoring of advisors approaching compensation thresholds;
- By June 2016, conduct a comprehensive survey to gather more detailed information
The Investment Industry Regulatory Organization of Canada (“IIROC”) is Canada’s self-regulatory organization that overseas investment dealers and equity market places. In its 2016 statement of key compliance priorities, IIROC sets out its ongoing efforts to strengthen the culture of compliance among dealer members (“DMs”).
As in prior years, IIROC’s focus will be on taking action against DMs that fail to address significant compliance findings and/or fail to demonstrate a commitment to the development of a strong compliance culture. In addition, IIROC will, through its new Consolidated Enforcement Rules (expected to come into force in 2016), have the ability to … Continue Reading
On February 23, 2016, the Canadian Securities Administrators (CSA) released its annual report on the enforcement activities of its members. Enforcement and pre-enforcement activity has increased significantly in 2015. Monetary sanctions imposed by regulators more than doubled year-over-year and regulators concluded 38% more cases in 2015 even as the number of new proceedings increased slightly.
The 2015 Results
Monetary sanctions doubled: The regulators collectively imposed the highest amount of monetary sanctions on market participants since 2009, the year their investigation into the crash of the asset-backed commercial paper market was settled. In 2015, regulators imposed $138.3 … Continue Reading
The Canadian Securities Administrators (CSA) are proposing to introduce a mandatory standardized risk classification methodology for mutual funds and ETFs (the Proposed Methodology). Fund managers would be required to use the Proposed Methodology to determine the investment risk level of conventional mutual funds (which must be disclosed in the Fund Facts document) and exchange-traded mutual funds (ETFs) (to be disclosed in the proposed ETF Facts document). Currently, fund managers may determine the risk level of a mutual fund using a methodology of their choosing, though the methodology developed by the Investment Funds Institute of … Continue Reading
The OSC is close to adopting a proposed final version of its previously-announced whistleblowing policy (the Program). The Program would award eligible whistleblowers up to $5 million for reporting serious securities- or derivatives-related misconduct that leads to significant enforcement or settlement outcomes.
We summarized the original OSC consultation paper in a previous article. The OSC received comments on the consultation paper and also hosted a stakeholder roundtable on the proposals. Reporting issuers will want to re-examine their internal compliance and reporting systems, codes of conduct and employment agreements in light of the proposed program. Key features are summarized … Continue Reading
Last week, the Canadian Securities Administrators (CSA) published for comment Proposals that would require trade information for all corporate debt securities executed by dealers to be made publicly available, subject to delayed dissemination and volume caps, by the end of 2017. The CSA Proposals aim to enhance the regulation and transparency of the Canadian fixed income market, partly in response to certain limitations highlighted in a Report on “The Canadian Fixed Income Market 2014” published earlier this year by the Ontario Securities Commission which suggested that retail investors in corporate fixed income securities have less access to … Continue Reading
Effective September 8, 2015, certain private placements of non-Canadian securities made to Canadian institutional investors that qualify as “permitted clients” will no longer require a “Canadian wrapper”.
Key conditions to new rules
The new rules require that certain conditions be satisfied:
- the offering must be conducted primarily in a non-Canadian jurisdiction;
- a concurrent distribution of the securities must be made by the issuer to investors in the U.S.;
- the securities must either be
- issued by a non-Canadian issuer that is not a reporting issuer in Canada and has its head office outside Canada and a majority of its executive officers
Representatives of the Cooperative Capital Markets Regulatory System (“CCMR”) announced last week a number of developments affecting the proposed national securities regulatory framework:
CCMR launch delayed by one year: Previously scheduled to launch operations later this year, the CCMR is now expected to be operational in the Fall of 2016. The federal government reiterated its intention to move forward with the CCMR initiative in the 2015 federal budget announced earlier this week.
Updated draft legislation and regulations will be published for comment this summer: The CCMR published for public comment in September 2014 consultation drafts of … Continue Reading
In the recent Weicker decision which followed a contested hearing, the British Columbia Securities Commission (BCSC) accepted Staff’s insider tipping and trading allegations against a geologist and his wife based on circumstantial evidence that included the “unnaturally timely” trading by the geologist’s wife.
Summary of Facts
BCSC Staff alleged that Robert Weicker, a geologist in a special relationship with Geo Minerals Ltd., informed his wife, Amina Weicker, about Geo’s impending takeover by New Gold Inc. before it was generally disclosed and that Ms. Weicker traded on this material non-public information.
At the relevant time, Geo was a junior mining … Continue Reading
Under Multilateral Instrument 51-105 – Issuers Quoted in the U.S. Over-the-Counter Markets, a foreign issuer which undertakes promotional activities in Canada without being listed or quoted on a designated exchange runs the risk of being deemed a reporting issuer in Canada, and therefore subject to extensive Canadian continuous disclosure requirements, if the issuer’s equity securities trade over the counter (OTC) in the United States. As a result, some dealers undertaking private placement offerings of foreign securities in Canada have been limiting Canadian selling efforts to Ontario (which did not adopt MI 51-105), Quebec (which issued a blanket order in … Continue Reading
Canadian Lawyer Magazine interviewed us last week on our recent post “OSC again uses public interest power to impose penalty where insider trading law technically does not apply”.
The Canadian Lawyer Magazine article is available online here: “OSC plays public interest card where insider trading didn’t apply”.… Continue Reading
Yesterday, the OSC approved a settlement agreement between OSC Staff and Anand Hariharan in a case involving allegations of tipping, insider trading and conduct contrary to the public interest. Hariharan agreed to a reprimand and significant restrictions on trading for 10 years. The settlement also envisages a disgorgement of profits but, surprisingly, only a portion of them.
Hariharan learned from a friend that a subsidiary of Loral Space & Communications Inc. (“Loral”) was going to be acquired by another company (“MDA”). Hariharan’s friend was an MDA employee and the acquisition was a material fact to both Loral and to MDA. … Continue Reading
The OSC recently published its 2014 Summary Report for Investment Fund and Structured Product Issuers which includes, among other topics, a summary of key OSC policy initiatives affecting investment fund issuers and highlights of 2014 continuous disclosure and compliance reviews of investment funds The report also sets out OSC Staff observations on key emerging issues and trends for mutual funds.
OSC criticizes reinvestment of distributions by “default”
Some mutual funds offer a choice between making distributions to investors in cash, or in the form of reinvested units. OSC Staff is concerned about mutual funds that set the payment of distributions … Continue Reading