Proposed amendments to Canadian continuous disclosure rules

The Canadian Securities Administrators (CSA) are proposing major changes to National Instrument 51-102 – Continuous Disclosure Obligations (the Proposals). The Proposals follow CSA Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-investment Fund Reporting Issuers that sought to identify areas of securities legislation that could cut down the costs of being a reporting issuer. Public commentators generally supported an examination of whether the volume of information required in annual and interim filings could be reduced. The CSA believes the Proposals will reduce the amount of disclosure and thereby reduce undue regulatory burden on issuers but will not compromise investor protection by providing more focused disclosure of a quality nature.

The Proposals if enacted will:

• consolidate certain disclosure documents;
• eliminate and streamline disclosure obligations; and
• introduce housekeeping changes to update references in other rules, policies and Instruments.

The CSA is also seeking public comment as part of the Proposals on voluntarily permitting venture issuers to report semi-annually as opposed to quarterly. Rules in this area are not prescribed for comment yet. The Proposals are open for comment until September 17, 2021.

Streamlining disclosure documentation

Currently a reporting issuer (non-venture) will file an AIF on SEDAR and file and deliver to shareholders its annual financial statements and accompanying MD&A and quarterly interim financial statements and accompanying MD&A. Venture issuers file and deliver annual and interim financial statements and accompanying MD&A (or quarterly highlights in lieu thereof) to shareholders. Venture issuers are not required to file an AIF but may choose to do so as a pre-requisite to accessing the short-form prospectus system. 

The Proposals anticipate the following annual and interim documents to be delivered to shareholders:

• annual disclosure statement: the annual financial statements, annual MD&A and, if applicable, AIF will be combined in one reporting document called the Annual Disclosure Statement (new Form 51-102F1). Venture issuers can combine their AIF in the Annual Disclosure Statement or file the AIF as a separate document;
• interim disclosure statement: the interim financial statements and MD&A (or for certain venture issuers the quarterly highlights) will be confined into one reporting document called the Interim Disclosure Statement (new Form 51-102F2); and
• delivery: the Annual and Interim Disclosure Statements must be delivered to shareholders (which is a partial change since the AIF is currently not delivered). The CSA is proposing the requirement in light of the “access equals delivery” model outlined in CSA Consultation Paper 51-405 and being considered by the CSA. This model proposes that a document is delivered by providing electronic “access” to the document and publishing a related notice that the relevant document is available electronically on SEDAR and the issuer’s website.

Amendments to disclosure

Given that the AIF and financial statements and accompanying MD&A will be in one document, the CSA is proposing eliminating and consolidating some existing disclosure requirements. These changes include:

• eliminating requirement in MD&A to disclose summary information for the prior eight quarters as such information is available in historical filings;
• eliminating providing critical accounting estimates in MD&A as such information is required in the financial statements that will now be in the same document;
• eliminating disclosure in the AIF of the security price ranges and volumes of trading in the issuer as such information is readily available in the relevant marketplace;
• eliminating disclosure of cash dividends or distributions in the AIF as such information is required by Canadian GAAP;
• consolidating the disclosure requirement in the AIF regarding research and development with the discussion of operations in MD&A;
• consolidating the disclosure of liquidity and capital resources into one disclosure item in the MD&A;
• clarifying that the discussion in the MD&A on an issuer’s financial condition and performance and cash flows must compare the most recently completed financial year to the prior year; 
• clarifying that a summary of a technical report for an issuer with mineral projects will be sufficient and it is not necessary to incorporate the whole report by reference in the AIF; and
• permitting the incorporation by reference of material contract particulars in the AIF if they have been provided in a previous AIF or prospectus of the issuer and such disclosure remains current.

The Proposals introduce two new requirements: first that an issuer disclose its investments at fair value and secondly that venture issuers must describe their businesses in their MD&A. Other changes include avoiding duplication of materiality qualifiers in both the general instructions to the relevant instrument and in the items of the instrument. This will be subject to retaining those definitions that have an element of materiality in the definition, for e.g. “significant acquisition.”

Other subjects of consultation 

In addition to comments on the actual Proposals to amend the instrument, the CSA is seeking input on the following issues:

Risk Factor Disclosure: currently issuers are required to disclose risk factors by listing them from most serious to the least serious. The Proposals add instructions to signal to issuers the option to provide risk factor disclosure in a tabular form and to clarify that the “seriousness” of a risk factor refers to an impact / probability assessment. The CSA is seeking comment whether the American approach of grouping similar risks together is more appropriate. 

Semi-annual Reporting Framework for Venture Issuers: the CSA is also seeking feedback on a proposed framework to allow semi-annual reporting for venture issuers on a voluntary basis. This reporting option would:

• apply to venture issuers that are not SEC issuers. The proposed semi-annual reporting framework would be limited to reporting issuers that are subject to the provisions of NI 51-102 applicable to non-SEC venture issuers;
• be optional, not mandatory. This would allow venture issuers to choose to report at a frequency that reflects their situation and investor expectations; and
• require alternative disclosure for interim periods where financial statements and MD&A would not be filed to avoid selective disclosure. Such alternative disclosure would be by press release and provide an update on operations and disclosure of material changes.

Transition

Subject to the notice and comment period, if approved, the Proposals are expected to be effective December 15, 2023. Transition periods will be included. An issuer will be required to file an annual disclosure statement for its first financial year ending on or after December 15, 2023.

The Proposals are accessible here.