CSA Consider an Access Equals Delivery Model for Non-Investment Fund Reporting IssuersThursday, February 6, 2020
On February 14, 2003, in an effort to enhance electronic delivery of documents, the Canadian Securities Administrators (“CSA”) implemented National Policy 11-201 – Delivery of Documents by Electronic Means (“NP 11-201”) to impose delivery requirements to be applied in a manner that accommodates technological developments without undermining investor protection.
On April 6, 2017, the CSA published a consultation paper to identify and consider areas of securities legislation applicable to non-investment fund reporting issuers (“issuers”) that could benefit from a reduction of undue regulatory burden, without compromising investor protection and the efficiency of the capital markets. Enhancing electronic delivery of documents was identified as one area where a broader review may be warranted. Commenters responding to that consultation were generally supportive of developments which would further facilitate electronic delivery of documents. On March 27, 2018, CSA staff published a notice stating that, among other things, a policy initiative will be undertaken in this area.
On January 9, 2020, the CSA published a subsequent consultation paper (the “Consultation Paper”) seeking comments from market participants on the potential implementation of a so-called “access equals delivery” model – an electronic access alternative for satisfying prospectus and other documentary delivery obligations under Canadian securities legislation. Under this model, issuers would be deemed to satisfy the requirement to deliver a document to investors by posting the document on a website as well as the System for Electronic Document Analysis and Retrieval (“SEDAR”) and issuing a news release indicating the document is available electronically. The CSA are considering prioritizing the use of access equals delivery for prospectuses and financial statements (and related management’s discussion and analysis (“MD&A”)), with the possibility of broadening its application in the future to other investors disclosure objectives.
Canadian securities legislation requires issuers to deliver various documents to investors, including prospectuses, financial statements, MD&A, and proxy-related materials. Despite the introduction of a notice-and-access regime adopted by the CSA in 2013 for proxy-related materials relating to shareholders’ meetings, the current rules do not permit an issuer to deliver documents to all investors solely through electronic access.
Access Equals Delivery Model
The objective of “access equals delivery” is intended to modernize the way documents are made available to investors while reducing costs to issuers associated with printing and mailing documents. The CSA note that this model could be implemented for the delivery of various types of documents; however, as an initial step, the CSA are considering whether to prioritize implementation of this model only for the delivery of prospectuses, financial statements and MD&A. The Consultation Paper notes that similar models have been implemented for prospectus delivery in other jurisdictions, such as the United States, the European Union and Australia.
In the Consultation Paper, the CSA make specific reference to the requirements of NP 11-201, which identifies four criteria that are considered when determining whether delivery requirements have been satisfied by electronic delivery, specifically: (i) the investor receiving notice that the document has been or will be delivered electronically, (ii) the investor having easy access to the document, (iii) the document received being the same as the document delivered, and (iv) the issuer having evidence that the document has been delivered.
Under the proposed access equals delivery model put forward in the Consultation Paper, delivery would be deemed to have been effected once (i) the document has been filed on SEDAR and posted on the issuer’s website, and (ii) the issuer has issued a news release (filed on SEDAR and posted on its website) indicating that the document is available electronically and that a paper copy can be obtained from the issuer upon request. By aligning the delivery requirements with current communications trends, we expect that the proposed access equals delivery model would speed the delivery of information to investors and reduce costs for issuers associated with printing disclosure documents. The proposed access equals delivery model could also result in investors becoming more familiar with electronic availability of information thereby encouraging a more informed investor base to review SEDAR documents in general, increasing the knowledge base of the investing public. However, such long-term positive developments to investor education will only occur with significant upgrades in electronic access and improved searchability functions of SEDAR, NRD and SEDI systems.
An access equals delivery model could benefit both issuers and investors. This model could further facilitate the communication of information by enabling issuers to reach more investors in a faster, more cost-effective and more environmentally friendly manner. SEDAR and the issuer’s website provide ease and convenience of use for investors, allowing them to access and search information more efficiently than they would otherwise be able to with paper copies of documents.
There are certain risks that need to be addressed. Moving forward with an access equals delivery model where issuers will be able to disseminate information much more rapidly, issuers will likely face problems related to the security of data and other related privacy matters in cases where disseminated information needs to be subsequently corrected or where certain additional information is inadvertently disseminated. Such events could give rise to conditions allowing market participants to trade in securities based on information that would not have been available to them under the current system.
The CSA are seeking comments about whether to extend the access equals delivery model to other types of documents (such as proxy-related materials, take-over bid and issuer bid circulars and rights offering circulars), but have expressed some potential investor protection concerns with introducing the model for documents that require prompt shareholder action. An access equals delivery model for proxy-related materials could also require significant changes to the proxy voting infrastructure.
Market participants are encouraged to submit comments on the Consultation Paper to the CSA by March 9, 2020.
If you have any questions with respect to the matters discussed above, please contact Ronald Schwass by email at firstname.lastname@example.org, Phil Lamothe by email at email@example.com 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.