ASC plans to explore the creation and implementation of a whistleblower program

Julien Robitaille-Rodriguez - 

A whistleblower program may be part of a comprehensive compliance and enforcement regime that the Alberta Securities Commission (ASC) recently proposed as part of its three-year Strategic Plan (the Plan).

The intention of the Plan, which sets out the ASC’s priorities to 2020, is to better position the regulator “to react to Alberta’s changing economic environment, while upholding a regulatory framework where capital markets can thrive and where there is strong investor protection against market misconduct”. As part of this effort, the ASC will “explore the creation and implementation of a whistleblower program, designed to motivate individuals to report information about serious violations of Alberta securities law”. 

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Expectations for cyber security risk disclosure published by CSA

Vanessa Coiteux and Jérémie Ste-Marie - 

The results of the Canadian Securities Administrators’ (CSA) review of the cyber security risk disclosure of S&P/TSX Composite issuers were recently reported by the the Autorité des marchés financiers, the Ontario Securities Commission and the British Columbia Securities Commission in CSA Multilateral Staff Notice 51-347 (the Notice). Focused particularly on risk factor disclosure and disclosure of cyber security incidents, the CSA’s review follows last year’s publication of CSA Staff Notice 11-332 Cyber Security, which reiterated that cybersecurity would continue to be one of the CSA’s priorities through 2019.

Risk Factor Disclosure

With respect to risk factor disclosure, the CSA focused on three topics:

  • the disclosure of the risk itself,
  • the disclosure of potential impacts of a cyber security incident, and
  • the disclosure of governance practices and cyber security risk mitigation.
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Regulations for CBCA's New Diversity, Majority Voting and Notice-for-Access Provisions Released

Laura Levine and Alethea Au - 

The Government of Canada has released proposed regulations to accompany the proposed amendments to the Canada Business Corporations Act under Bill C-25 (discussed here). These proposed regulations add detail to Bill C-25’s three major themes:

  • Diversity disclosure;
  • Majority voting in uncontested director elections; and
  • Internet-based provision of meeting materials to shareholders (notice-and-access).

The proposed regulations were published on December 13, 2016 and will not come into effect until Bill C-25 itself takes force (it has passed second reading). As noted in our previous post, Bill C-25 is primarily an effort to bring the CBCA into alignment with recent developments in Canada’s securities laws and stock exchange rules.

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Board Diversity Series: Voices of proxy advisers and other influencers

Amanda Linett and Cheryl De Los Santos - 

Proxy advisers such as Institutional Shareholders Services (ISS) and Glass Lewis have started to respond to the changes in corporate governance relating to gender diversity, and to encourage further development. While neither ISS nor Glass Lewis have taken any specific positions on gender diversity, their approaches do signal growing support for board diversity and renewal. In its 2017 Proxy Season Guidelines (2017 Guidelines), Glass Lewis notes that “nominating and governance committees should consider diversity when making director nominations within the context of each specific company and its industry” and that “shareholders are best served when boards make an effort to ensure a constituency that is not only reasonably diverse on the basis of age, race, gender and ethnicity, but also on the basis of geographic knowledge, industry experience, board tenure and culture.”However, with respect to the term and age limits, Glass Lewis has maintained in its 2017 Guidelines that rather than relying solely on age or tenure limits, boards should evaluate whether changes in board composition are necessary based on an analysis of the company’s desired skills and experience, as well as the results of director evaluations. Glass Lewis reiterates that director experience is a valuable asset to shareholders but supports the routine evaluation of directors and periodic board refreshment. Glass Lewis continues to believe that, once adopted, a term limit should not be waived. Consequently, it will consider recommending that shareholders vote against members of nominating and/or governance committees where such a waiver has been granted without a reasonable explanation.

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Keep Calm and Carry On - InterOil and Smoothwater

Sean Vanderpol -

There are, generally speaking, relatively few judicial decisions touching on the practical aspects of M&A law in Canada, particularly when compared to the output of the Delaware courts.  In November, however, we saw decisions out of the Yukon Court of Appeal (through the British Columbia Court of Appeal acting as the appellate court for the Supreme Court of Yukon) in InterOil, and the Alberta Court of Appeal in Smoothwater, that touched on important considerations relating to change of control transactions, particularly transactions progressed by way of a judicially-sanctioned “plan of arrangement”.  While unlikely to substantially alter the “best practices” for boards of directors of target companies in the discharge of their fiduciary duties, they do serve as a reminder of the importance of careful and thoughtful attention to the discharge of those duties and the potential hurdles that buyers and sellers can face in trying to bring their transactions to completion.  

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Board Diversity Series: Developments in gender diversity on Canadian boards

 Alethea Au and Cara Cornacchia - 

Catalyst’s recommendations for accelerating progress

The Government of Ontario engaged Catalyst, a non-profit organization aimed at expanding opportunities for women in business, to measure the movement in the representation of women on boards and in executive officer positions in Canada, to identify the best practices from around the world, and to recommend strategies for accelerating progress. As a supplement to the review under the CSA Multilateral Staff Notice 58-307 (the 2015 Staff Notice), the Catalyst Report has released some bold recommendations with a view to further stimulating the dialogue on the issue. 

Catalyst contrasted global shifts in technology, the growth of emerging markets, aging populations, and the rapid pace of change with Canada’s slow progress in the areas of productivity and innovation to highlight the need for accelerated progress. To ensure Canada maintains a high-performing economy, Catalyst notes the following:

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Board Diversity Series: Results of Canadian initiatives for gender diversity on boards

Laura Levine and Anne Weintrop - 

In September 2016, certain members of the CSA released CSA Multilateral Staff Notice 58-308[i], a comprehensive survey of 677 issuers listed on the TSX that reviewed the impact of the mandatory disclosure requirements two years after their implementation.[ii] Some of the more notable results from the review include the following:

  • 55% of issuers had at least one woman on their board, a 6% increase over 2015;
  • 10% of issuers had added one or more women to their board in the past year, as compared to 15% reported in 2015;
  • 12% of the total board seats in the sample were occupied by women;
  • 59% of issuers that disclosed executive officer information had at least one woman in an executive officer position;
  • The utilities and retail industries had the fewest boards with no women on them at 18% and 21%, respectively, and the mining, oil and gas and technology industries had the most issuers with no women on their boards at 62%, 60% and 48%, respectively;
  • 21% of the issuers had adopted a policy on the identification and nomination of women directors as compared to 15% in 2015,
    • this rate was 22% for issuers with market capitalizations of $2-$10 billion and 25% for issuers with market capitalization of over $10 billion; and
  • 20% had adopted director term limits (of which 48% included age limits, 23% had tenure limits and 29% had both).
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ISS and Glass Lewis publish updates to voting policies for 2017 proxy season

 Katy Pitch and Martin Langlois - 

Institutional Shareholder Services (ISS) and Glass Lewis have updated their respective proxy voting guidelines for the upcoming 2017 shareholder meeting season. While Glass Lewis has published its fully updated 2017 Proxy Paper Guidelines, ISS has published a summary of its key updates and intends to release a complete set of updated policies in December 2016.

The following are significant highlights of the changes to ISS’ and Glass Lewis’ policies relevant to Canadian companies:

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CSA announces cyber security roundtable

The Canadian Securities Administrators (CSA) will hold a roundtable on February 27, 2017 to discuss issues related to cyber security and opportunities for greater collaboration, communication and coordination in the event of a cyber security incident. The announcement of the roundtable follows the CSA’s recent publication of CSA Staff Notice 11-332 Cyber Security which, as previously discussed, highlights the importance of cyber risks, promotes cyber security awareness, preparedness and resilience in Canadian capital markets, and communicates general expectations for market participants.

For further information, please see the CSA’s November 17, 2016 News Release.

Developments in gender diversity on Canadian boards

Ramandeep Grewal and Samantha Horn

In 2014, certain Canadian provinces joined the universe of other jurisdictions with a specific regulatory regime to attempt to improve the representation of women on corporate boards. In this article, we review the disclosure requirements implemented by the Ontario Securities Commission (OSC) and other Canadian securities regulators in 2014, discuss how the issue of board diversity has evolved in Canada since then, and identify some of the main themes that continue to emerge as part of the larger debate about board renewal. While there are differing views on these issues, it is clear that the representation of women on the boards is a multi-faceted and evolving issue: despite some progress to date, the research indicates that corporate Canada continues to lose women at high rates and that the representation of women on Canadian public company boards continues to lag behind other developed nations[i]. The resounding consensus from the Canadian Securities Administrators (CSA) and the likes of Catalyst and others is that there is much room for improvement in Canada, and important reasons why business, government, and industry leaders should take note and continue to provide the necessary impetus for the required change.

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OSC focuses on fintech as it enters into cooperation agreement with ASIC and announces other fintech-focused initiatives

The Ontario Securities Commission (OSC) recently entered into a cooperation agreement with the Australian Securities and Investment Commission (ASIC) that would allow for information sharing and other cooperation between the two securities regulators with respect to fintech regulation.  As part of the agreement, ASIC and the OSC will help innovative fintech businesses enter each other’s markets through a mutual referral arrangement. The overall purpose of this cooperation agreement is to “further the promotion of innovation in their respective markets”. 

This development follows a number of recent fintech-focused initiatives from the OSC.  OSC Dialogue 2016, which took place on November 2, 2016, focused on fintech regulation and featured discussions led by several leaders in the emerging fintech space, including Blythe Masters, CEO of Digital Asset Holdings, Randy Cass, Founder and CEO of Nest Wealth, and Joseph Lubin, Founder of ConsenSys and Ethereum.  Another measure that received considerable attention was the introduction of OSC Launchpad in October 2016.  OSC Launchpad is an initiative of the OSC that facilitates the ability of fintech start-ups to comply with securities regulation.  Finally, the OSC recently announced RegHackTO, the first hackathon by a securities regulator intended to enable developers and other experts to propose tech-focused solutions to emerging regulatory challenges.

Order Execution Only Services Guidance Published for Comment by IIROC

Firms offering order execution only services and activities will be interested in reviewing guidance published for comment by IIROC.  The proposed guidance represents an update of Member Regulation Notice MR-098 What Constitutes a “Recommendation”? Is a Suitability Determination Required Under Regulation 1300.1.  According to IIROC, since the publication of Member Regulation Notice MR-098 the order execution only business model has evolved significantly.

For further information, please see IIROC Notice 16-0251.  Comments on the proposed guidance are to be submitted to IIROC by December 19, 2016.

Phase 2 of IIROC transaction reporting for debt securities effective on November 1, 2016

The Investment Industry Regulatory Organization of Canada (IIROC) recently published an update on the implementation of transaction reporting for debt securities.   By way of Notice 16-0238 on October 17, 2016, IIROC advised dealer members that phase 2 implementation of Rule 2800C will become effective on November 1, 2016.  IIROC further advised dealer members that prior to November 1, all dealer members that transact in debt securities must complete the MTRS 2.0 Dealer Member Enrollment Form and obtain the applicable credentials.

Notably, phase 2 of the implementation of Rule 2800C will expand reporting obligations to all dealer members (which includes those that were not included as part of the phase 1 implementation).  Phase 2 will also expand the reporting obligations of dealer members included in the phase 1 implementation to include all foreign-currency denominated transactions.

For further information, please consult the Debt Securities Transaction Reporting MTRS 2.0 User Guide.

Modernizing the CBCA--aligning diversity and director election requirements

Laura Levine and Alethea Au -

Board and management diversity, director election processes and notice-and-access procedures are the key issues dealt with by proposed amendments to Canada’s corporate law that were recently introduced in the House of Commons by the federal government. Known as Bill C-25, the proposed amendments, if adopted, would make significant changes to the Canada Business Corporations Act (CBCA), the Canada Cooperatives Act, the Canada Not-for-profit Corporations Act and the Competition Act, as described below.


The proposed amendments support increased diversity for CBCA “distributing corporations” (generally, public companies) through the imposition of what is expected to be a “comply or explain” model. Under that approach, public companies would be required to disclose the gender composition of their boards and senior management and to describe their diversity policies (or, alternatively, explain why no such policies have been adopted). The regulations to the CBCA are also proposed to be amended to prescribe the actual disclosure that is required and will set out what will be considered to be “senior management” roles but will not define the concept of “diversity”. The amended regulations have yet to be made public. 

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Court of Appeal provides guidance for securities class actions

Alan D’Silva, Alexander Rose and David Spence - 

In the proposed $1 billion class action Rooney v. ArcelorMittal S.A., the Ontario Court of Appeal has clarified that security holders who sell their securities in the secondary market in connection with a take-over bid have no right to pursue an action for misrepresentation under Section 131(1) of the Securities Act (Ontario). The question was one of first impression before the Court. Consistent with the overriding policy objectives of the Securities Act, the Court confirmed that security holders who sell their securities in the secondary market cannot bypass the strict leave requirements, liability caps, and other elements of Part XXIII.1 included by the Legislature as part of the balance struck in creating statutory secondary market liability for misrepresentations.

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