Canadian Securities Administrators Propose Changes to Annual and Quarterly Disclosure Obligations for Non-Investment Fund Reporting Issuers

The Canadian Securities Administrators (“CSA”) recently published for comment proposed amendments to National Instrument 51-102 – Continuous Disclosure Obligations and related amendments that would change the annual and interim filing requirements for reporting issuers in Canada (other than investments funds). In addition to streamlining and clarifying certain disclosure requirements, the proposed amendments would combine the financial statements, management’s discussion and analysis (“MD&A”) and, where applicable, annual information form (“AIF”) into one disclosure document for annual and interim filings. Concurrently, the CSA is seeking feedback on a potential framework for semi-annual reporting for certain venture issuers (although no formal amendments to implement the framework have been proposed at this time).

The Proposed Amendments

Since 2017, the CSA has been exploring ways to reduce regulatory burden on Canadian public companies without compromising investor protection or the efficiency of the capital markets. As part of this initiative, and in light of stakeholder feedback, the CSA conducted a review of disclosure requirements for annual and interim filings with a view to reducing the burden of disclosure on reporting issuers, while enhancing the usefulness and understandability of the disclosure for investors. Similarly, in its final report, Ontario’s Capital Markets Modernization Task Force recommended that the disclosure requirements for financial statements, MD&A and AIF be combined.

The proposed amendments would streamline and clarify the existing requirements set out in the current MD&A and AIF forms by:

• eliminating duplicative and overlapping disclosure requirements;
• eliminating disclosure requirements that are redundant or where the burden on reporting issuers outweighs the benefit to investors;
• consolidating existing requirements to disclose similar information in different ways; and
• clarifying expectations of the CSA with respect to certain requirements that may be vague or unclear.

The proposed amendments would also combine the existing financial statements, MD&A and, where applicable, the AIF, as follows:

• Non-venture issuers would file an annual disclosure statement that would include the annual financial statements, annual MD&A and AIF.
• Venture issuers would file an annual disclosure statement that would be required to include the annual financial statements and annual MD&A. Venture issuers who want to be eligible to file a short form prospectus would have the option to file a stand-alone AIF or to include an AIF in its annual disclosure statement.
• Both venture and non-venture issuers would file an interim disclosure statement that would consist of the interim financial statements and MD&A.

Lastly, the proposed amendments also introduce certain new disclosure requirements that are intended to address gaps identified by the CSA in its review. Examples include disclosure requirements for issuers reporting investments at fair value, and a requirement for venture issuers to provide a description of their business in their MD&A.

The proposed amendments include proposed transitional provisions that would require issuers to comply with the amendments beginning on the date the issuer is required to file an annual disclosure statement for its first financial year ending on or after December 15, 2023.

Semi-Annual Reporting

The CSA is also seeking feedback on a proposed framework to allow for semi-annual (rather than quarterly) reporting for all venture issuers that are not SEC issuers. Notably, the framework does not include any qualification criteria based on financial metrics such as market capitalization or revenues. However, semi-annual reporting would be optional, so that venture issuers could report at a frequency that reflects their situation and investor expectations. Under the potential framework, participating issuers would file an annual disclosure statement as well as an interim disclosure statement following Q2. In lieu of interim disclosure in respect of Q1 and Q3, participating issuers would file a news release within 60 days of the end of the quarter containing certain prescribed disclosure (e.g., updates on operations, unexpected events and risks, etc.). Issuers would be required to opt into or out of the regime before the beginning of each financial year. If an issuer lost its eligibility during a fiscal year, it would be required to file all applicable Q1 and Q3 filings not otherwise filed prior to the date on which it no longer qualified for semi-annual reporting.

The CSA is accepting comments on the proposed amendments and semi-annual reporting framework until September 17, 2021.

For further information regarding the proposed amendments and how they could impact your business, please contact any member of our Capital Markets Group.