Month: December 2020

Bulletin | 2020 Year-End Edition | December 2020

In this bulletin:

  1. Regulatory Highlights from 2020
  2. OSC Publishes Corporate Finance Branch Report
  3. Reminder! Investment Funds Have till January 30 to File Reports of Exempt Distribution
  4. OSC Seeks Comment on Proposed Priorities for 2021-22
  5. MFDA and IIROC Publish Proposed CFR Rules
  6. Two Western Provinces Consult on Innovative Prospectus Exemption

In Brief: Government Proposing Significant Changes to Federal Privacy Legislation ▪ OSC Proposes Eliminating of Routine Exemptive Relief Applications for International Firms ▪ OSC Research Study Offers Suggestions to get Trusted Contact Person Information from Clients  ▪ OSC to Leave Fees Alone for Now ▪ Tipster Trio Shares OSC Whistleblower Payout ▪ FAIR Funding ▪ OSC Publishes Final Amendments Regarding Syndicated Mortgages ▪ Activist Short Selling

Late Breaking News: OSC Publishes Report on Exempt Market Activity ▪ CSA Publishes Guidance on Automatic Securities Disposition Plans

News and Events: AUM Law Participates in CAASA Webinar

Click the link to access a PDF of our full, monthly bulletin summarizing these recent developments. >> Monthly Bulletin | 2020 Year-End Edition | December 2020


AUM Law Participates in CAASA Webinar

As a proud member of the Canadian Association of Alternative Strategies and Assets (CAASA), AUM Law is pleased to contribute to CAASA’s ongoing educational programming. On November 23, our very own Jason Streicher contributed his expertise to CAASA’s webinar Client Focused Reform – A Closer look at KYP. The webinar shared discussions of changes to KYP coming from the Canadian regulators, with new rules taking effect in 2021.

December 11, 2020

CSA Publishes Guidance on Automatic Securities Disposition Plans

On December 10, the Canadian Securities Administrators published guidance (including “recommended best practices”) for issuers and insiders on the establishment, use and disclosure of automatic securities disposition plans. These plans enable insiders to make preplanned sales of securities of an issuer through a dealer or an arms-length administrator, according to a predetermined schedule and set of instructions.

CSA Staff Notice 55-317 Automatic Securities Disposition Plans, can be found on CSA members’ websites.

December 11, 2020

OSC Publishes Report on Exempt Market Activity

On December 10, the OSC published a report on recent capital raising activity in the exempt market by corporate (i.e., non investment-fund issuers). As noted in CSA press release, the report revealed that while there has been notable year-over-year growth in the number of individual investors with capital invested in Ontario’s exempt market, the number of issuers raising capital has remained relatively stable. The report can be found on the OSC website here.

December 11, 2020

MFDA and IIROC Publish Proposed CFR Rules

The Mutual Fund Dealers Association of Canada (MFDA) and the Investment Industry Regulatory Organization of Canada (IIROC) have both published a set of proposed changes to self-regulatory rules designed to conform to the provisions of the Canadian Securities Administrators’ (CSA) effort to enhance investor protection.

As we have reported previously, on October 3, 2019, the CSA published, in final form, the client-focused reforms (CFRs) which require the industry to put their clients’ interests before their own. The CFRs include a number of changes to investor protection rules, including conflicts of interest, suitability, KYC/KYP and disclosure obligations.  IIROC has now published its own proposed rule amendments for public comment intended to make its requirements uniform in all material respects with the CFRs. In a notice published on November 19, IIROC stated that the objectives of the rule changes is to better align the interests of industry firms and reps with their clients, to improve client outcomes and to enhance clients’ understanding of the terms of their relationship with the industry. IIROC has published two sets of proposals: measures that are out for public comment until January 18, 2021, as well as a set of so-called housekeeping amendments which are required to conform with the CSA’s amendments but don’t add further material requirements on industry participants. The more substantive amendments subject to public comments include enhancements to IIROC’s suitability rules and changes to its account appropriateness requirement to ensure that client’s interests come first, along with measures setting out CFR exemptions from the core regulatory obligations of account appropriateness, KYC, suitability determination, product due diligence and KYP for certain account types, client types or service arrangements, as well as other changes of a consequential nature.

Similar to the approach taken by IIROC, on November 19, the MFDA published two sets of amendments. One set addresses housekeeping changes that are relatively minor and the other is a more significant set of proposals that must go out for public comment before they can be approved. The public comment proposals include changes to the MFDA’s rules on suitability, KYC/KYP and account supervision, as well as covering the guidance set out in various MFDA staff notices. The MFDA proposals are out for comment until January 18, 2021. The MFDA has indicated that it is seeking comments on the drafting of its own amendments to ensure that they are clear and properly applied to the business model of fund dealers. As with the CSA’s reforms, the proposed changes will, among other things, require that fund dealers resolve all conflicts of interest in the best interests of clients and provide conflicts disclosure to clients.

The CFRs are to be fully implemented by the end of 2021, with the conflicts of interest provisions taking effect as of June 30, 2021. It is expected that IIROC and MFDA rule changes will be implemented along the same timeline.

December 11, 2020

Activist Short Selling

On December 3, the Canadian Securities Administrators (CSA) published Consultation Paper 25-403 Activist Short Selling “to facilitate discussion” about this activity in Canada. As described by the CSA, activist short selling involves an individual or entity that takes a short position in a security and then publicly shares information that is expected to negatively impact a company’s stock price. If the value of the security declines, the short seller realizes a profit. The consultation paper summarizes stakeholder concerns about activist short selling, outlines the Canadian and international regulatory frameworks for this activity and sets out CSA Staff’s findings regarding the nature and extent of this activity in Canada. Included in the CSA’s findings is that across all 116 Canadian short seller campaigns it looked at between 2010 and September 2020, approximately 40 per cent involved allegations of some type of fraud at the issuer, the most common being a stock promotion scheme. The comments period ends on March 3, 2021.

December 11, 2020

OSC Publishes Final Amendments Regarding Syndicated Mortgages

On December 7, the Ontario Securities Commission (OSC) released the final amendments to OSC Rule 45-501 Ontario Prospectus and Registration Exemptions (Amendments). The Amendments are a part of the proposed changes across Canada which, in Ontario, will have as one of their effects the transfer from the Financial Services Regulatory Authority of Ontario (FSRA) to the OSC of regulatory oversight over the distribution of non-qualified syndicated mortgages (NQSMIs) to persons  that are not permitted clients. The final version of the Amendments contain no substantive changes from the earlier version released on August 6 other than coming into effect on July 1, 2021, a few months later than the originally scheduled effective date of March 1, 2021. A firm that intends to engage in trades of NQSMIs to persons other than permitted clients on or after July 1, 2021 will be required to 1) either meet the prospectus requirements (or rely on an available exemption) and 2) either be registered as an exempt market dealer (EMD) or engage the services of a third-party EMD (or rely on an available exemption).

December 11, 2020

FAIR Funding

In some welcome news for investor advocates, the OSC recently announced that it will provide $3.75 million to FAIR Canada (FAIR), a national charitable organization dedicated to advancing the interests of individual investors. This funding will be provided to FAIR in annual instalments of $750,000 over five years to fund its day-to-day operating expenses.

December 11, 2020

Tipster Trio Shares OSC Whistleblower Payout

On November 17, the Ontario Securities Commission (OSC) announced that it has awarded a total of $585,000 to three whistleblowers, each of whom provided timely, specific and creditable information that helped advance enforcement action resulting in monetary payments to the OSC.

The whistleblowers included company outsiders who provided OSC Enforcement Staff with specialized technical analysis on a complex area of securities law that led to the opening of an investigation, and that broadened an existing investigation. The whistleblowers’ detailed information brought to light violations of Ontario securities law that would have otherwise been difficult to detect.

November 11, 2020

OSC to Leave Fees Alone for Now

On November 12, the Ontario Securities Commission (OSC) published OSC Notice 13-708 whereby it informed market participants that after reviewing current fee levels and projected cash flows, it has determined that no changes to OSC Rule 13-502 (Fees) and OSC Rule 13-503 (Commodity Futures Act Fees) (together, the Fee Rules) are required at this time, even as it anticipates an impact on its revenues due to the Covid-19 pandemic. An OSC analysis leads it to believe that maintaining current fee levels and leveraging its cash position will ensure that it can continue to deliver on its priorities. Fees will be reviewed after markets stabilize and the outcomes of the Capital Markets Modernization Taskforce (Taskforce) are known. The final report containing the Taskforce’s recommendations is expected before the end of the year and it will then be up to the provincial government to determine which recommendations to adopt. The OSC typically reviews its fee levels every three years, and recently completed its review for its next fiscal year, which starts in April 2021.

AUM Law will monitor these developments and keep you informed as to any changes to the Fee Rules.

December 11, 2020

OSC Research Study Offers Suggestions to Help Investment Industry Get Trusted Contact Person Information from Clients

Earlier this year, the Canadian Securities Administrators proposed amendments that will require registrants to take reasonable steps to obtain the name and contact information of a TCP from their clients, as well as the client’s written consent to contact the TCP in specified circumstances, such as when concerns arise about financial exploitation or mental capacity. We previously reported on this topic in our March bulletin.

On November 9, the Ontario Securities Commission (OSC) published OSC Staff Notice 11-790, Protecting Aging Investors through Behavioural Insights. The research report identifies techniques dealers and advisors can use to increase the likelihood that older clients will provide TCP information designed to protect older investors. Interestingly, the report found that a form designed using behavioural techniques resulted in a 23% increase in the likelihood that an investor would appoint a TCP.

The OSC encourages registrants to review the report and consider integrating the tactics suggested in the report into their current practices. If you would like to discuss the report or would like assistance in preparing TCP forms, please contact us.

December 11, 2020

OSC Proposes Elimination of Routine Exemptive Relief Applications for International Firms

Welcome news for International Firms! Currently, certain international firms doing business in Ontario in reliance on statutory registration exemptions must also manually apply for discretionary relief from certain registration requirements in the Commodity Futures Act (Ontario). These applications may also include a request to be exempt from certain options proficiency requirements in OSC Rule 91-502 Trades in Recognized Options. Per recent proposed OSC Rule 32-506 (under the Commodity Futures Act) Exemptions for International Dealers, Advisers and Sub-Advisers the OSC is doing its part to remove this additional layer of regulatory burden. The comment period closes on March 1, 2021 and we’d be happy to have a call with you if you have any questions or comments relating to this proposal or the regime governing international firms generally.

December 11, 2020

Government Introduces Bill Proposing Significant Changes to Federal Privacy Legislation

The Government of Canada has big plans for privacy protection in Canada. It has proposed the Digital Charter Implementation Act, which is a Bill that would enable the government to establish a new privacy law for the private sector called the Consumer Privacy Protection Act.

The effect of this new law would be to increase protections to Canadian’s personal information by giving them more control and greater transparency when companies handle their personal information.

For example, the new law contains modernized meaningful consent rules regarding the use of personal information, transfer rights to move personal information from one organization to another, the ability to dispose of personal information and withdraw consent to its use, rules regarding de-identification of information, among other changes.

The new law would also provide significant new consequences for non-compliance, including allowing the Privacy Commissioner to force organizations to comply or to order a company to stop collecting data or use personal information. It also would grant the Privacy Commissioner the ability to impose administrative monetary penalties of up to 3% of global revenue or $10 million for non-compliant organizations and the ability to impose a maximum fine of 5% of global revenue or $25 million for certain serious contraventions of the law.

For now, you should stay tuned to the implementation of these changes and continue to treat personal information in your control carefully (of course).

December 11, 2020

Two Western Provinces Consult on Innovative Prospectus Exemption

The Alberta Securities Commission and the Financial and Consumer Affairs Authority of Saskatchewan are proposing an interesting new prospectus exemption as a three-year pilot project as set out in CSA Multilateral Notice and Request for Comment 45-327 Proposed Exemption for Self-Certified Investors. Unlike the current financial tests for accredited investors, the new proposed exemption would be available to individual investors in Alberta and Saskatchewan purchasing securities of an issuer located in those provinces who provide a prescribed form of certification. Investors would need to attest that they have a CFA designation, a CPA designation (in Canada), are admitted to the practice of law in Canada (focusing on M&A or financings) or hold an MBA with a focus on finance or a degree in finance. Non-individual investors would also be able to use the exemption based on similar criteria. A number of conditions to the exemption are proposed, including an extensive prescribed risk disclosure as part of the self-certification, and limits on investments to $10,000 in the last twelve months per issuer, with an aggregate cap of $30,000 in the last 12 months for all issuers. Given the importance of the exempt markets and ongoing burden reduction initiatives, we will be watching the outcome of the consultation closely.

December 11, 2020

OSC Seeks Comment on Proposed Priorities for 2021-22

On November 16, the Ontario Securities Commission (OSC) published OSC Notice 11-791 Statement of Priorities seeking comment on its draft 2021-2022 Statement of Priorities (SoP) to inform its business planning for the 2021-2022 fiscal year ending on March 31, 2022.

The OSC has set out four strategic goals and it has set out the priority initiatives it will pursue in support of those goals for the 2021-2022 fiscal year. The first goal, promoting confidence in Ontario’s capital markets, will be supported by further work to implement projects such as the Client Focused Reforms, policies on mutual fund embedded commissions and deferred sales charges (DSCs), continued consultation on the current self-regulatory organization (SRO) framework, more timely and impactful enforcement action, collaboration on financial literacy initiatives, strengthening OBSI and expansion of the OSC’s systemic risk oversight (focusing on derivatives and investment fund liquidity risks). The second goal of reducing regulatory burden will involve completing the actions identified in the OSC’s existing burden reduction plan. Under the third goal of facilitating financial innovation, the OSC will implement their multi-year plan for the Office of Economic Growth and Innovation and continue the work of LaunchPad in engaging with fintech market participants. The fourth goal, strengthening the organizational foundation of the OSC, involves continuing to develop SEDAR+, modernizing OSC technologies, fostering a culture of inclusion and diversity and continuing to monitor and adapt to the impacts of the Covid-19 pandemic.

Stakeholders are invited to provide written comments on the draft SoP by December 16, 2020 and comments will be considered by the OSC. The OSC will adjust its priorities as necessary to respond to the impact of the Covid-19 pandemic and to accommodate changes resulting from pending recommendations by the Capital Markets Modernization Taskforce as adopted by the Government of Ontario. Any necessary adjustments to the 2021-2022 SoP will be included prior to finalization and publication.

December 11, 2020