Month: April 2023

Bulletin | April Showers Edition | April 2023

In this bulletin:

  1. Better Days Ahead: Proposed Amendments Regarding Diversity Disclosure
  2. AMPed for Spring: FSRA Proposes Guidance on Administrative Monetary Penalties
  3. FSRA Proposes Guidance to Cut Down Mortgage Fraud
  4. Three more Sakura Seasons, then Total Cost Reporting will be Required for the Year Ending December 31, 2026
  5. The OSC’s Egg-cellent Final Statement of Priorities

In Brief: New SRO Blossoms With Its New Name ▪ Busy Bees: FSRA Consumer Advisory Panel Annual Report ▪ Sunny CSA Report on SRO Oversight ▪ Time Flies: New SRO Proposes Amendments for T+1 Settlement

FAQ Corner

BLG’s Resource Corner

Click the link to access a PDF of our full, monthly bulletin summarizing these recent developments. >> AUM Law Bulletin | April Showers Edition | April 2023

Better Days Ahead: Proposed Amendments Regarding Diversity Disclosure

Do you think more information is needed about diversity on boards and in the C-suite? Canadian regulators do. But they can’t decide how much more information is enough. As a result, they have published two proposals. One proposal, supported by the securities regulators in British Columbia, Alberta, Saskatchewan and the Northwest Territories, favours a principles-based approach (Proposal A). The other proposal, supported by the OSC and aligned with the Canada Business Corporations Act, is more prescriptive (Proposal B). But wait, what about the other provinces and territories? They have not expressed a preference. Presumably, they are waiting to hear your comments on the proposals.

On April 13, 2023, the regulators published two proposals for comment (Proposed Amendments to Form 58-101F1 Corporate Governance Disclosure and National Policy 58-201 Corporate Governance Guidelines). A detailed overview of the proposal is published by our friends at BLG in this article. What is the gist of the proposals?

Proposal A – Issuer Specific Information

  • This proposal would require an issuer to disclose its approach to diversity in respect of the board and executive officers, but doesn’t mandate disclosure for specific groups, other than women.
  • Proposal A would require an issuer to describe its (i) chosen diversity objectives, (ii) how it would measure progress and (iii) explain what mechanisms it has determined are appropriate to achieve its diversity objectives.
  • The proposal would only require disclosure of data (other than with respect to women) if an issuer chooses to collect data with respect to specific groups it identifies as being relevant for its diversity objectives.

Proposal B – Standardized Information

  • This proposal, on the other hand, extends the current disclosure framework as it applies to women to historically under-represented groups called “designated groups”.
  • Proposal B would require standardized reporting on the representation on boards and in executive officer positions of five designated groups -women, Indigenous peoples, racialized persons, persons with disabilities and LGBTQ2SI+ persons.
  • This proposal is similar to the approach adopted under the Canada Business Corporations Act, under which approximately 29% of TSX-listed issuers report.

What is common to both proposals?

  • The current “comply or explain” disclosure model would continue to apply with respect to policies for women on boards and targets for women on boards and in executive officer positions.
  • The proposals are both designed to increase transparency about diversity on boards and in executive officer positions and provide investors with decision-useful information that enables them to better understand how diversity is addressed by an issuer.
  • The proposals are aligned on disclosure requirements regarding board nominations and renewal.
  • Neither proposal would apply to investment funds or venture issuers.

How do the proposals differ?

  • The proposals reflect different concepts related to disclosure regarding the representation of members from diverse groups.
  • Proposal A provides issuers with greater flexibility to design practices and policies respecting how they will address diversity, while the other proposal provides investors with greater access to information in a standardized format, which would promote consistency and comparability of disclosures.

Next Steps

The comment period closes on July 12, 2023. Further information about the proposals, including specific questions to which the CSA are seeking feedback, are set out in the CSA Notice and Request for Comments.

If you would like to share your view on which proposal provides you with decision-useful information that enables you to better understand how diversity is addressed by an issuer, we would be happy to assist you in preparing a comment letter.

April 28, 2023

AMPed for Spring: FSRA Proposes Guidance on Administrative Monetary Penalties

On March 27, 2023, the Financial Services Regulatory Authority of Ontario (FSRA) released draft guidance (the Draft Guidance) for public consultation setting out FSRA’s approach to imposing Administrative Monetary Penalties (AMPs). The Draft Guidance is intended to assist stakeholders in understanding how FSRA exercises discretion when imposing AMPs and determining AMP amounts in order to support transparency, fairness, consistency and better decision-making by persons/entities on whom AMPs are imposed.

As part of FSRA’s enforcement mandate, it has the power to impose AMPs if it is satisfied that a person or entity has contravened or is not in compliance with certain statutory requirements. The two types of AMPs that FSRA may impose are general administrative penalties (General AMPs) and summary administrative penalties (Summary AMPs). General AMPs tend to be available for a broad range of contraventions and are subject to significant regulatory discretion, within statutory maximums. Summary AMPs are available under some of the FSRA sector statutes for more technical violations (such as non-filing and inappropriate record keeping) and the amounts are usually prescribed.

The Draft Guidance sets out FSRA’s position on the interpretation of, and approach to, the application of the statutory and regulatory provisions dealing with the following aspects of AMPs:

  1. The purpose for which AMPs can be imposed under the sector statutes;
  2. The criteria for determining the amount of General AMPs imposed under the sector statutes; and
  3. The considerations for determining whether a General AMP is “punitive” and requires adjustment, or whether the amount of penalty imposed is consistent with the purposes for imposing AMPs.

Prior to imposing an AMP, FSRA must believe it will satisfy at least one of the enumerated statutory purposes, being: (i) to promote compliance with statutory requirements or (ii) to prevent a person or entity from deriving economic benefit (which includes non-monetary benefits such as time saved from non-compliance) as a result of the contravention.

The Draft Guidance includes FSRA’s interpretation of the following statutory criteria that it must consider when exercising discretion to determine the amount of a General AMP:

  1. Degree to which the contravention or failure was intentional, reckless or negligent;
  2. Extent of the harm or potential harm to others resulting from the contravention or failure to comply;
  3. Extent to which the person tried to mitigate any loss or take other remedial action;
  4. Economic benefit derived or reasonably expected to be derived by the person or entity from the contravention or failure to comply; and
  5. Prior history of contraventions or failures to comply.

The consultation period is open until May 31, 2023, and feedback can be provided through FSRA’s website.

April 28, 2023

FSRA Proposes Guidance to Cut Down Mortgage Fraud

On March 28, 2023, the Financial Services Regulatory Authority of Ontario (FSRA) released updated draft interpretation guidance (the Draft Guidance) that addresses requirements and expectations for FSRA-licensed mortgage brokers, agents, brokerages and administrators to deter deceptive and fraudulent practices in the mortgage brokering sector. The Draft Guidance takes into consideration feedback received from the December 2021 public consultation and outlines FSRA’s interpretation of various provisions of the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA) and related regulations, and includes a non-exhaustive list of key steps for detecting and preventing mortgage fraud.

Fraud includes both situations where misleading or false information is provided to qualify a borrower for a mortgage, as well as when a person falsifies information to benefit financially from a mortgage transaction. FSRA expects brokerages and administrators to have policies and procedures that address the MBLAA prohibitions against providing false or deceptive information, the steps licensees must take to detect and prevent mortgage fraud and the duty to conduct identity verification.

The Draft Guidance notes that although FSRA does not regulate anti-money laundering (AML), conducting adequate identity verification is important for brokerages and administrators to defend against being used to facilitate money laundering. As we highlighted in our February bulletin, the federal Department of Finance has proposed amendments that once implemented will extend the application of the AML compliance regime to MBLAA licensees.

The Draft Guidance outlines FSRA’s expectation for licensees to take steps to ensure the accuracy of documents in a mortgage or investment transaction as well as the role of the principal broker in detecting and preventing mortgage fraud. The Draft Guidance also includes examples of red flags for fraud. The Draft Guidance notes that the failure to address or obtain the satisfactory resolution of red flags may be a reason to doubt the effectiveness of a licensee’s governance and the suitability to hold a licence under the MBLAA. We recommend that licensees review the Draft Guidance as it addresses practices that apply to your day-to-day business.

April 28, 2023

Busy Bees: FSRA Consumer Advisory Panel Annual Report

The Financial Services Regulatory Authority of Ontario (FSRA) receives advice from a consumer perspective from the Consumer Advisory Panel (CAP). In April, CAP released a report on its activities for the year ended December 31, 2022, which may be of interest to those working in sectors regulated by FSRA. The report details CAP’s relationship with FSRA, including meetings with FSRA’s board, panel members expanding their governance and advisory roles, and CAP’s new working groups. Some of the activities reported on include a description of new members appointed by FSRA, topic-specific working groups relating to vulnerable consumers (including advice on the definition of vulnerability), outreach to various interest groups, and written submissions on FSRA’s proposed statement of priorities. CAP also provided advice to FSRA on its proposed guidance on administrative monetary penalties (described elsewhere in this bulletin).

April 28, 2023

Sunny CSA Report on SRO Oversight

The CSA released the annual report (Report) summarizing its key activities in 2022 with respect to its oversight of what was then known as the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) and their respective investor protection funds. The Report covers the period prior to the consolidation of the two self-regulatory organizations into the New Self-Regulatory Organization of Canada (New SRO) at the start of 2023.

During the period, most of the CSA’s efforts related to dealing with the amalgamations of the former self-regulatory organizations, however staff also continued to oversee the SROs under the then-existing regulatory framework.

Of note, at the end of 2022 there were 173 IIROC member firms with 31,646 approved persons, and 83 MFDA member firms with 77,341 approved persons. Six IIROC rule amendments were approved, and five other rule amendments were still under review. A number of key subjects impacting member firms were discussed between staff of the CSA and IIROC, including IIROC’s market surveillance infrastructure, order execution only service levels, and advertising and social media guidance. The Report notes that IIROC is developing a proposal to update existing guidance on advertising and social media, particularly with respect to influencers, gamification and research reports based on non-traditional inputs such as social media sentiment indicators. It is also mentioned that new rules, guidance and compliance procedures relating to crypto assets are expected to be developed by staff of the CSA and the New SRO.

Key subjects discussed with CSA staff and the MFDA included cybersecurity, continuing education and expanded cost reporting.

Post-amalgamation, the CSA will continue its work on post-close transition activities, harmonization of the New SRO rulebooks and policy work related to directed commissions. Staff will also consider whether there can be improvements to the SRO complaint resolution process, enforcement and registration practices.

April 28, 2023

Time Flies: New SRO Proposes Amendments for T+1 Settlement

The New Self-Regulatory Organization of Canada (New SRO) has proposed amendments to the Universal Market Integrity Rules (UMIR) and the Investment Dealer and Partially Consolidated Rules (IDPC Rules) to help facilitate the move from a T+2 settlement cycle to a T+1 settlement cycle. The U.S. Securities and Exchange Commission has already adopted rule changes to amend the settlement cycle to T+1, which industry must comply with by May 28, 2024. Collectively, the proposed New SRO amendments harmonize the rules with the T+1 settlement cycle by shortening delivery and settlement periods by one day.

Certain other changes are also being proposed to modernize the IDPC Rules relating to buy-ins and conform to industry settlement periods for mortgage-backed securities. In addition, the New SRO intends to repeal requirements for dealers to file broker-to-broker trade matching exception reports, similar to what the CSA proposed earlier for institutional trade matching exception reports. In the notice of the proposed amendments, the New SRO recommended that dealers review their executed agreements (such as custodian agreements and lending agreements) to determine whether there are any delivery or payment obligations, or interest calculations, specific to a T+2 settlement cycle that will need to be amended.

Comments on the proposal are due by June 19, 2023.

April 28, 2023

FAQ Corner: Can a “Term Sheet” be an Offering Memorandum?

Question: Can a “Term Sheet” be an Offering Memorandum?


In some circumstances, yes.

In Ontario, an offering memorandum (an OM) can be any document, or a collection of documents, that describes the “business and affairs” of an issuer that was prepared for the primary purpose of delivery to and review by prospective purchasers to assist them in making an investment decision. The full definition of an OM is contained directly in securities legislation.

The definition of an OM specifically excludes a document that sets out current information about an issuer for the benefit of a prospective purchaser already familiar with the issuer through prior investment or business contacts.

It is very important to determine early on whether a term sheet or other marketing documents constitute an OM, as it will impact the potential liability of the issuer and certain other parties, as well as disclosure, update and filing requirements.

The definition of an OM can be broadly interpreted, and may include documents such as promotional materials, term sheets, confidential promotional memoranda and slide decks.

All marketing documents must also be reviewed in the context of other documents provided to investors when considering the proper characterization.

AUM Law would be pleased to assist you in your marketing reviews or if you have any questions with respect to your exempt trade report filing obligations.

April 28, 2023