Category: Corporate Finance

Don’t Stay Away too Long – Revised Guidance Published for Issuers Relying on the Offering Memorandum Prospectus Exemption

On March 8, 2023, staff of the Canadian Securities Administrators (other than Ontario), published revised Multilateral CSA Staff Notice 45-309 (the Notice), first published in 2012, which provides guidance for preparing and filing an offering memorandum (an OM) under National Instrument 45-106 – Prospectus Exemptions (NI 45-106). The Notice is relevant to issuers that rely on the offering memorandum prospectus exemption (the OM Exemption) and summarizes common deficiencies that have been observed in OMs prepared in accordance with Form 45-106F2. The Notice also discusses potential consequences of non-compliance with the terms of the OM Exemption.

The Notice was published in conjunction with the effective date of the amendments to NI 45-106 applicable to issuers relying on the OM Exemption that are “collective investment vehicles” and “real estate issuers” (the Amendments). We wrote about the Amendments in our January bulletin.

The CSA remind issuers that an OM must comply with the requirements of the OM Exemption when it is prepared, when it is delivered to prospective purchasers and when the issuer accepts an agreement to purchase the security from the purchaser. This means that the OM must be in the correct form, not contain any misrepresentations and provide sufficient information to enable a prospective purchaser to make an informed investment decision.

Staff have observed issuers making distributions under the OM Exemption using an OM that no longer meets the requirements, which is not permitted. This can occur if an issuer fails to update the OM to reflect a material change or to include more recent financial statements. If distributions under the OM Exemption are ongoing, the OM is required to be amended to include annual audited financial statements for the issuer’s most recently completed financial year no later than 120 days after the issuer’s financial year-end. For ongoing distributions to Ontario residents, the OM must be amended to include financial statements for the issuer’s most recently completed six-month interim period no later than 60 days after the end of that period, unless the issuer qualifies for the exemption set out in the Amendments.

The CSA also remind issuers that disseminating material forward-looking information (such as expected returns) to prospective purchasers during the course of a distribution without disclosing such information in the OM is prohibited.

Other common issues with OMs discussed in the Notice include the following:

  • Failing to file an OM on time;
  • Failing to provide balanced disclosure;
  • Inadequately disclosing available funds and use of available funds;
  • Omitting key terms of material agreements;
  • Omitting compensation disclosure;
  • Omitting key elements of financial statements;
  • Omitting required interim reports;
  • Failing to obtain required audits; and
  • Improperly certifying the OM.

Issuers relying on the OM Exemption should ensure that their OM complies with the requirements of NI 45-106. Now that the Amendments are in effect, any update to an OM will require a “form check” to ensure the OM complies with the Amendments. An updated OM must be filed with the regulators no later than 10 days after the first distribution under that OM. If you have any questions or would like our assistance with reviewing your OM, please contact us.

March 31, 2023

Watch that Spring Break Behaviour – OSFI Issues Guideline on Culture and Behaviour Risk

Building off of the Office of the Superintendent of Financial Institution’s (OSFI’s) Culture Risk Management Letter published on March 15, 2022 and the ensuing feedback, OSFI has published a draft Culture and Behaviour Risk Guideline (Proposed Guideline) for consultation on February 28, 2023. The Proposed Guideline is intended to complement OSFI’s existing guidance for Corporate Governance, Operational Risk Management, and Regulatory Compliance Management. The Proposed Guideline would apply to all federally regulated financial institutions (FRFIs).

OSFI recognizes that organizational culture poses risks that can have a material impact on the health of a financial institution, and on the broader financial system. OSFI defines culture risk as the widespread behaviours and mindsets that can threaten sound decision making, prudent risk-taking, and effective risk management, which can lead to a weakening of an institution’s financial and operational resilience. With this in mind, OSFI is enhancing their assessment of culture risks to include items beyond corporate governance for a more comprehensive assessment of the adequacy and effectiveness of FRFIs in managing organizational culture risk. The Proposed Guideline supports OSFI’s mandate to contribute to public confidence in the Canadian financial system.

The Proposed Guideline sets outcomes and principles-based expectations for FRFIs to oversee their culture and assess the impact of behaviour patterns to effectively manage the associated risks. The guideline details the following outcomes and principles:

Outcome 1: Culture and behaviour are designed and governed through clear accountabilities and oversight
Principle 1: Desired culture and expected behaviours are designed to align with the purpose and strategy of the FRFI and governed through appropriate structures and frameworks
Outcome 2: Desired culture and expected behaviour are proactively promoted and reinforced
Principle 2: Leaders, at all levels, consistently promote and reinforce the desired culture and expected behaviours through their words, actions, and decisions
Principle 3: Talent and performance management strategies and practices promote and reinforce the desired culture and expected behaviours
Principle 4: Compensation, incentives, and rewards promote and reinforce the desired culture and expected behaviours
Outcome 3:      


Risks emerging from behaviour patterns are identified and proactively managed
Principle 5: FRFIs proactively monitor for, assess, and act to address risks related to culture and behaviour that may influence their resilience

OSFI expects FRFIs to design, govern and manage culture and behaviour in accordance with the FRFI’s size, nature, scope, complexity of operations, strategy, and risk profile. Senior management will be held accountable for the design, implementation, and monitoring of FRFI culture, and robust governance structures that address and embed the desired culture across the institution. OSFI suggests that FRFIs take a ‘tone from the top,’ supported by middle management and an ‘echo from the bottom’ approach to managing cultural and behaviour risk.

At a minimum, OSFI expects FRFIs to use leadership, talent and performance management practices, and compensation and incentive plans to promote and/or reinforce their desired culture and expected behaviours. On the management side, OSFI expects FRFIs to implement strategies to monitor, identify, assess, and manage risks arising from behaviour patterns that do not align with the desired culture and expected behaviour – such as complacency, excessive risk taking, poor communication, or lack of speaking up or raising concerns.

The consultation period runs until March 31, 2023. Industry and stakeholders can comment on the draft Culture and Behavior Risk Guideline by contacting The final guideline is expected by the end of 2023, along with a self-assessment tool to help FRFIs review the design and effectiveness of their practices and support compliance with the Proposed Guideline. Additional information can also be found in BLG’s article listed below.

March 31, 2023

Additional Information on Offering Memorandum Prospectus Exemptions – Getting Everyone Together

Significant changes to National Instrument 45-106 Prospectus Exemptions that impact the use of the offering memorandum prospectus exemption are expected to take effect shortly on March 8, 2023. These changes impact issuers using this specific prospectus exemption to issue securities, that engage in “real estate activities” as well as issuers that are “collective investment vehicles”. Significant new disclosures about these issuers that must be included in the prescribed offering memorandum in order to take advantage of this exemption.

For real estate issuers, required disclosure includes detailed descriptions of each property, real estate development projects and information about future cash calls required by investors. In certain circumstances it will also be necessary to provide to investors (and file with the relevant securities regulatory authorities) an independent appraisal of an interest in real property. Collective investment vehicles (including mortgage investment entities) will also need to provide new information, including portfolio performance information.

For more detail on the requirements, please see our January bulletin article here. Issuers may also be interested in webinars being offered with respect to these amendments, such as the webinar hosted by staff of the Alberta Securities Commission on March 6, 2023. For more information and to register, please visit the ASC website.

February 28, 2023

Promises, Promises – CSA Enhances Requirements for Crypto Asset Trading Platforms

On February 22, 2023, the Canadian Securities Administrators published CSA Staff Notice 21-332 Crypto Asset Trading Platforms: Pre-Registration Undertakings – Changes to Enhance Canadian Investor Protection (the Platform Notice). The Platform Notice impacts crypto asset trading platforms operating in Canada that are seeking registration, all of whom are required to file a pre-registration undertaking. These undertakings already include obligations that the platforms will operate in a certain manner as they seek registration, and the Platform Notice introduces new commitments the CSA will expect to see. These new commitments include those relating to the custody and segregation of crypto assets and preclude the platform from offering margin, credit or other forms of leverage to clients, enhanced financial reporting to the CSA, and prior approval from the CSA before buying or depositing certain assets (such as stable coins).

Unregistered platforms operating in Canada while pursuing applications for registration must provide a revised undertaking based on the template set out by CSA staff within 30 days of the publication of the Platform Notice and implement any system changes needed within the timeframes set out in the undertaking.

February 28, 2023

New School Year, New Potential Disclosure Policies from the Department of Finance Canada

Last month, the Department of Finance Canada released a consultation paper related to proposed changes to the existing governance framework for federally regulated financial institutions (FRFIs). The consultation dealt with a few topics, including diversity disclosure requirements and the ability for FRFIs to communicate with stakeholders electronically.

With respect to disclosure requirements, the consultation described the current requirements for public companies incorporated under the Canada Business Corporations Act (CBCA). For example, the CBCA requires those public companies to disclose the representation of women, visible minorities, Indigenous peoples, and people with disabilities in management and on the board of directors, as well as a company’s policies and targets (or lack thereof) with respect to representation. The consultation requested comments on applying the CBCA’s “comply or explain” provisions to FRFIs, as well as whether additional compliance measures such as mandatory use of a prescribed form or penalties for failure to comply should be added.

The consultation also sought feedback on permitting “all virtual meetings”, as well as on the considerations for the use of electronic communications with owners/shareholders of FRFIs for governance documents. The consultation asked questions on both the “notice and access” model or, similar to recent proposals by the Canadian Securities Administrators, an “access equals delivery” model for governance documents.

September 28, 2022

The Importance of Inclusion: The Department of Finance Canada consults on Modernizing Corporate Governance for Federally Regulated Financial Institutions

The Department of Finance Canada is currently consulting on proposed changes to the governance framework for federally regulated financial institutions (FRFIs) to reflect changes that have been made to corporate legislation regarding diversity requirements, as well as to permit the use of additional electronic communications by FRFIs and allow all-virtual meetings.

The Canada Business Corporations Act (CBCA) was amended to include diversity disclosure requirements for reporting issuers that are federally incorporated with respect to the representation of women, visible minorities, Indigenous peoples, and people with disabilities on their boards and in senior management. Information must also be disclosed on the policies and targets for representation, or an explanation must be provided as to why the issuer does not have such policies and targets. Similar rules are included in securities legislation in most provinces that apply to provincially regulated reporting issuers where disclosure is required on gender diversity on boards and in executive officer roles. The Department of Finance Canada’s consultation asks for comments on applying the CBCA’s comply or explain provisions to FRFIs, as well as whether a prescribed form for the data should be implemented and/or if any compliance measures should be implemented.

Feedback is also sought on the considerations for expanding the use of electronic communications with the owners of FRFIs for the provision of governance documents. The government is considering permitting either a “notice and access” model (where governance documents could be posted on SEDAR and a FRFI’s website instead of mailing materials to owners after notifying owners), or the Canadian Securities Administrators’ (CSA’s) newly proposed “access equals delivery” model (where delivery is effected by alerting owners through a news release that a document is available on SEDAR).

Finally, the Department of Finance Canada is also considering allowing FRFIs to hold shareholder meetings exclusively online, without requiring a court order to exempt them from the current requirements which only allow hybrid shareholder meetings.

Comments on the proposal are due September 23, 2022. Investors/owners in FRFIs may be interested in taking a look at whether these changes could impact communication with and/or engagement with these institutions.

August 17, 2022

No Laughing Matter: OSFI Releases Final Guideline for Technology and Cyber Risk

The Office of the Superintendent of Financial Institutions (OSFI) has released its final Guideline B-13 Technology and Cyber Risk Management, which sets out OSFI’s expectations for federally regulated financial institutions (FRFIs) with respect to how they should manage technology and cyber risks. The guideline is organized into the following three parts: Governance and Risk Management, Technology Operations and Resilience and Cyber Security.

The section on Governance and Risk Management covers topics such as expectations for the accountability and organizational structure regarding the management of technology and cyber risks by senior officers, the preparation of a strategic technology and cyber plan, and the establishment of a technology and cyber risk management framework. The section on Technology Operations and Resilience discusses the implementation of a technology architecture framework, maintaining an inventory of all technology assets supporting business processes or functions, and change and release management. With respect to Cyber Security, the Guideline references the importance of conducting intelligence-led threat assessment and testing, and ensuring FRFIs maintain situational awareness of the cyber threat landscape. Regular testing of employees to assess cyber threat awareness is also mentioned.

The Guideline will be effective for FRFIs as of January 1, 2024. For additional information and commentary, please see the article included in BLG’s Resource Corner below. While the Guideline does not apply to non FRFIs, securities dealers and advisers may still find some of the recommendations for managing technology assets, as well as the guidelines for cyber security management, helpful.

August 17, 2022

A Matter of Time: FSRA Consultation on Licensing Requirements for Mortgage Agents and Brokers

On February 11, 2022, the Financial Services Regulatory Authority of Ontario (FSRA) announced that it is consulting on guidance that outlines new educational requirements and new licence categories for mortgage agents and mortgage brokers transacting in private mortgages (the Guidance).

The Guidance sets out new proposed licence classes that would be effective April 1, 2023, being mortgage agent level 1, mortgage agent level 2, and mortgage broker. Mortgage agents with a level 1 licence would be permitted to deal and trade in mortgages provided by financial institutions (as defined by the Mortgage Brokerages, Lenders and Administrators Act, 2006 (MBLAA)) and lenders approved by the Canada Mortgage and Housing Corporation (CMHC). Mortgage agents with a level 2 licence would be permitted to deal and trade in mortgages provided by financial institutions (as defined in the MBLAA), lenders approved by the CMHC, and all other lenders, such as mortgage investment corporations, syndicates, private individuals, brokers, and brokerages. Mortgage brokers would be permitted to deal and trade in mortgages provided by financial institutions, lenders approved by the CMHC and all other lenders. Mortgage brokers would also be permitted to supervise mortgage agents and could be appointed as the principal broker for a brokerage.

While a mortgage agent level 1 would not need any particular outlined experience, an applicant would have to complete the Mortgage Agent Level 1 Course and apply for a mortgage agent level 1 licence within two years of successfully completing the course. A mortgage agent level 2 would need to have at least 12 months experience over the last 24 months as a mortgage agent level 1 and complete the Mortgage Agent Level 2 Course and the Private Mortgages Course. A mortgage broker would need to have at least 24 months experience over the last 36 months as a mortgage agent level 2 and complete the Mortgage Agent Level 1 Course, Private Mortgages Course and the Broker Course.

There are a number of proposed transition periods for persons licensed under the current requirements which start April 1, 2023, and end March 31, 2024. Certain existing licensees with more than 5 years experience who wish to obtain the mortgage agent level 2 or mortgage broker license may be permitted to take a challenge exam in lieu of the Private Mortgages Course.

The Guidance also includes details on licensing fees, new continuing education requirements that are effective April 1, 2023, labour mobility between provinces, applications for education and experience equivalency, supervision approach and principles, and compliance and enforcement provisions.

Along with the Guidance, draft proposed amendments to the MBLAA reflecting the changes proposed in the Guidance have also been published.

If you have any questions regarding these proposed changes, please contact a member of our team.

March 31, 2022

Now You See Me: New Ownership Transparency Requirements for Private Ontario Corporations

In the Ontario 2021 Fall Economic Statement the Government of Ontario announced its intention to address tax evasion, money laundering and other illicit financial activities through amendments to the Business Corporations Act (Ontario) (the Amendments). The Amendments will require privately-held Ontario corporations to record the identities and details of all individuals who exercise significant control over those corporations. Corporations that offer securities to the public and their wholly owned subsidiaries will be exempt from these requirements.

The information requirements will apply to an individual (referred to as an “individual with significant control”) who: a) owns, controls or directs 25% or more of the voting shares of the corporation or shares that are worth 25% or more of the fair market value of all outstanding shares of the corporation; or b) has direct or indirect influence over the corporation without owning at least 25% of the shares. A person would also be caught by these requirements if they own or control a significant number of shares jointly with other people.

The information required to be maintained by the corporation of each individual with significant control includes: their name, date of birth and address, jurisdiction of residence for tax purposes, date of becoming or no longer being an individual with significant control, a description of how the person has significant control, and a description of the steps the corporation takes to keep the information current each year. Updates to the information would be needed at least once during each financial year of the corporation and within 15 days of the corporation becoming aware of a change in the relevant information.

The Amendments are to be effective January 1, 2023 and would bring Ontario in line with other Canadian provinces. If you have any questions about the Amendments or how they may impact your business, please contact us.

February 28, 2022

Sweeps, Sweeps and More Sweeps

A number of CSA jurisdictions have begun their promised registrant reviews relating to the client-focused reforms. These jurisdictions have sent out very extensive questionnaires relating specifically to the conflicts of interest provisions that came into force at the end of June, 2021. The questions include those relating to the formation of a firm’s conflicts inventory, inquiries about fee arrangements and proprietary products, and ask for documentation and proof of changes made to policies and procedures to demonstrate compliance with the new requirements. We suspect the result of these reviews will result in further guidance to the industry on baseline regulatory expectations.

Registered firms with clients in Québec should also soon be hearing from the AMF, if they haven’t already. The AMF is currently conducting a normal course focused review with a number of questions being asked of firms that do not have a physical presence in Québec. The stated purpose of the review is to get a better understanding of a firm’s activities in the province.

In addition to regulatory reviews, the OSC has begun the process of individually reminding registrants of the 2022 risk assessment questionnaire (RAQ), which will be sent out in early May and is due by mid June. The 2022 RAQ will ask about information for the period ended December 31, 2021. While the questions are expected to be substantially similar to those in the 2020 RAQ and some fields that relate to information unlikely to change from year to year will be pre-populated, significant time and resources will still be required to complete all sections of the questionnaire fully. The OSC email includes a link to a copy of the 2020 questions in order to help get firms started on collecting the necessary information. The OSC will also be providing a list of FAQs and user guides for each section of the questionnaire and is setting up a webinar as part of its Registrant Outreach to be held in May. We would urge clients to begin thinking about and planning for this project. As the form requires certification from a firm’s UDP, it is important to leave enough time for the c to review the form prior to submission.

As a reminder, firms in Ontario that are registered as investment fund managers must also complete the OSC’s Investment Fund Survey (which has already been sent out) by April 29th.

We are assisting a number of clients with responding to these reviews, and we would be pleased to answer your questions about this or any other regulatory sweeps occurring.

February 28, 2022

European Developments – SDR and SRD

There are two European developments we wanted to bring to your attention, somewhat confusingly referred to as SDR (Settlement Discipline Regime) and SRD II (Shareholder Right Directive).

SDR concerns the European Union’s (EU) Central Securities Depositories Regulation (CSDR). The common requirements apply to central security depositories that operate across the EU. SDR introduces a number of measures to prevent trade settlement fails by ensuring that all transaction details are provided to facilitate settlement and incentivises timely settlement by cash penalty fines. Canadian firms trading securities that ultimately settle at a CSD domiciled in the EU may be subject to these rules and, consequently, also potentially the fines.

SRD is a directive that concerns the EU’s requirements related to transparency and corporate governance. Provisions include those relating to the remuneration of directors, identification of shareholders (for engagement purposes), facilitation of exercising shareholder rights, and the transmission of information. Some of these provisions may apply to particular parties that transact with securities that are in-scope (e.g. traded on a European exchange).

February 28, 2022

Wrapped, Tied and Tangled – OSC Consultation on Tied Selling and Other Anti-Competitive Practices in the Capital Markets

On November 19, 2021, the Honourable Peter Bethlenfalvy, Minister of Finance of Ontario, requested that the Ontario Securities Commission (the OSC) undertake an analysis of questions regarding the practice of tied selling raised by the Capital Markets Modernization Taskforce (the Taskforce) in their consultation in 2020.  In response, on November 30, the OSC issued OSC Staff Notice 33-753 OSC Consultation on Tied Selling and other Anti-Competitive Practices in the Capital Markets (the Notice).

The Notice requested submissions and supporting evidence and analysis from issuers, dealers and other market participants as well as from investors and other stakeholders in order to establish the extent to which tied selling may be impeding competition. More specifically, the Taskforce identified concerns that certain commercial lenders might be engaging in practices that impede competition such as where a lender requires issuer clients to retain the services of a dealer or adviser affiliate of the lender for their capital raising and/or advisory needs as a condition of entering into a commercial transaction, or vice versa.

The Notice included a series of specific questions that the OSC would like feedback on from academic and regulatory experts and professional advisors. The OSC asked to receive submissions in response to the Notice by January 10, 2022. The OSC then plans to incorporate the submissions in its report to the Minister by February 28.

January 29, 2021

Chim Cher-ee – OSC Product Review Sweep on the Restriction of Sales of Third-Party Investment Products

Related to OSC Staff Notice 33-753 OSC Consultation on Tied Selling and Other Anti-Competitive Practices in the Capital Markets, on December 7 the Ontario Securities Commission (the OSC) commenced a desk review, also known as the OSC Product Review Sweep (the Sweep), of many large Ontario-based financial institutions and some independent firms. The Sweep was initiated following a Letter of Direction from the Honourable Peter Bethlenfalvy, Minister of Finance of Ontario, to the Chair of the OSC. The Letter of Direction expressed concerns about some of Ontario’s largest financial institutions halting sales of third-party investment products. The letter noted that some financial institutions had signaled that the measures to restrict shelf space were in response to the Client Focused Reforms.

In response to the Letter of Direction, the OSC commenced the Sweep and requested detailed information from the targeted firms by January 6, 2022. The information request included questions on general business information about the firm, related products, third-party products, shelf composition, and managed solutions. The OSC also provided a detailed template of information to be completed with the review. The OSC plans to incorporate the information in its report to the Minister by February 28.

January 31, 2022

CSA Publishes Amendments to the Rules on Oversight of Foreign Audit Firms Performing Audits of Canadian Public Issuers

On January 13, 2022, the Canadian Securities Administrators (the CSA) published CSA Notice of Publication – Amendments to National Instrument 52-108 Auditor Oversight (the Notice), containing the final amendments introducing new rules intended to regulate the conduct of certain audit firms performing audits of Canadian public issuers (the Amendments).

The Amendments are intended to address challenges that the Canadian Public Accountability Board (CPAB) faces in accessing audit work performed by audit firms that are not directly subject to Canadian regulatory oversight. Such challenges could arise, for example, in circumstances where the main audit firm (the audit firm that issues the audit report, or the “participating audit firm” or “PAF”) retains the services of a foreign audit firm to complete a portion of the audit. Under the current regime, CPAB experiences difficulty accessing the audit materials and records of such foreign auditors.

The Amendments introduce a new definition of a “component auditor”, having the same meaning as it does in Canadian GAAS, which essentially refers to an auditor that performs an audit over a “component” (e.g. a foreign subsidiary of the public issuer). A “significant component auditor” is a component auditor where:

  1. the component auditor performs audit work involving financial information related to a component of the reporting issuer;
  2. the reporting issuer being audited has the power to direct the component on its own or jointly with another person; and
  3. the component auditor meets one of the quantitative metrics relating to hours of work, fees paid, or relative size of the component’s assets or revenue set out in the Amendments.

The Amendments then require a reporting issuer to give written notice to a significant component auditor permitting it to provide access to records relating to its audit work to CPAB, and to enter into a “CPAB access agreement” with CPAB if CPAB issues a notice that it was unable to access the significant component auditor’s records.

If the significant component auditor fails to enter into such an agreement, the PAF will be prohibited from using the significant component auditor in future.

In coordination with the publication of the Notice, CPAB released its own publication, entitled Guidance regarding CPAB’s process for requirements in NI 52-108 related to access to working papers of significant component auditors in foreign jurisdictions (the Guidance).

In the Guidance, CPAB states that, when deciding whether to request access to a significant component auditor’s records, it will consider factors including:

  • the number of component auditors and the relative significance of their audit work to the inspection focus areas;
  • the nature and extent of the audit work;
  • the oversight by the PAF; and
  • the evidence retained in the group audit file.

Furthermore, CPAB clarifies that it will only request access to a significant component auditor’s working papers that directly relate to its review of the PAF audit file, and not seek access to inspect the component auditor’s system of quality controls.

If there is a memorandum of understanding or similar agreement in effect with the local audit regulator of the significant component auditor’s jurisdiction, CPAB will first utilize such mechanism before resorting to the process set out in the Amendments.

These mechanisms ultimately leverage the relationships that the public issuer has with the PAF and the significant component auditor to achieve the objectives of access to relevant records.

If you have any questions about the Amendments, the Guidance or about how the new rules may affect you, please do not hesitate to contact any member of our team.

January 31, 2022

Ontario’s New Draft Capital Markets Act – Topics of Interest to Registrants

In the previous issue of our bulletin, we provided a high level report on the new draft Capital Markets Act (Act) released by the Ontario Ministry of Finance (Finance) on October 12, 2021. In this issue, we highlight some of the provisions of the Act, together with the related Capital Markets Modernization Taskforce (Taskforce) recommendations, which we think will be of particular interest to our readers.

Additional Accredited Investor Categories

Citing the OSC’s 2020 report on exempt market activities in Ontario, the Taskforce noted in its final report that the accredited investor exemption was the most used prospectus exemption in Ontario in 2019, accounting for 95% of the gross proceeds invested by Ontario investors. Acknowledging its importance, the Taskforce recommended expanding the definition of accredited investors, in particular to include the individuals who have completed relevant proficiency requirements.

In response, Finance proposed giving the OSC rule-making authority to introduce additional categories under the accredited investor exemption, which would represent a departure from the current approach of setting out the relevant definition in the Securities Act. In addition, the Act would permit the Chief Regulator to designate a particular person to be an accredited investor if the Chief Regulator considers that it would be in the public interest to do so.

The approach contained in the Act would more closely align Ontario’s practices to those of the other CSA jurisdictions, and give the OSC additional flexibility to tailor the categories of accredited investors to ensure that they remain adapted to evolving capital markets.

Expansion of Civil Liability for Offering Memorandum Misrepresentations

Under the Securities Act, Ontario investors have civil liability recourse based on a right of action relating to misrepresentations in an offering memorandum. However, claims may only be brought against the issuer and a selling security holder (if any).

The Act would expand these rights by permitting an investor to bring an action for damages for misrepresentations in certain prescribed disclosure documents against i) the issuer, ii) the directors of the issuer, iii) promoters of the issuer, iv) influential persons, v) experts and vi) every person who signed the prescribed disclosure document, and an action for recission against the issuer. For certain other prescribed disclosure documents, rules having the same scope as those under the Securities Act would apply.

Although it is not yet exactly clear which documents would be included in the first category of prescribed disclosure documents and which documents would be included in the second category, Finance suggests that the first category would certainly include an offering memorandum.

While providing additional protection to the investing public, the increase in the size of the group of persons with respect to whom liability may be imposed significantly increase the stakes for everyone involved in the preparation of the relevant disclosure or offering documents because each of them could become responsible on a joint and several basis for the liability.

Additional Tools for Enforcing Compliance with Securities Legislation

Under the current regulatory regime, the OSC’s primary tool for bringing market participants into compliance is the enforcement procedures set out in the Ontario Securities Act. Although these procedures are designed to be more efficient and less burdensome than judicial proceedings, they may not always be efficient enough and do not allow the OSC to respond to securities law violations quickly.

The Act would permit the Chief Regulator of the OSC to issue compliance orders to quickly resolve specific situations. Such orders would include:

  • Orders that relate to the dissemination of information to the public or to a fee required to be paid;
  • Orders that any or all of the exemptions under capital markets law do not apply to the issuer or to a prescribed person; and
  • Cease trade orders.

An opportunity to be heard would be afforded to specified persons for these orders. A number of additional changes to enforcement provisions have been proposed, including additional coverage for production orders and the ability to search a dwelling-house in the specified circumstances during the day (important to note while many people are still working from home).


Other Notable Measures

In addition to the above, the Act contains other measures aimed at ensuring that the capital markets rules stay current, flexible and responsive to developments such as:

  • Imposing a requirement for five-year periodic reviews of the capital markets rules and the OSC rules;
  • Giving the OSC designation powers and rulemaking authority to permit the OSC to provide regulatory clarity to businesses with unique offerings and appropriate protection to investors, such as in the area of crypto assets;
  • Giving the OSC rule-making authority to allow for requirements to be placed on public issuers to have an annual advisory shareholders’ vote on executive compensation;
  • Giving the OSC authority to prescribe requirements and restrictions for persons engaging in the promotion of purchases or trades of securities, and specifically prohibiting false and misleading statements (similar to prohibitions that currently exist in British Columbia);
  • Increasing the maximum administrative monetary penalties to $5 million and the maximum fine for offences to $10 million;
  • Explicitly prohibiting activities such as aiding, abetting or counselling a contravention of capital markets law and front-running;
  • Establishing automatic and streamlined reciprocating provisions for orders from the other CSA jurisdictions, such as sanction orders, cease trade orders and settlements; and
  • Establishing a procedure to have amounts disgorged from capital markets offenders and have them distributed to the investors who suffered financial losses.

Reduction in the Minimum Consultation Period for Rule-Making

Currently in Ontario, proposed OSC rules are required to go through a minimum public consultation period of 90 days. The Act would change the minimum consultation period to 60 days. Although this would bring Ontario’s practices in line with the other CSA jurisdictions, it would also require market participants and other impacted stakeholders to be vigilant in looking out for proposed new rules or changes to the existing rules that may affect them in the early stages in order to ensure that they do not miss the opportunity to provide input in the rulemaking process.

Transitional Measures

As the Act represents an overhaul of, rather than an incremental change to, the regulatory regime, it is expected that much attention will be required to be paid to transitional matters. Finance states that the primary goal is to minimize the impact of the transition to the Act on market participants and their businesses. It is Finance’s intention that no action need be taken by market participants. For example, existing registrations and activities would be continued under the new regime by operation of law.

In addition, because the Act introduces a new “platform” approach to the capital markets rules, Finance advises that market participants can expect that new rules as well as rule changes would be necessary to ensure that there will be no regulatory gaps and that the status quo is preserved where appropriate. In particular, Finance tells market participants to expect that:

  • Prospectus and registration exemptions currently embedded in the Securities Act would be carried forward in rules;
  • Carve-outs from the investment fund insider trading/self-dealing requirements would be found in the rules;
  • The Commodity Futures Act would be repealed and replaced with a local rule that carries forward the existing registration regime except that the instruments will be treated as derivatives under the Act and registration will move to a derivatives registration regime; and
  • The existing registration exemptions that derivatives dealers currently rely on would be carried forward in rules, subject to a separate OTC derivatives business conduct rule that would apply regardless of a dealers’ registration status.

We will continue to monitor the Act and its developments. In the meanwhile, if you have any questions about how the Act may affect your business or have any comments about the Act requiring our assistance for submission to Finance, please do not hesitate to contact any member of our team.

November 30, 2021