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Letter Summary:
The CSA is proposing amendments to NI 51-102 in order to streamline and clarify continuous disclosure requirements for reporting issuers other than investment funds. The proposed amendments would include consolidating the MD&A form with the AIF form and financial statements into new annual and interim disclosure statements. It is noted that the SEC Form 10-K similarly presents that information in one document. The proposed amendments will eliminate some disclosure requirements that have been deemed duplicative or redundant, such as the current MD&A requirement to disclosure summary information for the last 8 quarters as the information can be located in previous filings. A few new requirements will be added to address perceived gaps in disclosure, such as a requirement for venture issuers to describe their businesses in their MD&A. The final amendments are expected to be effective December 15, 2023 and various transition provisions have been proposed. The CSA expects the amendments will streamline reporting and increase reporting efficiency for reporting issuers while increasing the quality of the disclosure for investors. Consequential amendments to other instruments and rules will be required.
The CSA has also requested comments on a framework for venture issuers that would allow them to report semi-annually on a voluntary basis if they are not SEC issuers, and provide alternative disclosure for interim (quarterly) periods where financial statements and MD&A are not being filed.
Overview of the Council’s Comments:
We are supportive of the CSA’s intent to streamline and reduce duplicative disclosure. The focus of our comments includes some concerns and additional guidance requested with respect to some of the information proposed to be deleted from disclosure requirements, express our concerns with the potential semi-annual reporting framework, and outline some other areas relating to continuous disclosure that we believe should also be a regulatory focus.
As it relates to removing duplicative disclosure, we reiterate our view that the existing SEDAR systems’ accessibility and (lack of) ease of use and machine readability represent impediments to investor access.
We support new disclosure statements that will generally remove certain materiality qualifiers and have all disclosure requirements subject to the qualification that issuers must focus on material information as set out in the instructions; but would appreciate confirmation that any such change would conform with the understanding of and thresholds relating to materiality in Canadian accounting standards and under IFRS.
We remain concerned, with respect to the potential framework for semi-annual reporting for certain venture issuers, as discussed in more detail in our responses to the specific consultation questions below.
Finally, given the current global policy and regulatory focus on ESG-related disclosure and standards, particularly those relating to issuer disclosure, we were surprised that additional annotations and amendments were not provided with respect to the future integration of ESG reporting which will become an essential part of a reporting issuer’s continuous disclosure. Any such mandated disclosure should be an integrated part of annual disclosure statements and not be contained in a stand-alone document for ease of investor access and reference.
Additionally, we note that the forms will continue to require certain information with respect to an issuer’s credit rating, while removing the requirements for much of this information that can be found by investors elsewhere. Going forward, we suspect some issuers may also wish to include information with respect to their ESG or sustainability rating(s), which may cause some investor confusion if not contextualized as being presented without assurance and properly representing these ratings’ assignment by and redistribution from third parties, with appropriate links to respective ratings frameworks and methodologies.
Some technical key points are noted below:
- Questions relating to additional disclosure for venture issuers without significant revenue: The disclosure requirement should be broadened to apply more widely, particularly to certain non-venture reporting issuers that may have significant projects that are not revenue-generative. There are both venture and non-venture reporting issuers with no current revenue-generative business operations, which through their promotional activities attract mainly retail investors, leading to an investor protection concern. We believe this is an area that requires further research and analysis and should form the basis of a future policy project.
- Questions relating to risk factors: Reporting issuers and their advisors would benefit from any and all additional guidance and clarifications with respect to how to determine the “seriousness” of a risk in order to appropriately rank the risk factors.
- Questions relating to the requirement to name authors of technical reports: In general, we are not aware of any challenges faced by reporting issuers in obtaining technical report author consents, and understand such requirements to be in the ordinary course of business in the oil, gas and mining industries.
- Questions relating to semi-annual reporting for certain venture issuers on a voluntary basis: We do not believe the CSA should pursue the Proposed Semi-Annual Reporting Framework at this time, although further study and analysis could be warranted as part of a dedicated future policy project. In our July 2017 response to the then CSA Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-investment Fund Reporting Issuers, we noted our concerns about proposals aimed at reducing financial disclosure for smaller reporting issuers as it could limit the comparability of financial information between larger and smaller issuers for investors to make informed investment decisions.