CSA Year In Review; Fall’s Well That Ends Well – Fin Tech

This month, the Canadian Securities Administrators
(CSA) released its ‘Year in Review’ which summarizes the
activities of the provincial and territorial regulators over the
past year (July 1, 2022 – June 30, 2023) (the
Report). The Report outlines the CSA’s
strategic goals and the progress which has been made over the past
year to attain those goals. Some of the highlights of the Report
include the following:

Creation of a Single SRO

The CSA worked quickly to oversee and guide the amalgamation of
the MFDA and IIROC (and their investor protection funds) into what
is now CIRO. CIRO oversees all investment dealers, mutual fund
dealers, and trading activity on Canada’s debt and equity
marketplaces. While the new SRO launched on January 1, 2023, there
is still considerable work to be done, including the consolidation
and harmonization of the former IIROC and MFDA rulebooks.

Launch of SEDAR+

The much-anticipated SEDAR+ is now live with an aim to providing
a more secure digital platform to consolidate a number of legacy
systems to streamline access for market participants. While some
early hiccups were experienced, the CSA has maintained its
commitment to continuously improve the platform to enhance both
filer and investor experiences over time. In the future, SEDAR+
will incorporate other existing systems, including the System for
Electronic Disclosure by Insiders (SEDI) and the
National Registration Database (NRD).

Investor Protection

OBSI – Currently, the Ombudsman for
Banking Services and Investments can issue non-binding compensation
recommendations to firms with respect to client complaints brought
to OBSI. The CSA is currently developing a proposal which would
provide OBSI with the authority to issue awards which are binding
on firms.

Fee Transparency and Total Cost Reporting
– The CSA published final amendments to National Instrument
31-103 Registration Requirements, Exemptions and Ongoing
Registrant Obligations and its Companion Policy requiring
annual reporting to clients showing the ongoing costs of owning
mutual funds, ETFs, scholarship plans and segregated funds. The
information must be expressed as both a percentage for each fund,
and as an aggregate amount, in dollars, for all investment or
segregated funds owned by the client during the year. These changes
will take effect January 1, 2026, with first statements to be
issued to clients for the year ending December 31, 2026.

Compliance with the Client Focused Reforms
– The CSA and CIRO recently completed their review of
conflicts of interest practices across various registration
categories to assess how firms have met their obligations under the
enhanced conflict of interest provisions brought about by the CFRs
(see our article above). The CSA and CIRO will now turn their
attention to assessing how registrants are complying with other
obligations under the CFRs, including know-your-client,
know-your-product, and suitability determination requirements.

Mutual Fund Chargebacks – The
CSA initiated a review of the use of chargebacks in the mutual fund
industry arising out of concerns related to potential conflicts of
interest. The review is ongoing and will include a survey of
securities registrants to better understand their use of
chargebacks.

Disclosure Trends

Climate-Related Disclosure –
Since publishing for comment the proposed climate-related
disclosure rule in October 2021, the CSA has continued to monitor
international developments including proposed SEC rule amendments
which would require registrants to provide certain climate-related
information in their registration statements and annual reports.
The CSA also reviewed the International Sustainability Standards
Board (ISSB) standards that were published in June
of this year. The CSA has indicated that it will conduct further
consultations to adopt disclosure standards based on these ISSB
standards, modified where needed for the Canadian context.

Diversity Disclosure – Earlier
this year the CSA sought public comment on two diversity disclosure
approaches that would require disclosure on aspects beyond the
representation of women. The CSA also proposed changes on corporate
governance policy to enhance existing guidelines related to the
director nomination process and introduce new guidelines regarding
board renewal and diversity. These proposed amendments are designed
to provide investors with relevant information to enable them to
better understand how diversity ties into an issuer’s strategic
decisions.

Crypto

The CSA released Staff Notice 21-332 Crypto Asset Trading
Platforms: Pre-Registration Undertakings – Changes to Enhance
Canadian Investor Protection which outlined detailed expectations
for the pre-registration undertakings (PRUs) the regulator expected
from unregistered crypto trading platforms operating in Canada
while they pursue registration. These PRUs include, among other
things, enhanced expectations regarding the custody and segregation
of crypto assets held for Canadian clients and a prohibition on the
offering of margin, credit, or other forms of leverage to any
Canadian client. Platforms that have filed PRUs may continue
operations while their applications for registration and any
related relief are reviewed. Those platforms which did not deliver
a PRU and did not crease operating in Canada are subject to
enforcement action to bring them into compliance with Canadian
securities laws.

Regulatory Burden Reduction

Prospectus Filing Modernization
– The CSA published for comment a number of
amendments to various instruments aimed at introducing a new
two-stage process to modernize the prospectus filing model. The
first stage of amendments would allow investment funds which are
continuously distributed to file a new prospectus bi-annually
instead of annually and would repeal the requirement to file a
final prospectus no more than 90 days after the issuance of a
receipt for a preliminary prospectus. The CSA also sought public
comment on a new shelf prospectus filing model which could apply to
all investment funds in continuous distribution. The CSA has
reviewed comments in response to these proposals and is in the
process of seeking approval to publish finalized amendments.

Improved Continuous Disclosure for Non-Investment
Funds – The CSA published proposed
amendments to National Instrument 51-102 Continuous Disclosure
Obligations which would significantly streamline and clarify
the annual and interim filings and disclosures for non-investment
fund reporting issuers. The amendments are described by the CSA as
intending to eliminate duplicative continuous disclosures, combine
overlapping disclosures into one reporting document, and to amend
or eliminate any disclosure requirements that negatively impact the
quality, understandability, and usability of such disclosure. The
CSA is currently making certain non-material revisions to the
proposed amendments in response to comments.

It has been a very busy fiscal year for the CSA and we expect
the pace of change to continue into 2024.

About BLG

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.