Canada: OSC Staff Notice 51‐720 - Issuer Guide For Companies Operating In Emerging Markets

Last Updated: November 22 2012
Article by Corrine M. Fiesel

On November 9, 2012 the Ontario Securities Commission published Staff Notice 51720 – Issuer Guide for Companies Operating in Emerging Markets (the "Guide"). The Guide is based upon a prior review by the OSC of the adequacy of disclosure and regulatory compliance by 24 issuers, representing more than 50% of the 46 emerging market issuers for which Ontario is the principal regulator, which resulted in the publication of Staff Notice 51719 – Emerging Markets Issuer Review dated March 20, 2012 (the "Review"). The Review focused on issuers with the following characteristics:

  • mind and management are largely outside of Canada; and
  • the principal active operations are outside of Canada, in regions such as Asia, Africa, South America and Eastern Europe.

The Review identified four main areas of concern with respect to these emerging market issuers ("EMIs"):

  • Corporate Governance Practices – The OSC found deficiencies in the level of engagement by boards and audit committees in the oversight of management, and in the extent of knowledge of these bodies of the cultural and business practices of the jurisdictions in which the EMIs operated.
  • Corporate Structures – The OSC found in many cases that the complexity of certain corporate structures that were put in place was neither clear nor necessary to support the underlying business model of the EMIs and that the quality of controls in place to manage the risks arising from such complex structures was lacking.
  • Related Party Transactions – The OSC became concerned with the extent and frequency of related party transactions amongst these EMIs and the quality of the management and board processes put in place to identify and approve these transactions, as well as the lack of clarity in the disclosure made about the transactions.
  • Risk Management and Internal Controls – Many risks were not appropriately identified, understood or managed by the boards of these EMIs and risk disclosures were often incomplete and lacked clarity.

The OSC recognizes in the Guide the unique challenges that boards and management of EMIs face in truly understanding an EMI's business and operating environment; time zones, language, location of key books and records and cultural differences, for example, may make communication particularly complicated for such issuers. However, recognizing that all Canadian reporting issuers, regardless of where they are located or their operating environment, must comply with Canadian regulatory requirements, the Guide attempts to provide assistance to EMIs and their directors and management in meeting the level of standards expected in Canadian capital markets.

The Guide identifies eight areas for the directors and officers of EMIs to consider and offers disclosure tips and examples designed to assist such companies and their boards in assessing risks and complying with Canadian securities laws. However, while these eight areas are considered by the OSC to be especially relevant to EMIs, the Guide seems intended to encourage directors and management of all issuers to review the discussion and issues raised in the context of their businesses as they review generally the potential areas of risk they face.

The eight identified areas, and some of the OSC's commentary relevant to each, are as follows:

1. Business and Operating Environment

A company's board and management must have a thorough understanding of the political, cultural, legal and business environments of the company. Canadian directors of EMIs may have limited knowledge and experience regarding the operating environment of the company and must therefore be aware of the need to exercise additional diligence to close any knowledge gaps that may exist. An EMI's disclosure should sufficiently highlight those operating conditions that are applicable to the company as a result of operating in an emerging market, which means capturing the issues, risks and characteristics unique to operating in the market, and providing both a factual description and analysis of these risks and issues and how they affect operations.

2. Language and Cultural Differences

It is important that the board of an EMI include members that have appropriate experience in the emerging market in order to properly identify risks associated with the foreign jurisdiction. However, heavy reliance upon board members local to the emerging market jurisdictions to deal with language and cultural differences can raise issues of independence. Boards should devise appropriate policies to deal with these risks such as the use of independent translators, and the appointment of independent directors with an understanding of the emerging market environment, as well as develop mechanisms to obtain input from outside sources when needed.

3. Corporate Structure

While there may be important regulatory reasons in emerging market environments to establish complex corporate structures – such as impediments to foreign ownership or control – boards should consider the risks that may flow from such complexities, such as obscuring the misappropriation of assets or other fraudulent activities, or conveying a false impression of financial performance or condition. An EMI's disclosure should provide a clear description of the corporate structure, including a diagram, explain how that structure facilitates (or hinders) the conduct of the company's business, explain how that structure is necessary or desirable given the company's operating environment, and describe the risks associated with the structure and how the board specifically monitors and addresses those risks.

4. Related Parties

While related party transactions should be of concern to all issuers, the OSC points out in the Guide that they can present a heightened risk to EMIs due to differences in cultural norms and business practices. An EMI, for example, may be owned or controlled by a small group of individuals or a family, with management and the board dominated by these same individuals. Circumstances in which the majority shareholders' interests are favoured over those of the minority in an EMI's ongoing operations may not be seen to be outside of the norm by nonindependent management. The Guide recommends that an EMI's disclosure should specifically identify the related parties and their relationship with the company or its principals, include both quantitative and qualitative information that is necessary for an investor to understand the business purposes and economic substance of the related party transactions, discuss the nature, role, impact, benefits and risks of related party transactions in conducting business in the emerging market environment, indicate how the company's structure may impact its use of related party transactions, and describe the company's processes and procedures for identifying, evaluating and approving related party transactions.

5. Risk Management and Disclosure

Boards of EMIs should not only be knowledgeable of the risks associated with their markets but should view these risks and the appropriate options for mitigating the risks outside of a North American cultural framework. A sufficient understanding of the legal, regulatory, political and cultural risks impacting the company and appropriate risk analysis and knowledge of mitigation techniques are required. An EMI's disclosure should not only identify the specific risks applicable to the company but provide sufficient details for investors to understand the nature of the risks and what the risks mean to the company's operations, indicate the board's responsibility for oversight and management of risks, and describe the methods used by the board to oversee the risk management process.

6. Internal Controls

Communication breakdowns between EMI board members that reside in Canada and local management can readily occur due to the differences in time zones, language and culture. Strong internal controls can provide checks and balances on the local operations to reduce the risks of financial and other reporting. The audit committee of the board, in particular, should actively oversee the monitoring of any identified weaknesses in internal controls, as well as the risks they create for the company. An EMI's disclosure should describe each of the internal processes or functions that contain a material weakness and the implications of these weaknesses, along with mitigating factors and detailed remediation steps taken by management.

7. Use of and Reliance on Experts

EMIs may hire industry professionals or experts with specialized knowledge to assist with complex matters arising in foreign jurisdictions. Such professionals may not be subject to equivalent rules of professional conduct or standards of care in the local jurisdiction to those that would apply in Canadian markets, and boards therefore need to carefully assess the quality of the advice provided and their ability to rely on such advice.

8. Oversight of the External Auditor

EMI boards should take into consideration factors relating to an external auditor's competence, experience and qualifications in the foreign jurisdiction. Canadian auditors may not have the language skills, cultural knowledge or experience with the accounting and tax rules of foreign jurisdictions, and likewise domestic auditors may not have the understanding of the requirements of North American capital markets. Communication between domestic and foreign auditor offices may be complicated by these factors. In the OSC's view, it would be beneficial for audit committees of EMIs to maintain frequent informal communications with the audit engagement team and to obtain information regarding the audit on a real‐time basis, in addition to formally meeting with the auditor at the planning and completion states. Particular attention should be paid to any signs of delay in the schedule or unusual management intervention in the process.

All reporting issuers in Canada, regardless of location in the world, are expected to comply with Canadian reporting and regulatory requirements. Given the unique challenges that boards and management of EMIs face in operating in emerging market environments, the OSC recommends that extra measures be taken to ensure that the interests of the investing public are protected. The Toronto Stock Exchange and TSX Venture Exchange are currently finalizing additional guidance to address risks associated with listing EMIs. This will include clarification of the expectations of issuers and the advisory community. The exchanges expect to publish these new requirements some time later this month.

About Fraser Milner Casgrain LLP (FMC)

FMC is one of Canada's leading business and litigation law firms with more than 500 lawyers in six full-service offices located in the country's key business centres. We focus on providing outstanding service and value to our clients, and we strive to excel as a workplace of choice for our people. Regardless of where you choose to do business in Canada, our strong team of professionals possess knowledge and expertise on regional, national and cross-border matters. FMC's well-earned reputation for consistently delivering the highest quality legal services and counsel to our clients is complemented by an ongoing commitment to diversity and inclusion to broaden our insight and perspective on our clients' needs. Visit:

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions