The Ontario Securities Commission's
Staff Notice 51-720 –
Issuer Guide for Companies Operating in Emerging Markets
provides guidance to emerging market issuers and their directors on
governance and disclosure practices. The guide is part of a broader
regulatory review of the issues facing emerging market issuers and
focuses on companies with management or principal active operations
in areas such as Asia, Africa, South America and Eastern
While the guide does not create new legal obligations or modify
existing ones, it highlights areas of risk and outlines OSC
staff's expectations regarding management and director
compliance with existing disclosure requirements. Accordingly, it
is of interest to emerging market issuers as it will be the basis
for continuous disclosure and prospectus reviews as well as
enforcement proceedings. Given that the guide addresses
requirements of general application, it is useful guidance for all
Canadian public companies.
OSC staff identify eight key areas for consideration by
companies operating in emerging markets and provide examples of
disclosure with sufficient detail to satisfy the disclosure
standard identified by staff (as well as examples of
"boilerplate" disclosure to be avoided). The guidance is
Business and Operating Environment
The directors and management of an emerging market issuer are
expected to understand the political, cultural, legal and business
environments of the emerging market in which the company operates.
Directors and management should have the appropriate orientation on
Canadian capital markets requirements to ensure adherence to
Canadian regulatory requirements.
Language and Cultural Differences
The board should include members who are familiar with the
emerging market and should consider adopting practices to address
language and cultural differences, including using independent
translators, obtaining independent input on local issues and making
The board should carefully consider the risks associated with
complex corporate structures and ensure that the Canadian reporting
entity has effective continuing control and ownership over foreign
operating entities and their assets.
As transactions with companies in the same group or parties linked
to shareholders, directors or management may represent a heightened
risk for emerging market issuers, companies should consider
quantitative and qualitative factors in complying with disclosure
requirements for related party transactions.
Risk Management and Disclosure
The board should have a full understanding of the legal,
regulatory, political and cultural risks facing the issuer and
evaluate these risks in the context of the particular emerging
market, rather than through a North American lens. This may require
implementing risk analysis and management techniques that are
specialized for the emerging market.
Directors should implement strong internal controls to overcome
the challenges of overseeing a company where operations are located
in a foreign jurisdiction. The challenges include remoteness,
different time zones, languages and cultural differences.
Use of and Reliance on Experts
The board should evaluate experts' credentials to determine
whether they are comparable to what would be expected in a Canadian
Oversight of the External Auditor
The board's audit committee should oversee the external
auditor and evaluate its expertise, experience and methods, and pay
particular attention to unusual management intervention in the
audit process in overseeing the work of the external auditor.
The issuer guide is part of a broader regulatory review with
respect to emerging market issues. Earlier this year, OSC staff
issued a report on its in-depth review of the public disclosure
record of selected emerging market issuers. The Toronto Stock
Exchange and TSX Venture Exchange are expected to propose new
listing requirements for emerging market issuers in November 2012.
The OSC is working with the Investment Industry Regulatory
Organization of Canada as it reviews underwriting due diligence
standards and with the Canadian Public Accountability Board on
improvements to the audit function.
Emerging market issuers should take into account the guide when
preparing offering and continuous disclosure documents. For all
issuers, the guide provides guidance on the OSC's view on
appropriate actions and disclosure to discharge their
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.
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