As we discussed in a previous bulletin, on June 21, 2012, the
Canadian Securities Administrators (the
"CSA") published Consultation Paper
25-401: Potential Regulation of Proxy Advisory Firms (the
"Consultation Paper") to provide a forum
for discussion of certain concerns raised about the services
provided by proxy advisory firms and their potential impact on
Canadian capital markets and to determine if, and how, these
concerns should be addressed by the CSA.
On September 19, 2013, the CSA published an update to market
participants on the Consultation Paper. After a review of the
comments received, the CSA concluded that a response is
warranted. The CSA believes that a policy-based approach that
would give guidance on recommended practices and disclosure for
proxy advisory firms will promote transparency and understanding in
the services provided and is an appropriate response under the
The Consultation Paper identified specific concerns with the
lack of regulation of proxy advisory firms which could have an
impact on the voting process and the integrity of Canada's
capital markets. The concerns set out in the Consultation
Paper were as follows:
potential conflicts of interest;
perceived lack of transparency;
potential inaccuracies and limited dialogue between proxy
advisory firms and issuers;
potential corporate governance allegations; and
the extent of reliance by institutional investors on the
recommendations provided by proxy advisory firms.
Summary of Comments
The CSA received 62 comments on the Consultation Paper from
various market participants including issuers, institutional
investors, industry associations, proxy advisory firms and law
Highlights of the CSA summary of the comments it received are as
Issuers generally acknowledged the importance of proxy advisory
firms but were concerned with the influence of proxy advisory firms
on institutional investors' voting decisions.
Institutional investors stated that proxy advisory firms'
research reports inform their voting decisions, but that these
decisions are based on the institutional investors' own
assessments and they do not necessarily follow the vote
recommendations of proxy advisory firms.
Commentators generally agreed that the business model and
ownership structure of proxy advisory firms may lead to conflicts
of interest. The CSA reports that a majority of issuers believe
that conflicts of interest are not appropriately mitigated, while a
majority of institutional investors took the position that
conflicts are properly managed.
While issuers thought that disclosure of proxy advisory
firms' underlying methodologies would benefit market
participants, institutional investors argued against requiring
disclosure of proprietary analytical models.
Issuers were concerned with a perceived limit on dialogue
between proxy advisory firms and issuers, while the majority of
institutional investors were of the view that adequate dialogue
processes are already in place to avoid factual errors.
In regard to CSA response, some commentators suggested
recommended best practices, while others viewed a rule-based
approach including registration of proxy advisory firms as advisors
as necessary. Some institutional investors did not believe that a
CSA response is warranted.
The CSA is in the process of developing its proposed approach
and expects to publish a proposal for comment in the first quarter
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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