Canada: Legislative Amendments Affecting The Securities Sector In Quebec

Many of the provisions of the Act to amend various legislative provisions principally to tighten the regulation of the financial sector (the "Act") came into force on December 4, 2009. The text of the Act can be found on the website of the Quebec National Assembly.

The Act amends several acts that regulate financial institutions and other financial market players.

The Securities Act

Amendments to the Securities Act include the introduction of a legislative framework to govern credit rating organizations. The amendments in question, which will come into force only on a subsequent date to be determined by the Government of Québec, will provide that a designated credit rating organization must comply with the requirements set by regulation, including requirements relating to (i) the establishment, publication and enforcement of a code of conduct applicable to its directors, officers and employees, including the minimum requirements for such a code; (ii) a prohibition to issue or maintain a credit rating; (iii) procedures regarding conflicts of interest between the designated credit rating organization and the person whose securities are being rated; (iv) the keeping of the books and registers necessary for the conduct of its business; (v) the disclosure of information to the Autorité des marchés financiers (the "Authority"), the public and the person whose securities are being rated; and (vi) the appointment of a compliance officer. The particulars of the requirements to be imposed on credit rating organizations will be known only upon publication of a regulation, which we assume will be harmonized across Canada. The Authority will also have the power to inspect the affairs of a designated credit rating organization in order to verify compliance with the law. A designated credit rating organization or another person acting on its behalf will not be permitted to make any representation, written or oral, that the Authority has in any way passed upon the merits of the designated credit rating organization. While the Authority will not be able to regulate the content of a credit rating or the methodology used by a designated credit rating organization, it will be able to impose changes in the practices and procedures of a designated credit rating organization if it considers that such a measure is necessary to protect the public.

The Act introduces some new provisions applicable to accounting firms, which will also come into force on a subsequent date to be determined by the Government of Québec. One such provision states that in accordance with the rules applicable to an accountant's audit of the affairs of any person subject to the Securities Act, an accounting firm that audits the financial statements of a reporting issuer must participate in the inspection program of a body that has entered into an agreement to that effect with the Authority.It is our understanding that that body will be the Canadian Public Accountability Board ("CPAB"), which oversees auditors pursuant to Regulation 52-108 respecting auditor oversight. Accordingly, the CPAB will have to enter into an agreement with the Authority and be subject to the Authority's supervision  in carrying out its mandate.

The Securities Act is amended to specifically provide that a reporting issuer must organize its affairs in accordance with the governance rules prescribed by regulation.

The Act makes certain amendments to the provisions prohibiting the use of privileged information. Among other things, the provision in the Securities Act that prohibits a person having privileged information relating to a reporting issuer's securities from disclosing that information is extended to also prohibit such insider from recommending that another party trade in the issuer's securities. In addition, the Act amends both the Securities Act and the Derivatives Act so as to add a new ban applicable to persons with knowledge of "material order information". Material order information is any information relating to an order, a projected or unexecuted order to purchase or trade a security or in the case of the Derivatives Act a standardized derivative or underlying interest, or even an intention to place such an order, that is likely to have a significant effect on the market price of the security or of the standardized derivative. This new ban was introduced with a view to ensuring that more situations would be covered than were covered by the sections containing the classical provisions prohibiting the use of privileged information.

More exceptions apply in relation to this new ban applicable to persons with knowledge of material order information than apply under sections 187 and 188 of the Securities Act dealing with the prohibited use of privileged information, since the new ban includes exceptions for a person who must enter into a transaction in order to fulfil a written obligation previously entered into and for a person acting as an agent. The applicable fines and penalties have been amended to take account of the new ban.

The Act amends the Securities Act in order to reduce the situations where the Authority's authorization must be sought in order to declare, at the time of a transaction, that securities will be listed or that an application has been or will be made for that purpose. In future, where an application to list the securities concerned has been made and securities of the same issuer are already listed, or where the stock exchange has approved the listing of the securities, even conditionally, or agreed to their being traded, or consented or indicated that it does not object to such a declaration being made, no authorization will be required. In addition, it will no longer be necessary to seek such an authorization for a declaration appearing in an offering memorandum prescribed by the Securities Act or by regulation (i.e., Regulation 45-106), as was the case before and as is currently the case for prospectuses for which the Authority has issued a receipt.

The Act adds clarity to the relevant provisions in order to ensure that the penalties applicable in the case of conspiracy to commit or aiding and abetting in the commission of an offence under the Securities Act extend to cases involving distribution without a prospectus, attempting to influence the market price or the value of securities by means of unfair, improper or fraudulent practices, and misrepresentation in certain types of documents (such as prospectuses and certain offering memoranda, continuous disclosure documents, and take-over bid circulars) as well as in the course of certain transactions and in documents filed with the Authority.

Code Of Penal Procedure

The Act amends the Code of Penal Procedure  to expressly provide that a judge may impose consecutive prison terms.

Other Amendments

The Act amends the Act respecting the distribution of financial products and services, the Securities Act and the Derivatives Act to increase the administrative penalties and fines that may be imposed under these acts from a maximum of $1,000,000 to a maximum of $2,000,000.  In addition, the Securities Act is amended to allow the Authority to impose an administrative monetary penalty for a contravention of, or failure to comply with, not only disclosure requirements but also the requirements pertaining to the distribution of securities to the public.

The Act also amends certain provisions of the Act respecting the distribution of financial products and services relating to distributions carried out otherwise than through a representative, and harmonizes the offence system under that act with the systems applicable under the Securities Act and the Derivatives Act.

The Act amends the Act respecting the Autorité des marchés financiers, among other things in order to give the Bureau de décision et de révision en valeurs mobilières new powers with respect to the distribution of financial products and services. To reflect this change, this administrative tribunal will now be known as the Bureau de décision et de revision.

Lastly, certain acts are amended to confer new special powers on the Authority, particularly for the purposes of pan-Canadian harmonization.

About Ogilvy Renault

Ogilvy Renault LLP is a full-service law firm with close to 450 lawyers and patent and trade-mark agents practicing in the areas of business, litigation, intellectual property, and employment and labour. Ogilvy Renault has offices in Montréal, Ottawa, Québec, Toronto, and London (England), and serves some of the largest and most successful corporations in Canada and in more than 120 countries worldwide. Find out more at www.ogilvyrenault.com.

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