Reporting issuers eager to consolidate their financial statements, Management's Discussion & Analysis (MD&A) and Annual Information Form (AIF) into a single document have longer to wait.
The continuous disclosure reforms proposed by the Canadian Securities Administrators (CSA) in May 2021 are, for now, on pause.
On October 3, 2023, the CSA announced it had postponed the implementation of the reforms, originally scheduled for publication in September 2023 and entry into effect in December 2023.
The reason is the CSA's intended parallel implementation of the continuous disclosure reforms with the modernized electronic delivery model, an initiative first announced in 2020.
We briefly summarize these interconnected projects and what reporting issuers can expect going forward.
Modernized Continuous Disclosure
In May 2021, the CSA announced proposed amendments to National Instrument 51-102 – Continuous Disclosure Obligations and solicited stakeholder comments.
The fundamental purpose of the proposed amendments was twofold.
First, reduce the regulatory burden imposed on reporting issuers (other than investment funds) through more streamlined and efficient reporting.
Second, increase the quality of the disclosure being provided to investors without sacrificing investor protection or the efficiency of Canada's capital markets.
The key objectives of such proposals were the following: (1) relocating, reformulating or combining similar disclosure requirements, (2) removing duplicative or repetitive disclosure, (3) removing information already available to investors outside of the continuous disclosure regime, and (4) addressing gaps in disclosure.
In other words, alleviate issuers from excessive disclosure burdens while providing investors with more useful, focused and easily digestible information.
A significant change contained in the proposals is the consolidation of previously separate documents, being the financial statements, the MD&A and, where applicable, the AIF, into a single disclosure document.
For annual and interim reporting purposes, this document would be called the "annual disclosure statement" and the "interim disclosure statement", respectively.
According to the CSA, such streamlining could also be beneficial to cross-border investors who are already accustomed to the single-document approach taken by the U.S. Securities and Exchange Commission with their annual report on Form 10-K and Form 20-F (for U.S. and foreign companies, respectively).
Modernized Electronic Delivery
In January 2020, the CSA announced it was considering an "access equals delivery" model to modernize the delivery of disclosure documents.
Why? According to the CSA, a model based on electronic, as opposed to physical, access to documents is a more cost-efficient, timely and environmentally friendly manner of communicating information to investors.
Such a model would also be consistent with the general evolution of Canada's capital markets (i.e., evolution of technology and access to information).
In April 2022, the CSA published its proposed model which, at a high level, contemplates providing public electronic access to a document together with alerting investors that the document is available would constitute delivery of the document.
But not all disclosure documents are covered under the proposed rule.
The focus of the proposed model was prospectuses generally, annual and interim financial statements, and related MD&A.
In the CSA's view, the "access equals delivery" model is well suited for these types of documents given that they are increasingly being accessed online by investors.
The CSA contrasted these with documents that require immediate shareholder action and participation, such as proxy-related materials and take-over bid and issuer bid circulars, which are not within the scope of the proposed model.
This may lead issuers that work well with the existing notice-and-access regime to continue to use this model to manage the mailing of all their annual meeting materials.
Modernization Moves Best in Tandem?
In its announcement earlier this month that it was delaying the implementation of its continuous disclosure reforms, the CSA explained that the goals of the reforms would be "best achieved" when "combined" with its upcoming "access equals delivery" model.
The CSA advised that it expects the access model will ultimately apply to the "annual disclosure statement" and the "interim disclosure statement", meaning that the revised "access equals delivery" model would extend to the AIF, which would be included in the "annual disclosure statement".
However, the CSA indicated that it "does not anticipate" introducing the modernized disclosure documents until its work on the "access equals delivery" model is further advanced.
Will the CSA's Twin Reforms Be Worth the Wait?
The CSA's modernized continuous disclosure reforms have been a long-time coming.
The process dates back to Consultation Paper 51-404 – Considerations for Reducing Regulatory Burdens for non-Investment Fund Reporting Issuers, issued in April 2017.
This latest episode involves the CSA firmly tying the implementation of its modernized continuous disclosure to the implementation of its modernized delivery model in what essentially amounts to an undetermined (but presumably not indefinite) delay of the former.
Indeed, the CSA has only advised that, in "deciding on the timing for implementing any of the continuous disclosure modernization proposals, the CSA will ensure reporting issuers are provided with sufficient time to transition to any new forms and requirements."
We can only hope that, once finalized and made effective, both the CSA's modernized continuous disclosure reforms and the CSA's modernized "access equals delivery" model will have been worth the wait.
What About the Bigger Picture?
The CSA's continuous disclosure reforms come at an interesting and opportune time.
In June 2023, the International Sustainability Standards Board (ISSB) published its first sustainability standards, the ISSB's goal being to develop a global framework for investor-focused disclosure that is responsive to market demand for more consistent and comparable disclosure.
The CSA welcomed these standards, which is important given the CSA is the body responsible for developing sustainability-related disclosure requirements for reporting issuers in Canada.
The CSA also stated that it generally intends to adopt disclosure standards based on ISSB standards, with appropriate modifications for Canada.
Similar to the CSA's continuous disclosure reforms, the ISSB standards endorse and incorporate principles of streamlined and integrated reporting, including consolidation and connectivity of information where this facilitates investor understanding.
For example, the ISSB standards mandate the filing of sustainability disclosure at the same time as the issuer's related financial statements, e.g., such that they are included in the issuer's MD&A or a similar document which forms part of the issuer's general purpose financial reports.
Interestingly, this appears to align well with the CSA's single "annual disclosure statement" forming part of its proposed continuous disclosure reforms.
As a result, the CSA's continuous disclosure reforms might also simplify the process for reporting issuers to adhere to the ISSB standards.
This is another aspect of the CSA's modernization efforts which we await with interest.
In the meantime, we will continue to closely monitor this space and provide updates as material developments arise.
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