The Burdens of Being a Public Company: Update on Potential Securities Regulatory Reform

Canada's securities regulators are initiating reforms to reduce the regulatory burdens faced by public companies. A broad range of potential rule changes were presented in a consultation paper last year. The regulators have decided to pursue six areas of reform that are expected to have a significant regulatory impact and that received broad support from market participants who provided feedback on the consultation paper. Below is a summary of the regulators' priorities, published in a staff notice on March 27. Whether and when any reforms will ultimately be adopted is still uncertain; next steps are for the regulators to develop specific proposed rule changes and publish them for public comment.

Potential Reforms

1.  Alternatives to the Short-Form Prospectus Offering System

The regulators plan to explore potential alternative offering models to the current short-form prospectus system. A new model could involve prospectuses focusing exclusively on deal-specific information, e.g., the securities being offered; the use of proceeds; the plan of distribution; material risk factors; and conflicts of interest. The rationale for such a model is that information not specific to the transaction is available in the issuer's continuous disclosure filings.

2.  ATM Offerings

The regulators are going to consider tailored rules to facilitate at-the-market offerings, including eliminating the need to obtain exemptive relief.

3.  Financial Statements of Primary Businesses in IPO Prospectuses

In IPO prospectuses, issuers must present three years of financial statements for each entity that is deemed a primary business of the issuer. This requirement will be revisited based on market participants' feedback that the rule is interpreted and applied inconsistently and to provide greater clarity to issuers preparing for an IPO.

4.  Business Acquisition Reports

Based on market participants' feedback that BARs can be onerous to prepare, that they sometimes include information not very useful to investors, and that exemptive relief is commonly requested, the securities regulators plan to revisit the BAR rules. Potential changes could include

• increasing the financial thresholds for determining whether an acquisition is significant;
• eliminating some or all of the significance tests;
• adopting industry-specific criteria for filing BARs; and
• eliminating the requirement to present pro forma financial statements in BARs.

5.  Ongoing Reporting by Public Companies

The regulators plan to review various ongoing reporting requirements with a view to reducing the overall volume of disclosure, preventing key information from being obscured, and enhancing the usefulness of information for investors. This could involve

• eliminating duplicative disclosure among the financial statements, MD&A and other documents, and
• consolidating two or more of the financial statements, MD&A and AIF.

6.  Electronic Delivery of Materials to Shareholders

The regulators will consider enhancements to issuers' options for delivering materials to shareholders electronically.

Scope of Reforms

The reforms described above are targeted at non-investment fund companies and reflect a subset of what was presented in last year's consultation paper. The initiatives that are not currently being pursued by the regulators include

• liberalizing the pre-marketing and marketing rules;
• reducing the regulatory obligations of issuers based on the size of their assets, revenues or market capitalization instead of distinguishing between venture and non-venture issuers;
• permitting all issuers, not just venture issuers, to prepare quarterly highlights instead of MD&A; and
• permitting semi-annual instead of quarterly reporting.