The Ontario Securities Commission (OSC) has published new guidance aimed at emerging market companies, which highlights some of the added risks faced by companies operating in emerging markets, and sets out the regulator’s expectations for management and directors of those firms.
The OSC Friday released a new issuer guide for emerging markets companies that flags eight key areas that, it says, should be considered by companies operating in emerging markets, including language and cultural differences, dealings with related parties, reliance on experts, and external auditor oversight, among other things.
It also sets out OSC staff’s expectations for the directors and management of those firms, highlighting risks that may require further scrutiny. And, it aims to clarify existing continuous disclosure requirements.
The new publication comes in the wake of the OSC’s review of emerging market issuers, sparked in part by the Sino-Forest case, which examined the quality of issuers’ compliance with disclosure and other regulatory requirements. Earlier this year, it published the results of that review which found assorted concerns with firms’ corporate governance practices; the complexity of certain corporate structures; the extent and frequency of related party transactions; weak risk management and inadequate internal controls.
“We have high expectations for issuers, regardless of where they are located, and look to directors and management to discharge their responsibilities fully,” said Howard Wetston, chair and CEO of the OSC. “This guide clearly articulates our expectations regarding compliance and we will continue to monitor this area closely in order to protect the integrity of our markets.”
In addition to the new guidance, the OSC says that it is also working with other regulators to address the findings of the emerging market issuer review, including: the development of standards for underwriters, improvements to the audit function, and enhanced listing processes.
It says that, in the coming months, it will continue to work with the Investment Industry Regulatory Organization of Canada (IIROC) as it reviews underwriting due diligence standards. And, that the Toronto Stock Exchange and TSX Venture Exchange are currently finalizing additional guidance and requirements to address risks associated with listing emerging market issuers, including clarification of expectations of issuers and the advisory community. The new requirements are expected to be published for comment later this month, it says.
Additionally, the OSC reports that it has been working closely with the Canadian Public Accountability Board (CPAB) on issues such as the opportunity to share information; and, that it has held discussions with the audit community, the CPAB, and international securities regulators to address concerns relating to the use of foreign component auditors.