Securities regulators are taking action in a growing share of their continuous disclosure reviews, according to new data from the Canadian Securities Administrators (CSA).
The CSA issued its latest report that details the results of the disclosure reviews that regulators have carried out over the past two fiscal years (periods ended March 31).
The data shows that a greater proportion of those reviews prompted regulatory action in fiscal 2024, compared with fiscal 2023.
For instance, the share of reviews that resulted in a referral to enforcement, a cease trade order or an issuer being placed in default rose to 8% in 2024 from 6% in 2023.
The share of reviews that required issuers to refile disclosure also rose to 21% in 2024 from 18% in 2023; and, in 2024, 37% of reviews resulted in prospective changes to disclosure, up from 32% in 2023.
The CSA’s report also provides guidance to issuers on complying with certain aspects of their continuous disclosure requirements where the regulators see persistent failings — such as disclosure that’s considered excessively promotional.
“Over the past few years, we have seen promotional activities by certain issuers leading to disclosure that is either untrue or unbalanced, so it may mislead investors,” the report said.
In particular, the report flags the regulators’ concerns with so-called “AI washing” and greenwashing.
“AI washing is when an issuer makes false, misleading or exaggerated claims about its use of AI systems in its products or services, to capitalize on the growing use of and investor interest in AI systems,” it said — and it provides guidance on producing compliant disclosure about companies’ artificial intelligence activities.
The CSA said that it has uncovered instances of AI washing in firms’ continuous disclosure filings and in their prospectus filings.
Similarly, the regulators report that they have growing concerns about greenwashing — issuers making exaggerated claims about their sustainability, environmental, social and governance (ESG) activities or progress towards “net zero” carbon emissions.
“We have observed an increase in issuers making potentially misleading, unsubstantiated or otherwise incomplete claims about business operations or the sustainability of a product or service being offered,” it said.
The report reminds issuers to, “avoid misleading promotional language” and calls on them to ensure that all ESG disclosures are factual and balanced, regardless of whether they are being made voluntarily, or are required by regulators.
“Issuers should exercise caution in using broad terms and if they do use them, in order to avoid misleading investors, we would generally expect details respecting what is meant by the term, which factors are included and how these factors are weighted and prioritized,” it said.
Additionally, the report said that issuers should be careful about using ratings to demonstrate their ESG impact.
“In our view it is not sufficient, for example, to say that an issuer obtained ‘a high score’ on ‘a national corporate governance survey,’ without disclosing the actual score, the parameters on which the survey was based, the name of the third party conducting the survey and the date of the survey,” it said.