Canadian securities regulators Thursday published two new staff notices that aim to improve compliance with the requirements that govern the use of prospectus exemptions.
The Canadian Securities Administrators have published notices that provide guidance for exempt distribution reports and offering memorandums, setting out a variety of issues that regulators have encountered with these sorts of filings. The notices also suggest measures to ensure compliance by issuers, underwriters and their advisors, providing guidance on topics such as filing deadlines, correct and consistent reporting, financial statement requirements and adequate disclosure.
In terms of exempt distribution reports, the CSA notice points to issues such as relying on unavailable exemptions, failing to disclose all commissions and finder’s fees, and failing to provide complete information.
The list of deficiencies encountered with offering memorandums includes failing to update the OM when a distribution is ongoing; not including sufficient information to make an informed investment decision; inadequately disclosing the issuer’s business; providing unrealistic or excessively promotional disclosure; inadequately disclosing available funds; omitting key terms of material agreements, compensation disclosure, key elements of financial statements and required audit reports; and, disseminating material forward-looking information not included in the OM; among other things.
“The CSA is committed to ensuring that market participants understand what is expected of them when relying on prospectus exemptions to sell securities,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission. “These notices not only provide clear guidance to assist issuers in preparing and filing certain exempt market documents, but also serve as a reminder to market participants who rely on prospectus exemptions that their filings or disclosure may come under staff review and that non-compliance may result in appropriate action by a CSA regulator.”
The regulators note that issuers should be aware that the primary responsibility for compliance rests with them, and stress that the exempt market is not free from regulation and oversight.