Last month, provincial securities regulators approved Policy No. 8 (Policy) of The Mutual Fund Dealers Association of Canada (MFDA).  The Policy establishes proficiency standards for mutual fund dealing representatives (Representatives) who wish to sell exchange-traded fund (ETFs).

Although Representatives are legally permitted to sell certain types of

On April 25, 2017, the Canadian Securities Administrators (CSA) published a consultation paper to obtain stakeholders’ views on introducing enhanced oversight requirements for foreign audit firms. Specifically, the paper discusses a proposal by the Canadian Public Accountability Board (CPAB) to amend National Instrument 52-108 Auditor Oversight (NI 52-108) to require foreign audit firms to register with CPAB as a Participating Audit Firm (PAF) should they be auditing a reporting issuers’ financial statements.

Foreign auditors, also referred to as “component auditors”, are often engaged when a reporting issuer’s operations are in a jurisdiction different from that of the issuer’s head office. In such instances, the issuer or its primary auditor may decide to engage a component auditor to conduct an audit on financials related to foreign operations.


Continue Reading A Review of CSA Consultation Paper 52-403: Auditor Oversight Issues in Foreign Jurisdictions

office-1209640_1280On January 10, 2017, the Canadian Securities Administrators (CSA) issued for comment CSA Consultation Paper 81-408 – Consultation on the Option of Discontinuing Embedded Commissions (the Consultation Paper) for a 150-day comment period. The Consultation Paper presents for discussion, the CSA’s position regarding the effects of sales of investment fund securities or structured notes through commissions, including sales and trailing commissions, paid by investment fund managers (embedded commissions), and proposes that the use of embedded commissions be discontinued in favour of direct pay arrangements.

Proposed Changes

The Consultation Paper currently anticipates that the new regulatory framework would aim to

discontinue any payment of money to dealers in connection with an investor’s purchase or continued ownership of a security described above that is made directly or indirectly by a person other than the investor.

This would, at a minimum, include ongoing trailing commissions or service fees as well as upfront sales commissions for purchases made under a deferred sales commission (DSC) option.


Continue Reading The CSA Move Forward on Consultations Regarding the Discontinuation of Embedded Commissions

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Economic Environment

The volume of securities purchased by foreign investors in Canada has been steadily increasing in recent years.  While equity securities account for the majority of the increase, debt securities still comprise most of the foreign investment in Canada.[1]  Of these debt securities, corporate bonds attracted the largest increase in investment in 2016 compared to 2015.[2]  The continued significance for Canadian issuers (Issuers) of foreign markets for raising capital emphasizes the importance of understanding the nature of cross-border debt securities offerings (Offerings) and, in particular, uncertainties in their technicalities which, if not properly traversed, can lead to increased costs for Issuers.

Overview of Offerings

Bonds can be offered by Issuers pursuant to a public offering under a prospectus or can be placed privately by way of a private placement, in which case Issuers may choose to prepare and distribute an offering memorandum to potential investors.  The method employed will vary depending on the Issuer’s target market and the extent to which the Issuer is known to participants in the capital markets.  Bonds, regardless of the type of Offering, are typically issued under the terms and conditions of a trust indenture which is entered into between the Issuer and an indenture trustee (Trustee).  The Trustee protects the interests of the Bondholders by enforcing the terms and conditions provided in the trust indenture.


Continue Reading Cross-Border Bond Offerings – Implications of a “distribution to the public” under the Canada Business Corporations Act

pexels-photo-27406Commencing March 8, 2017, new rules relating to the risk classification of conventional mutual funds and exchange-traded funds (collectively, mutual funds) will come into force. The new rules will primarily involve amendments to National Instrument 81-102 Investment Funds (NI 81-102), but will also involve consequential amendments to National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101), certain forms under NI 81-101, and its companion policy (the Amendments).

The Canadian Securities Administrators (CSA) initially introduced the idea of a standardized risk classification methodology applying to all mutual funds in December 2013 and later refined it in draft amendments published in December 2015. The CSA considered the comments it received on both publications in developing this final version of the Amendments, which is largely similar to the 2015 version.

Pursuant to the Amendments, mutual fund managers will be required to use a standardized methodology, based on standard deviation, to classify the investment risks of their mutual funds. Currently, mutual fund managers are permitted to adopt a risk classification methodology of their own choosing, provided it is described in the mutual fund’s prospectus and fund facts. The CSA believe that a standardized methodology will allow investors to better compare the investment risk levels of different mutual funds.


Continue Reading Mutual Fund Risk Classification Methodology Amendments to come into force March 8, 2017

On April 7, 2016, the Canadian Securities Administrators (CSA) published amendments (Amendments) to the reporting requirements in National Instrument 45-106 Prospectus Exemptions (NI 45-106).  The amendments were previously published for public comment on August 13, 2015.  Concurrently, the CSA published CSA Staff Notice 45-308 (Revised) Guidance for Preparing and Filing Reports of Exempt Distribution under 45-106 (CSA Notice 45-308) which provides helpful information for industry participants in navigating through the Amendments which come into force on June 30, 2016.

Background

Current Reporting Forms

The reporting forms required to report an exempt distribution presently consist of two forms, being Form 45-106F6 British Columbia Report of Exempt Distribution (Form 45-106F6) which is used for distributions in British Columbia and Form 45-106F1 Report of Exempt Distribution (Form 45-106F1) which is used for distributions in all other Canadian jurisdictions.  Issuers who meet an exemption under BC Instrument 45-533 may file a Form 45-106F1 in British Columbia instead of filing a Form 45-106F6.

As described below, the amendments replace Form 45-106F1 and Form 45-106F6 with a single, new Form 45-106F1 (New Form 45-106F1).

Current Filing Systems

Form 45-106F1 or Form 45-106F6, as applicable, are filed with the British Columbia Securities Commission (BCSC) through the BCSC eServices website and issuers are required to have a profile created on the BCSC eServices system before a filing can be completed.  Issuers who have a System for Electronic Document Analysis and Retrieval (SEDAR) profile automatically have a profile existing in BCSC eServices.  Issuers who do not have a SEDAR profile are required to submit a profile form to the BCSC to create their profile on BCSC eServices at least 24 hours before they can submit the reporting form.  BCSC eServices requires the filer to enter a few pieces of information from the Form 45-106F1/F6 into certain fields on the eServices submission page before attaching the reporting documents and completing the submission.  The Form 45-106F1 or Form 45-106F6 is typically populated in Word format, and then converted into PDF format before being uploaded to BCSC eServices.  In addition, the schedules to Form 45-106F1 and Form 45-106F6 are removed and filed as separate PDF documents.

Form 45-106F1 filings with the Ontario Securities Commission (OSC) are filed through the OSC’s Electronic Filing Portal (OSC Portal).  Unlike the BCSC eServices system, the OSC Portal does not require a profile to be created by an issuer in order to make a filing.  Also unlike the BCSC eServices system, where only a few pieces of information need to be entered into the submission page, the submission on the OSC Portal requires the filer to enter every piece of information in the entire Form 45-106F1 onto the submission page.  In addition, Schedule I to Form 45-106F1 must be completed in Excel format and uploaded to the submission page.  The Form 45-106F1 is typically originally populated in Word format, the Schedule I information is populated a second time in Excel format, and the filer populates the Form 45-106F1 in its entirety again electronically on the OSC Portal.  If the Form 45-106F1 is being filed only in Ontario, a filer may draft the Form 45-106F1 in the OSC Portal and the Excel version of Schedule I and forgo the creation of the Word version.

Currently, Form 45-106F1 filings in all other Canadian jurisdictions simply require the executed Form 45-106F1 to be mailed to the securities commission.  On May 24, 2016 the CSA will require the filing of Form 45-106F1 through SEDAR, subject to an exemption for foreign issuers outlined below.

Amendment Details

Investment Fund Filing Deadline

The amendments have changed the annual reporting deadline for investment funds to January 30 for the reporting of all distributions in the previous calendar year made using the exemptions in sections 2.3, 2.10 and 2.19 of NI 45-106.  Currently, investment funds have until 30 days after the end of the investments fund’s financial year.  The CSA have provided a transition period to allow investment fund issuers that file annually to file the current Form 45-106F1 or the New Form 45-106F1 for distributions that occur before January 1, 2017.

Format of Reporting Form

The amendments provide that all distributions on or after June 30, 2016 are to be reported using New Form 45-106F1 in all provinces and territories of Canada.  The New Form 45-106F1 replaces the current Form 45-106F1 and the current Form 45-106F6.  There are also two schedules to New Form 45-106F1, both of which are to be completed in Excel format.

Filing Systems

The New Form 45-106F1 will be filed with the BCSC through BCSC eServices, with the OSC through the OSC Portal and with all other jurisdictions through SEDAR (certain foreign issuers may still make paper filings, as provided below).  The New Form 45-106F1 can be drafted within the OSC Portal or within BCSC eServices and the filed version from the OSC Portal or BCSC eServices, along with the Excel versions of the two proposed schedules can be submitted to the other jurisdictions.

Exemption from Filing on SEDAR

Under National Instrument 13-101 System for Electronic Document Analysis and Retrieval (SEDAR), a foreign issuer that falls within the definition of “foreign issuer (SEDAR)” is not required to use SEDAR and may continue to file paper copies in all jurisdictions other than Ontario and B.C. (both of which require the use of their electronic filing systems).  A foreign issuer can voluntarily elect to use SEDAR by filing a SEDAR Form 5 Notice of Election by Foreign Issuer(SEDAR).

Details Required in the New Form 45-106F1

The following is the list provided by the CSA in Annex 2 of CSA Notice 45-308:
Continue Reading Canadian Securities Administrators Implement Harmonized Report of Exempt Distribution

The Toronto Stock Exchange (TSX) announced amendments to the TSX Company Manual (Amendments) effective September 17, 2015 relating to the listing of Exchanged Traded Products, Closed-End Funds and Structured Products, as defined in the Amendments.

Proposed Amendments were first published on January 15, 2015.  Nine commentators (including Fasken Martineau DuMoulin LLP)

On June 18, 2015, the Canadian Securities Administrators (CSA) published proposed legislative amendments to the disclosure framework for exchange-traded funds (ETFs).  If implemented, such amendments will require ETF managers to produce a summary disclosure document called “ETF Facts”.  The ETF Facts for an ETF will need to be filed at the