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

Downtown Hong Kong

CSA Proposed Amendments to Increase Canadian Investors’ Access to Exempt Market Offerings by Foreign Issuers

Background

On June 29, 2017, the Canadian Securities Administrators (CSA) released proposed amendments to National Instrument 45-102 Resale of Securities (NI 45-102) and corresponding amendments to  Companion Policy 45-102CP to National Instrument 45-102 Resale of Securities for a 90-day comment period.  The proposed amendments relate primarily to section 2.14 of NI 45-102 which sets out a prospectus exemption permitting the resale of securities by an investor where the issuer of those securities is not a reporting issuer in any Canadian jurisdiction.

Currently, section 2.14 permits the resale of securities on a prospectus exempt basis only if the issuer was a non-reporting issuer at the time of the distribution or at the time of the resale; residents of Canada, at the distribution date, did not own more than 10% of the outstanding securities of the class or series and did not represent more than 10% of the total number of security holders (10% Ownership Ceiling); and the resale is made on an exchange or market outside of Canada or to a person or company outside of Canada.

The purpose of the existing section 2.14 exemption is to permit the resale of securities over foreign markets or to persons outside of Canada if the issuer has minimal connection to Canada and it is unlikely that a market for these securities would be developed in Canada.  The 10% Ownership Ceiling was initially intended to define when an issuer has minimal connection to Canada.  The proposed amendments to section 2.14 remove the 10% Ownership Ceiling for Canadian residents.


Continue Reading

pexels-photo-60226

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