If the Hillary Clinton email scandal wasn’t a clear enough lesson that one should not conduct “official” work using personal electronic communication tools (be it personal email, texts or other methods), a number of recent court decisions have required executives to produce communications from their personal accounts and devices. Executives and advisors should not assume that communications using methods other than corporate email will somehow be protected or otherwise not find the light of day in the event of a dispute or investigation.
In August 2017, we considered the guidance offered by the Canadian Securities Administrators (CSA) regarding the application of securities laws to the blockchain industry and initial coin offerings (ICOs), primarily as set out in CSA Staff Notice 46-307 Cryptocurrency Offerings. In that post, we noted that the CSA have provided little guidance regarding when they would consider cryptocurrencies to be securities, and thus subject to Canadian securities rules.
On August 24, 2017, the staff of the Canadian Securities Administrators other than Saskatchewan (CSA) published CSA Staff Notice 46-307 Cryptocurrency Offerings (the Staff Notice) in response to increased activity within the distributed ledger technology or “blockchain” industry. The Staff Notice provides guidance regarding the application of Canadian securities laws to businesses operating in that industry, in particular those undertaking initial “coin” or “token” offerings (ICOs), exchanges on which those coins, tokens and cryptocurrencies are traded and investment funds that invest in such assets.
The Staff Notice provides that in the CSA’s view many coins, tokens and cryptocurrencies fall within the definition of “securities” under Canadian securities laws. An offering of such tokens would therefore require a prospectus or exemption from prospectus requirements and businesses supporting and operating ancillary to such tokens could be subject to registration requirements. The Staff Notice also provides that such products may also be derivatives and subject to the derivatives laws adopted by the Canadian securities regulatory authorities.
The Staff Notice confirms speculation among industry participants and advisors that Canadian regulators would take this approach, which is similar to the positions articulated by the United States Securities & Exchange Commission and securities regulators in Singapore.
With respect to ICOs, the Staff Notice provides that, from the CSA’s perspective, many of the ICOs completed to date involved the sale of securities and that securities laws in Canada will apply if the person or company selling the securities is conducting business from within Canada or there are Canadian investors in the tokens.
The CSA are aware of businesses marketing their tokens as software products and taking the position that the tokens are not subject to securities laws. It appears to be the CSA’s view, however, that in many cases, when the totality of the offering or arrangement is considered, the tokens should properly be considered securities. In assessing whether or not securities laws apply, the Staff Notice states that the CSA will consider substance over form and apply a purposive interpretation to the law with the objective of investor protection in mind.
CSA Proposed Amendments to Increase Canadian Investors’ Access to Exempt Market Offerings by Foreign Issuers
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.
On January 26, 2017, the Canadian Securities Administrators (CSA) published CSA Staff Notice 54-305 Meeting Vote Reconciliation Protocols, which provides guidance for establishing accurate, reliable and accountable meeting vote reconciliation protocols (Protocols). The whole, with the goal of improving the transparency and the quality of shareholder voting and ostensibly, shareholder engagement in publicly traded companies.
The Protocols target key service providers involved in meeting vote reconciliation, namely: CDS, intermediaries (such as bank custodians and investment dealers), the primary intermediary voting agents (such as Broadridge), and transfer agents that act as meeting tabulators (key service providers). The guidance provided by the Protocols addresses the types of operational processes which should be implemented by these key service providers so that they can better work together to improve meeting vote reconciliation. Furthermore, the CSA hope that the Protocols will set the groundwork for paperless voting and information transmission as well as the development of end-to-end voting confirmation capabilities.