Reports of exempt distribution: CSA proposals that could both hurt and help issuers

01 August 2015

The Canadian Securities Administrators (CSA) have proposed amendments to the rules relating to reports filed with securities regulators in connection with private placements.

The proposed amendments aim to introduce a new harmonized report of exempt distribution across Canada, which issuers will appreciate. However, some of the information requested under the proposed form of report may lead to a greater compliance burden.

Objectives

Currently, issuers seeking to rely on prospectus exemptions are required to file two different forms of report of exempt distribution: Form 45-106F1 in all Canadian jurisdictions except British Columbia, and Form 45-106F6 in British Columbia.

The proposed amendments would introduce a new harmonized report for all Canadian jurisdictions so as to reduce the compliance burden for issuers. The new harmonized report would also provide securities regulators with additional information to facilitate regulatory oversight and policy development for the exempt market.

Summary of proposed amendments

Information in the report would be collected in a more structured format to improve consistency and allow more efficient regulatory oversight — for example by using North American Industry Classification System (NAICS) codes to identify the primary business of an issuer and 3-letter codes to identify the type of securities distributed.

The new form of report would require issuers to disclose additional information, including:

  • details about the issuer including, for non-investment funds, the number of employees and (if the issuer has no SEDAR profile) the size of the issuer’s assets and, for investment funds, the net asset value of the fund (in all cases, expressed as a range);
  • identities of the directors, executive officers, control persons and promoters of certain issuers, as well as the number of, and total amount paid for, voting securities of those issuers beneficially owned or directly or indirectly controlled by those persons;
  • for certain jurisdictions, a list of all offering materials filed with or delivered to the securities regulators in connection with the distribution;
  • specific details about the exemptions relied on (including, in the case of accredited investors, the specific category of accredited investor applicable to each purchaser, although issuers would not be required to identify all categories for which the purchaser is eligible);
  • information about persons being compensated in connection with the distribution, such as whether the person is a registrant, or an insider or employee of the issuer, or connected with the issuer (for example, through common control)

The proposed amendments contemplate carve-outs from some information requirements for certain entities, including reporting issuers, foreign public issuers and issuers distributing eligible foreign securities only to permitted clients. 

Comments and further information

The CSA is accepting comments on the proposed amendments until October 13, 2015. If you are interested in providing comments, or if you require more information on the proposals being made, we would be pleased to assist. 


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