Securities regulators look to cut regulatory burden on public companies

Canada’s securities regulators are taking steps to ease the regulatory burden on publicly traded companies.

After receiving a slew of suggestions from various stakeholders including public companies, investors and law firms, regulators have honed in on six specific areas where they feel they could reduce the regulatory burden without compromising investor protection.

Those initiatives, announced on Tuesday, include creating an alternative prospectus model, reviewing certain continuous disclosure requirements and allowing documents to be delivered to shareholders electronically instead of on paper, by default.

The regulators will also be looking into relaxing the restrictions on at-the-market offerings, revisiting the information required in an IPO prospectus and modifying or removing the criteria to file a business acquisition report.

The number of listings on North American stock markets has been on the decline in recent years, with many growing companies shunning the public markets in favour of private capital. Excessive regulation is often cited as one of the primary culprits for the growing reluctance to tap the public markets for cash.

Last April, the Canadian Securities Administrators – an umbrella organization comprised of provincial regulators – published a consultation paper, asking market players to weigh in on various options that could reduce the burden of being a publicly listed company.

The CSA says it received 57 comment letters from stakeholders in response to that paper and is now launching a number of projects as a result of that feedback.

The CSA’s next steps will be to establish working groups and identify the mandate, scope, timelines and resources required for each project.

“Any potential changes to our regulatory regime will need to follow our standard policy-making process, including publishing any proposed amendments for comment,” the CSA said in a statement.

The regulators note there is no guarantee that any of the policies under consideration will ultimately be adopted by any of the CSA jurisdictions.

Ari Pandes, an associate professor of finance at the University of Calgary’s Haskayne School of Business, says that if the changes reduce the burdens of running a public company, then they are a step in the right direction.

“The public markets are increasingly becoming an unpleasant place for managers, where they have to focus their time and energy on regulatory requirements, financial reporting, investor relations et cetera,” said Dr. Pandes, who has studied Canada’s shrinking public markets.

“Ultimately, these requirements have an opportunity cost – other parts of the business suffer due to time being allocated towards satisfying various gatekeepers.”