Canadian securities regulators are proposing that small, publicly listed companies start reporting their financial results twice a year instead of on a quarterly basis, a move that is aimed at easing the regulatory cost and burden for issuers that do not generate significant revenue.
A statement from the Canadian Securities Administrators (CSA) – an umbrella organization consisting of all 13 provincial and territorial securities regulators – said that the CSA will solicit feedback from relevant industry players about the proposal until Sept. 17, 2021.
The proposed rule change is targeted at venture companies that are not regulated by the U.S. Securities and Exchange Commission. Venture companies are commonly those whose shares are listed on the TSX Venture Exchange or the Canadian Securities Exchange.
In the interim periods when financial statements and management discussion and analysis (MD&A) documents are not filed, companies would be required to file “alternative disclosures.” The CSA did not offer details about what disclosures would be required.
The idea of reducing reporting from four times a year to just twice a year was most recently floated by the Ontario Capital Markets Modernization Taskforce, an independent task force created by the Ontario government to reform the province’s capital markets. It proposed in a January report that companies with an annual revenue of less than $10-million be allowed to choose whether to shift to a semi-annual reporting format.
Members of the task force, which was headed by Walied Soliman, a partner at the Bay Street law firm Norton Rose Fulbright, argued that the frequency of reporting was particularly unnecessary for small issuers that may not experience “significant change to their operations that would be reflected in the financial statements.” The January report said that as soon as a company hits a revenue of $10-million, it would be required to resume quarterly filing.
But Thursday’s proposal from the CSA appeared to widen the target of the reporting changes to all venture companies, and not just companies with a revenue of less than $10-million.
Regulators have been fielding comments from companies on this subject for more than three years in an attempt to strike a balance between simplifying reporting requirements and ensuring that investors are provided with relevant and timely information.
Public companies have been overwhelmingly supportive of any proposal to reduce their reporting requirements. A letter from Canadian Tire Corp. to the CSA in August, 2017, for example, stated that the company would support a semi-annual reporting model especially in industries where quarterly results “inadvertently encourage investors to focus too heavily on short-term results.”
Beyond the proposal to move to a semi-annual reporting system, the CSA is also proposing that companies combine financial statements, MD&A documents and the annual information form (AIF) into one reporting document which would be called the annual disclosure statement.
“We have identified areas where we can reduce regulatory burden in issuers’ continuous disclosure obligations, without compromising investor protection or the integrity of Canada’s capital markets,” said Louis Morisset, president and chairman of the CSA, in the statement. He added that the proposals are also intended to increase the “quality and usefulness” of information that investors receive about public companies.
If any of the proposals are adopted, amendments to existing securities regulation will only become effective by December, 2023.
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