BCN 2007/37 - Amendments to Securities Act [BCN - Lapsed]

On November 22, 2007, Bill 28 Securities Amendment Act, 2007 received Royal Assent. It includes three types of amendments to the Securities Act:

• to harmonize with other provinces, 
• to strengthen compliance and enforcement powers, and
• to improve investor protection, by giving secondary market investors a new right to sue public companies for damages caused by misleading disclosure.   

Some of the amendments came into force on Royal Assent. Attached is a blacklined version of these amendments. The rest of the amendments will come into force by regulation on a later date.

Amendments that are in effect now
The key amendments that came into force on Royal Assent will do the following:

Harmonization amendments
These amendments will facilitate harmonization of requirements and processes with those in other Canadian jurisdictions. They

• replace paragraph (d) of the definition of 'reporting issuer' with a paragraph that established a common test to determine whether an issuer becomes a reporting issuer under a restructuring transaction (section 1)
• add a new paragraph to the definition of reporting issuer so the definition includes a person within a prescribed class (section 1) 
• allow the commission to designate a class of persons as reporting issuers, mutual funds or non-redeemable investment funds (section 3.2(1))
• allow a commissioner to sit on a hearing even if the commissioner has issued an investigation or freeze order in relation to the same matter so long as the parties consent (section 7(4))
• combine into one section two separate manipulation and fraud prohibitions in current sections 57 and 57.1 (section 57)
• consolidate the current obstruction of justice provisions and extend the provisions to cover hearings (section 57.5)
• require a person to comply with a written undertaking given to the commission (section 57.6)
• modify rule-making authority (sections 183 and 184) to, among other things, give the commission the power to make rules to regulate auditors and to implement other act amendments.

Strengthened compliance and enforcement powers
These amendments:

• prohibit a person from representing that the commission has approved an issuer's disclosure (section 55)
• consolidate the commission's power to do compliance reviews, and extend this power to cover reporting issuers, investment funds, custodians of assets of investment funds and registered individuals (sections 141.1 - 141.3)
• permit the commission to issue a freeze order in circumstances where the commission proposes to apply or has applied to the Supreme Court for a civil order under section 157 or if the court has made an order under section 157 (section 151)
• empower the Supreme Court to order that a person correct a record or rectify any contravention of the Act or the regulations (section 157(1))
• broaden the commission and executive director's power to prohibit a person from participating in the securities market to cover additional positions and activities (section 161(1)(d))
• empower the commission or the executive director to 
  • order a person who contravened the Act to disgorge profits (section 161(1)(g))
  • order a market participant to submit to a review of its practices and procedures (section 161(1)(h))
  • order a market participant to make changes to its practices and procedures (section 161(1)(i))
  • reprimand a person (section 161(1)(j))
• broaden the commission and executive director's power to make a reciprocal order to permit an order based on a public interest order or a settlement agreement from another jurisdiction (section 161(6))
• clarify that the commission may order the payment of an administrative penalty for a contravention of a decision, not just a contravention of the Act or regulations (section 162)

Amendments to come into effect later
The government will bring the other amendments in Bill 28 into force by regulation when the related rules or administrative processes are ready. These amendments:

• require investment funds managers to register (section 34)
• provide new statutory remedies for investors in the secondary market who suffer damages from misleading disclosure (new Part 16.1)
• clarify that the maximum fine for manipulation and fraud, insider trading and front running is triple the profit made by all persons because of the contravention, not just the profit earned by one of them (section 155(5))

The new registration requirement will come into force with proposed National Instrument 31-103 Registration Requirements. NI 31-103 will be published for comment for a second time in the next few months.

The new secondary market liability will come into force when we have developed a local rule to prescribe specified transactions covered by the liability and define terms used in the new provisions.  The rule will be harmonized with the provisions in Ontario's Securities Regulation on secondary market liability.  We will publish the local rule for comment in the next few months.

We will ask the government to proclaim into force the amendments clarifying the maximum fine for manipulation and fraud, insider trading and front running at same time as we implement the new insider trading and front running prohibitions in the Securities Amendment Act2006.  We anticipate that will occur in the next few months.

Where to find Bill 28
Bill 28 is located on the Commission's website (www.bcsc.bc.ca/actregs.asp) or the BC Legislative Assembly's website (http://www.leg.bc.ca/38th3rd/1st_read/gov28-1.htm ).

Please refer any questions to:

Leigh-Anne Mercier
Senior Legal Counsel
British Columbia Securities Commission
604-899-6643
lmercier@bcsc.bc.ca

November 23, 2007

Brent W. Aitken
Vice-Chair

This Notice may refer to other documents. These documents can be found at the B.C. Securities Commission public website at www.bcsc.bc.ca  in the section Securities Law & Policy: Policies & Instruments.