BCN 2002/20 - New Proposals for Securities Regulation [BCN - Rescinded]

Publication for Comment

The British Columbia Securities Commission is publishing for comment its paper New Proposals for Securities Regulation.  The paper accompanies this Notice.

Background

These proposals were developed from the concepts contained in the Commission’s Concept Paper, New Concepts for Securities Regulation, published for comment in February 2002 (see BC Notice 2002/12).  They reflect comments the Commission received on the Concept Paper and our further study and consideration.

In March 2002 we held town hall and focus group consultations with interested market participants in Vancouver, Calgary, Winnipeg, Toronto, and Montreal.  A total of 590 people attended these sessions, representing all sectors of the industry, investors, self-regulatory organizations (SROs) and other regulators.

In addition, we received over 30 comments on the Concept Paper from market participants.

We wish to thank all those who took the time to participate in our consultation sessions or send us comments (many did both).  The comments we received were thoughtful and assisted us greatly in our development of the concepts into proposals.

Planned Consultations

We believe these Proposals will improve the efficiency and effectiveness of securities regulation in Canada.  We are publishing them both for comment and as a basis for further consultations with industry, our fellow regulators, SROs, investors and other stakeholders. 

We will conduct focus group and town hall consultations with market participants across the country in the coming months.  These events will take place in Vancouver, Calgary, Toronto, Montreal and Atlantic Canada.  If you are interested in participating in one of these sessions, please contact us at bcproposals@bcsc.bc.ca.

Concepts Under Development

The Concept Paper included sections on Trade Disclosure (the disclosure obligations of insiders, significant shareholders and control persons) and Mutual Funds.  Proposals relating to these concepts are under development and will be released later this year.

The Proposals

There are four main proposals in the paper; the following is a summary:

Proposal 1 - Continuous Market Access System (CMA)

This new offering and continuous disclosure system is designed to replace the current prospectus-based system with a system based on up-to-date continuous disclosure of all material information about issuers.

CMA issuers are subject to an enhanced regime of periodic continuous disclosure and must disclose all material information on an ongoing basis.

CMA issuers may issue securities based on their continuous disclosure records, without a prospectus, and using a press release to announce the offering.

Because there are no prospectuses, there are no prospectus exemptions and, consequently, no resale or hold periods.  For CMA issuers, the closed system disappears.

In addition to underwriters, other appropriate organizations can fulfill the due diligence function.

Issuers subject to a credible foreign regime of regulation can enter the CMA system and use their home jurisdiction documents to comply with Canadian requirements.

Proposal 2 - Registration

These proposals are separate proposals, but could also be implemented together.

A principles-based Code of Conduct replaces several existing detailed, complex and prescriptive rules.  Specifically, the Code replaces existing provisions relating to registrants’ qualifications, ongoing proficiency, ‘know your client’ and ‘suitability’, fair dealing, conflict of interest, compliance systems, and client complaints.  Firms are responsible for enforcing the Code and are accountable to regulators and liable to investors for breaches of the Code by those who work for them.

Registration exemptions are simplified to reflect the CMA environment and our enforcement experience.

Registrants can apply for or amend registration in any Canadian jurisdiction by making application to the registrant’s “home” jurisdiction.  Categories of registration, conditions of registration and registration requirements are uniform throughout Canada.

Only firms need to register.  They are responsible for the conduct of their representatives.  Information about representatives can be shared between regulators and firms, and among firms.  Information about representatives is also available to the public.

Foreign registrants can open accounts for Canadian investors and advise them in connection with the foreign market so long as they do not solicit business from Canadian residents.

Investor Remedies

The proposed new investor remedies provide enhanced redress for some investors and will act as a deterrent against market misconduct.

Investors can sue CMA issuers, their directors and officers and, in some situations, experts and underwriters, for misrepresentations in documents or public oral statements, or failure to disclose material information on a timely basis.

Clients can sue firms and their directors, officers and representatives for failure to comply with the Code of Conduct.

Investors can sue anyone who participated in a fraud, market manipulation, misrepresentation, or who engaged in unfair practices.

Protections are provided to defendants against abusive litigation.

Securities legislation will contain a separate class action regime available to investors using statutory rights of action.

Enforcement and Public Interest Powers

Under the Proposal, the Commission can order disgorgement against persons who breach securities laws.  (We are not proposing the restitution concept contained in the Concept Paper.)

The Commission can also bar a professional from preparing documents for filing with the Commission, or acting on a matter within the Commission’s jurisdiction.

Anyone can apply to the Commission for a compliance or restraining order if the person can show a breach of securities law.

Comments

We invite you to write to us about the Proposals Paper.  We will consider everything received before September 30, 2002. 

The Proposals Paper asks a series of specific questions and invites general comments on all aspects of the proposed regulatory framework. The British Columbia Securities Commission is particularly interested in the following points:

1. We have not yet determined what financial statement requirements we will impose under CMA.  We are reviewing the requirements under the long form prospectus rules, as well as those that CSA is proposing as part of its continuous disclosure rules.  We are also considering whether to require issuers to include financial statements and MD & A with all subsequent AIFs, rather than separately.  We invite your comment on these issues.  See page 21.

2. Chapter 1 of the CMA Guidelines sets out a list of possible disclosure items for derivative transactions (see section 5.2 of the CMA Guidelines in Appendix C).  The list is based on provisions found in the long and short form prospectus forms.  We invite your comment on whether, given the great variety of instruments in the derivatives category, it is useful to attempt to list disclosure items and, if so, whether this list is appropriate and provides sufficient guidance.  See page 22.

3. As with our requirements for disclosure of executive compensation, we have required issuers to disclose shareholdings on a group basis (see section 3.7 of the AIF in Appendix B).  Should this information be disclosed on an individual basis?  See page 22.

4. Is the proposed “exempt purchaser” exemption broad enough to cover all important groups of potential escrow holders?  Under the Proposal, “exempt purchasers” include directors, officers, promoters and control persons of issuers or affiliates of issuers.  See page 56.

5. Should we retain a right of action against influential persons when they influence the issuer to make a misrepresentation or fail to disclose material information?  See page 89.

6. Should the liability caps in the new investor remedies for junior issuers and small professional firms be revisited?  For all issuers, the cap on liability is $1 million or 5% of market capitalization.  For professional firms, the cap is $1 million or the amount the professional firm received from the issuer during the prior 12 months.  See page 95.

7. Should the class action provisions in the Securities Act duplicate existing provincial class action regimes or are there enhancements that should be made?  See page 95.

8. When the Commission orders disgorgement after a public interest hearing, who should hold disgorged funds pending the disposition of investor claims?  See page 98.

9. The Proposal suggests that unclaimed monies obtained through various public interest orders be paid, eventually, to the Industry Education Fund.  Is there a more appropriate use for unclaimed monies?  See page 98.

10. Should the prohibition of unfair practices be more broadly worded to catch a failure to deal properly with conflicts of interest or to manage the business and affairs of an issuer?  See page 102.

Please send your comments to:

British Columbia Securities Commission
c/o Brenda Benham
Head, Deregulation Project
PO Box 10142, Pacific Centre
701 West Georgia Street
Vancouver, British Columbia  V7Y 1L2
Fax:  (604) 899-6506
e-mail:  deregulation@bcsc.bc.ca

If you are not sending your comments by e-mail, please include a disk containing the submissions (in DOS or Windows format, preferably MS Word).

Please note your comments will not be confidential.  They will be published on our  website.

If you have questions, please contact any of these people on the Deregulation Project:

Brent Aitken
Chair, Deregulation Project
(604) 899-6749
baitken@bcsc.bc.ca

Brenda Benham
Head, Deregulation Project
(604) 899-6635
bbenham@bcsc.bc.ca

Adrianne Marskell
Lead Counsel
(604) 899-6645
amarskell@bcsc.bc.ca

Sandy Jakab-Hancock
Senior Legal Counsel
(604) 899-6869
shancock@bcsc.bc.ca

Simon Kent
Legal Counsel
(604) 899-6870
skent@bcsc.bc.ca

Leigh Anne Mercier
Senior Legal Counsel
(604) 899-6643
lmercier@bcsc.bc.ca

Wendy Woloshyn
Legal Counsel
(604) 899-6642
wwoloshyn@bcsc.bc.ca

June 5, 2002

Brent W. Aitken
Commissioner
Chair, Deregulation Project

Ref:  BCN 2002/12

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 Commission Documents database or the Historical Documents database.