NIN 95/28 - Securities Amendment Act (No. 2), 1995 [NIN - Rescinded]

The Securities Amendment Act (No. 2), 1995, S.B.C. 1995, c. 45 (the "Amendment Act") received royal assent on June 29, 1995. The Amendment Act is attached to this notice. It will come into force by proclamation later this year following consequential amendments to the Securities Regulation. The Commission will issue a notice advising of the proclamation.

The Amendment Act makes several substantive and a number of technical amendments to the Securities Act and consequential amendments to the Company Act, the Partnership Act, the Regulations Act and the Utilities Commission Act.

MAJOR AMENDMENTS

Rule Making Powers

The Amendment Act empowers the Commission to make legally binding rules. This is intended to allow the Commission to respond quickly and effectively to new developments in the securities industry and to facilitate harmonization with other Canadian jurisdictions that have recently obtained rule making power. (sections 50 and 51)

Investor Relations Activities

The Amendment Act introduces a definition of "investor relations activities" to provide a basis for regulating promotional activities under sections 35, 36.1 and 144 of the Securities Act. Section 35 of the Securities Act will prohibit a person from making, in the course of investor relations activities, statements that the person knows or ought reasonably to know are misrepresentations and from making other representations referred to in section 35. A new section 36.1 has been added to the Securities Act to require additional disclosure concerning investor relations activities. Finally, section 144 of the Act contains new administrative remedies to address abusive promotional practices in the securities market. (sections 2, 21, 22 and 45)

Amendments Affecting Compliance Activities

The Amendment Act contains a number of provisions strengthening the Commission's ability to effectively investigate and regulate the trading of securities in the Province. These changes include authorizing the Executive Director to conduct on site compliance reviews of self-regulatory bodies, exchanges and registrants, within prescribed limits; expanding the group of persons who must provide information or produce records during an investigation; empowering the Commission to authorize an investigator appointed under section 126 of the Act to enter business premises of a registrant, self-regulatory body or exchange; creating new offences for the contravention of certain sections; authorizing the Commission to apply to the Supreme Court for an order that a person who has contravened securities law forfeit ill-gotten gains to the Minister; and providing new administrative remedies. (sections 12, 16, 41, 42, 43, 44 and 45)

Exemptions

The Amendment Act modifies sections 31 and 32 of the Securities Act to clarify that the exemptions set out in these sections apply only to the requirement to register to trade under section 20(1)(a) of the Securities Act and do not provide an exemption from the adviser and underwriter registration requirements. (sections 18 and 19)

The Amendment Act also modifies and clarifies the exemptions contained in section 30 of the Securities Act from the requirement to register as an adviser. It removes the registration exemption if certain advising services are advertised and restructures the adviser exemption for registrants who are fulfilling their "know their client" obligations under the legislation. (section 17)

Other changes to exemptions include the clarification of the reorganization exemptions contained in sections 31(2)(9) and 55(2)(8) of the Securities Act; the removal of the ability of issuers to trade short term promissory notes and commercial paper to individuals under the exemption contained in section 32(d)(ii) of the Securities Act and the removal of the exemptions related to prospecting expeditions and syndicates formerly set out in subsections 32(k) to (m) of the Securities Act. (sections 18, 19, and 26)

Amendments Relating to Mutual Funds

The Amendment Act imposes a statutory duty of care on persons managing a mutual fund and prohibits certain types of related party transactions. (section 38)

MISCELLANEOUS AMENDMENTS

he Amendment Act also makes numerous miscellaneous amendments including:

• introducing new definitions, including a definition of "executive director" to replace "superintendent", and updating other definitions (sections 1, 2, and 3)
• increasing the maximum number of commissioners from 9 to 11, provision for a second vice-chair and statutory authority for the new Securities Policy Advisory Committee (sections 4 and 9)
• adding a number of new exempting powers (sections 14, 23 and 28)
• providing for the implementation of the proposed national electronic filing system (SEDAR) (sections 31, 39, 46 and 48)
• granting the Lieutenant Governor in Council additional powers to make regulations. (section 49)

PROPOSED AMENDMENTS NOT ADOPTED

The original draft of the Amendment Act was published for public comment in the Weekly Summary in three parts (see NIN#94/14, NIN#94/28, NIN#95/10 and NIN#95/11). To allow for further consultation, the Amendment Act does not include certain amendments that were proposed in the original draft. These include the imposition of a statutory obligation for registrants and directors of issuers to conduct due diligence and changes to statutory civil remedies. Instead of the proposed due diligence obligation, the Commission will be working with the self regulatory organizations to develop by-laws or rules that balance concerns about the adequacy of due diligence with the concerns of underwriters about non-uniformity and non-competitiveness. In addition, the Commission recently adopted Local Policy Statement 3-17, which has as its stated purpose the improvement of the due diligence process of underwriters in respect of offerings by junior issuers. The Government announced in April of this year that it would be publishing revised draft legislation for comment regarding statutory civil remedies.

PROCLAMATION

Prior to proclamation of the Amendment Act, all unproclaimed sections of the Securities Amendment Act, 1990 and the Securities Amendment Act, 1992 will be proclaimed. The Securities Amendment Act, 1990 generally incorporates provisions dealing with exchange contracts into the Act and repeals the Commodity Contract Act. The unproclaimed sections of the Securities Amendment Act, 1992 include significant amendments to the provisions dealing with prospectus renewals and deletion of the prospectus exemption for statements of material facts. Over the next few months, the Commission hopes to be able to offer some basic information sessions to market participants concerning these and other legislative amendments.

Additional copies of the Amendment Act are available at Crown Publications, 521 Fort Street, Victoria and at the Queen's Printers, 849 Hornby Street, Vancouver, at a cost of $5.90 plus G.S.T. per copy.

DATED at Vancouver, British Columbia, on July 6, 1995.

Joyce C. Maykut Q.C.
Vice Chair

References: NIN#94/14
NIN#94/28
NIN#95/10
NIN#95/11

(see hard copy for Bill 44 - Securities Amendment Act (No. 2), 1995)