On May 20, 2020, the Canadian Securities Administrators (CSA) published for comment Proposed Amendments to National Instrument 51-102 Continuous Disclosure Obligations and other Amendments and Changes (the Proposed Amendments), a set of reform proposals aimed at reducing and streamlining the annual and quarterly reporting obligations set out in National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) and increasing reporting efficiency for reporting issuers, other than investment funds. 

The Proposed Amendments follow a 2017 consultation paper, in response to which many capital markets participants supported examining how to reduce the volume of information presented in annual and interim filings.

The Proposed Amendments would change the existing continuous disclosure regime in three main ways: 

1. Combine the annual financial statements, management discussion and analysis (MD&A) and annual information form (AIF) into an “annual disclosure statement”, while quarterly financials and MD&A would be combined into an “interim disclosure statement”
2. Streamline and clarify certain disclosure requirements in financial statements, MD&A and AIF
3. Introduce new measures to address gaps identified in the current disclosure framework

The Proposed Amendments also include requests for comment on a number of specific aspects of the changes. The public comment period will remain open until September 17, 2021.

Proposed amendments to NI 51-102

Combine documents and disclosure requirements

The CSA proposes to combine the annual financial statements, MD&A and, in the case of non-venture reporting issuers, AIF into one filing called the “annual disclosure statement” for annual reports, and to combine the interim financial statements and MD&A into one filing called the “interim disclosure statement” for interim reports. The combination of the documents aims to reduce burden and increase reporting efficiency for reporting issuers, and investors are expected to benefit from the reduced number of filings they will need to review. 

In addition to combining disclosure documents, CSA proposes to combine certain disclosure requirements. For example, section 10.3 Conflict of Interest, section 11.1 Promoters and section 13.1 Interests of Management and Others in Material Transactions of the current AIF Form would be combined into one section addressing conflict matters involving the issuer and its management, promoters and others. Similarly, the CSA proposes to combine the instructions and the requirements under section 1.9 of the current MD&A Form relating to related party transaction disclosure into one section in order to provide clarity and reduce redundancy.

For any venture issuer that wants to become eligible to use the short form prospectus regime (which currently requires the filing of an AIF), the Proposed Amendments will provide the option of filing a standalone AIF or combining it with their annual filing.

Eliminate duplicative or overlapping disclosures

The CSA proposes to eliminate duplicative or overlapping disclosure requirements contained in the financial statements, MD&A and AIF. For example, the current disclosure requirements under both the MD&A and the financial statements require the disclosure of information regarding critical accounting estimates. Other requirements targeted for elimination include the MD&A requirement to disclose summary information for the eight most recently completed quarters, and the current AIF requirement to disclose security price ranges and volume traded on a Canadian marketplace, on the basis that such information is readily available to investors from other sources.

Address gaps in disclosure

The CSA proposes to also introduce a small number of new requirements to clarify expectations that have been communicated in prior staff notices or comment letters. These include the disclosure for investment entities and non-investment entities to record investments at fair value, as discussed in CSA Multilateral Staff Notice 51-349 Report on the Review of Investment Entities and Guide for Disclosure Improvements, and also the requirement for venture issuers to provide a description of their business in their MD&A.

Other noteworthy changes

1. Materiality qualifiers: The removal of qualifiers, such as material,, significant, critical, major and fundamental, in the current MD&A and AIF form requirements. Instead, reporting issuers will be asked to consider all disclosure requirements subject to the general qualification that issuers focus on material information (subject to limited exceptions explicitly noted in the forms). Materiality qualifiers would be retained where it serves as a part of a defined term (such as significant acquisition) or reflect a term used in prospectus rules.
2. Delivery requirements: The CSA proposes that reporting issuers will be able to satisfy the requirement to deliver the annual disclosure statement to investors by simply providing electronic access to the document and publishing a related notice that it is available to its investors.
3. Existing exemptions: The CSA proposes to stay the existing exemption provision in NI 51-102 to allow any reporting issuer that is exempt from preparing, filing or delivering annual or interim filings prior to the effective date of the Proposed Amendments to be also exempt from preparing, filing or delivering an annual disclosure statement or an interim disclosure statement, as applicable.

Timing of amendments and transition plan

The final amendments to NI 51-102 and the continuous disclosure regime are not exactly being rushed in. They are expected to be published in September 2023 and come into effect on December 15, 2023, subject to the notice, comment process and required approvals.

The CSA proposes to include certain transition provisions in order to assist reporting issuers and advisors in their compliance with this new continuous disclosure regime. The transition provisions will require a reporting issuer to comply with the amended NI 51-102 requirements from the date the issuer is required to file an annual disclosure statement for its first financial year ending on or after December 15, 2023, or the date the issuer voluntarily files an annual disclosure statement or interim disclosure statement on or after that date.

Proposed framework for semi-annual reporting

The Proposed Amendments also include for commentary a proposed optional framework to allow semi-annual reporting for venture issuers that are not SEC issuers. This would permit venture issuers to replace their Q1 and Q3 financial statements and MD&A with a news release containing certain prescribed information, such as updates to the issuer’s operations, major operating milestones, and events that will have a material effect on the issuer’s business.

If you have any questions on the Proposed Amendments, feel free to contact Eric Lung or any member of our Securities and Corporate Finance Team. We would also be pleased to assist you in preparing and submitting a response to the request for comment, which as mentioned can be submitted until September 17, 2021.

* George Hua, an articling student in Dentons’ Calgary office, assisted with the preparation of this alert.