Investors often don’t receive adequate disclosure about related party transactions, according to a new report from the Ontario Securities Commission (OSC).

The regulator Thursday published OSC Staff Notice 51-723 Report on Staff’s Review of Related Party Transaction Disclosure and Guidance on Best Practices, following a review of reporting by 100 Ontario-based issuers selected at random, including both venture and senior issuers.

The review found that almost all of the issuers had some sort of related party transaction (RPT) to disclose. Of those, nearly half of the issuers received comments from OSC staff requesting prospective changes to the company’s disclosure to improve its clarity. In particular, the OSC often found the disclosure to be too generic, and not specific to the issuer. This was found to be more of a problem with smaller, venture issuers, than it is at larger companies.

Additionally, the commission says that 20% of the issuers it reviewed referred to having a code of conduct, but the OSC found that the code was not accessible to investors. It required them to file those codes on SEDAR.

The commission is particularly concerned about related party deals because of the added risk that shareholders may be harmed in these sorts of deals. “While RPTs can be beneficial, due to the inherent conflicts of interest, such transactions have the potential in certain circumstances to be unfair or abusive to the issuer or security holders,” it says in the report. “Controlling shareholders, conflicted directors or others with influence may enter into transactions that are not beneficial to the issuer or may value RPTs in a manner that benefits the related party over the interests of the issuer and its security holders.”

As a result, the OSC says that it is essential that the disclosure, valuation, and review and approval processes used for RPTs ensures that shareholders are treated fairly, and also that these processes are perceived to be fair.

“Investors are entitled to clear and meaningful disclosure of [related party transactions] to help inform their investment decisions,” said Huston Loke, director of corporate finance at the OSC.

The notice published today provides guidance into areas where issuers should be focusing to improve their related party disclosure. “The disclosure should highlight the purpose of the RPT, the parties involved and the corporate governance practices surrounding the approval of RPTs. We encourage issuers and their advisers to refer to our guidance as they prepare their annual and interim filings,” Loke said.