The Canadian Securities Administrators said Friday it will be conducting harmonized reviews of issuers’ continuous disclosure records to help improve compliance with new CD rules, and to help issuers understand their obligations under the rules.

Under the CDR program, regulators’ staff will generally follow principles of mutual reliance that are already established for prospectus reviews. Mutual reliance essentially means that issuers will deal only with a principal regulator for CD reviews, and the other regulators will rely on the work of the principal regulator. The principal regulator will generally be the province where the firm’s head office is located.

The CDR program is being adopted in BC, Alberta, Saskatchewan, Manitoba, Ontario, Québec and Nova Scotia. Although the CD rule is not yet in effect in Québec. However, the CSA says the Autorité des marchés financiers has issued a blanket order exempting reporting issuers from the local continuous disclosure requirements if they comply with the requirements of the CD Rule.

The CSA issued a notice is to provide issuers, investors and other market participants with information about the CDR program. The new national CD rule, which took effect March 30, harmonizes CD obligations across Canada and aims to ensure that investors receive better disclosure on a timelier basis.

“The CDR program is intended to complement the CD rule by enhancing consistency in the scope and level of reviews carried out by staff across Canada,” the notice says. “We believe that greater consistency in the treatment of issuers will improve the overall quality and timeliness of continuous disclosure by reporting issuers in Canada.”

It notes that the fundamental objectives underlying the CDR program are education and compliance. “The first objective is to help issuers better understand the nature and extent of their disclosure obligations under the CD rule. The second objective is to determine, through the continuous disclosure review process,
whether issuers are in fact complying with their disclosure obligations under the CD rule. The CDR program is designed to identify material disclosure deficiencies and questionable transactions that impact the reliability and accuracy of an issuer’s disclosure record.”

The CSA notes that it will apply risk-based selection criteria when choosing issuers for review, including market capitalization and trading activity, among others. Although these criteria may change “as certain disclosure-related issues achieve greater public prominence, or as consensus or concerns develop over particular accounting issues or disclosure practices. This risk-based approach takes into account the potential damage that could occur to Canadian capital markets in the event an issuer fails to provide complete, accurate and timely disclosure about its business and affairs.”

Generally, the risk-based selection criteria will not be made public. However, the CSA may make an exception for the largest issuers, due to their significance to the market, and for issuers that have recently gone public. It plans to review the largest issuers, those with a market capitalization in excess of $750 million, on average, once every three years. And, it will also review the CD record of all issuers within 12 months of their initial public offering.

Issuers that do not come within either of these categories will be subject to reviews in accordance with the non-public risk-based criteria and other criteria that may be developed on a jurisdiction-by-jurisdiction basis. Issuers will be subject to either an issue-oriented review which focuses on a particular disclosure
issue or industry; or, a full review, which is broader than an issue-oriented review, and encompasses more sources of public disclosure.