More than one-fifth of continuous disclosure (CD) reviews that Canadian regulators carried out last year resulted in issuers re-filing their disclosure, the Canadian Securities Administrators (CSA) announced on Thursday.
In a new staff notice setting out the results of CD reviews for fiscal 2015, ended March 31, the CSA reports that 21% of these reviews resulted in firms re-filing certain disclosure, up from 14% the previous fiscal year. The proportion of cases referred to enforcement was little changed, at 8%, compared with 9% in 2014. Almost one-third (32%) of cases in fiscal 2015 ended with no action, up notably from 24% in the previous fiscal year.
Despite these shifts in results, outcomes may vary on a year-to year-basis “and cannot be interpreted as an emerging trend,” the notice states.
These results come against the backdrop of an increase in the total number of CD reviews the various members of the CSA carried out. A total of 1,058 CD reviews were carried out in fiscal 2015, a 7% increase from the previous fiscal year. This includes 280 full reviews and 778 issue-oriented reviews (IOR).
Although the number of IORs was basically unchanged, the number of full reviews increased significantly from the 221 that were completed during fiscal 2014. Nevertheless, with around 4,000 reporting issuers operating in Canada, this means that only about 7% of them were subjected to a full CD review in fiscal 2015.
Approximately 59% of the full CD reviews in fiscal 2015 required issuers to take some sort of action to improve and/or amend their disclosure, or resulted in the issuer being referred to enforcement, ceased traded, or placed on the default list. This was consistent with fiscal 2014.
The staff notice includes detailed examples of common deficiencies the CSA identified during its review of financial statements, management’s discussion and analysis (MD&A) and other regulatory disclosure.
The CSA says it continues to see issuers that fail to disclose information about major customers and their operations in certain geographical areas, particularly revenue from external customers. Some issuers did not disclose how they are calculating impairment losses, the regulators note.
In addition, regulators continue to see issuers that fail to provide sufficient analysis of their liquidity and capital resources and firms that only provide boilerplate disclosure when discussing their results of operations. “Issuers simply repeat information that is readily available in the financial statements,” the CSA notice says.
Other areas of concern include deficiencies in top executives certifying their financials, such as inconsistencies between their certificates and the company’s MD&A disclosure; and companies issuing news releases that contain “unbalanced and promotional disclosure.”
In particular, a review of the disclosure provided by issuers that plan to enter the medical marijuana business in Canada found excessively promotional disclosure in many of these issuers’ news releases, the CSA notice says.
In addition to detailing the results of the reviews, the CSA staff notice also provides for companies in various areas in which the regulators frequently find deficiencies in the hope that this leads to improved compliance.
“Investors deserve high-quality disclosure as they rely on this information to make informed investment decisions,” says Louis Morisset, chairman of the CSA and president and CEO of the Autorité des marchés financiers (AMF), in a statement. “The CSA’s continuous disclosure program aims to enhance the quality, completeness and timeliness of continuous disclosure by reporting issuers in Canada,”