A new report calls on securities regulators to improve Canada’s insider filing system, after research found ongoing failings in the current system, including insider reports that are late, inaccurate, or not made at all.
According to a report from the University of Calgary’s School of Public Policy, compliance with insider disclosure rules in Canada remains incomplete. By comparing information on stock option awards from a sample of public companies’ annual information circulars with the information reported by individual insiders in their disclosure reports, the research finds that overall, “while the majority of insiders properly and accurately file their disclosure reports, a concerning minority fail to file, file after the required reporting period, or file inaccurate information.”
Indeed, the research finds that 12% of stock option awards are not disclosed by insiders; 26% of insiders have at least one option award that goes unreported; and, nearly 8% of insiders never file. Additionally, in more than a third of cases (34%) the information disclosed by insiders differs from the data reported in the firm’s information circular.
The report suggests that much of the fault for the inaccurate insider reporting falls on the systems that regulators operate, including the System for Electronic Document Analysis and Retrieval (SEDAR) and the System for Electronic Disclosure by Insiders (SEDI); which, the report argues, needs to be modernized and integrated to “streamline insider filing requirements, increase compliance with insider disclosure, and improve the audit and compliance function of the securities regulators.”
Additionally, the report recommends that enforcement of insider reporting requirements should be beefed up; that the requirements themselves should be tweaked to enhance transparency; and, that insiders should also be better educated on their filing responsibilities.
“Canada’s disclosure system needs fixing and streamlining in order to achieve the highest level of transparency on executive compensation. Some of these fixes are simple, others may be costly, but if improvements are not made, the system’s integrity, along with shareholder and public confidence, risk being seriously compromised,” the report says.
“Closing the gaps to make the reporting and accessing of data less unwieldy and more timely, efficient and accurate, should be a priority for securities regulators,” it concludes.
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