Access Equals Delivery: a balancing act

Investor protection versus regulatory burden reduction.

The mandates of Canadian securities regulators to protect investors and foster fair and efficient capital markets can sometimes compete with each other.  Consultation Paper 51-405 – Consideration of an Access Equals Delivery Model for Non-Investment Fund Reporting Issuers, published by the CSA in January, is a prime example.

The Consultation Paper proposes a new method of disclosure document delivery, called “access equals delivery”.  Access equals delivery in its proposed form would broaden the concept of delivery to include public electronic access, and would surely promote market efficiency by reducing some regulatory burdens (such as printing and mailing costs) faced by reporting issuers.  But what about investors?  Does the model adequately protect them?

The CSA will be taking comments on the access equals delivery model until Monday, March 9, 2020.  You can find details of how to submit a comment here.

How Electronic Delivery is Currently Applied

Under current securities laws, reporting issuers must “deliver” certain documents to investors as part of their continuous disclosure obligations. These documents include prospectuses, rights offering circulars, annual and interim financial statements and related management’s discussion and analysis (MD&A), proxy-related materials, and bid circulars.

National Policy 11-201 provides that “delivery” can generally be satisfied through electronic distribution, provided that the investor receives notice that the document has been, or will be, delivered electronically; the investor has easy access to the document; the document received is the same as the document delivered; and the issuer has evidence that the document has been delivered.

Some current examples of electronic delivery include:

(a) Financial Statements and MD&A – Issuers must file annual financial statements and interim financial reports accompanied by MD&A on SEDAR. They must also send them to investors, or else send request forms which investors may use to request copies of such documents.

(b) Proxy-related Materials – As of 2013, the “notice and access” model of delivery set out in National Instruments 54-101 and 51-102 has applied to permit electronic delivery of proxy materials for shareholders’ meetings. Delivery under notice and access allows for electronic delivery as long as the issuer:

(i) posts the materials on SEDAR and a non-SEDAR website; and

(ii) mails the voting document and a notice to investors, informing them that the proxy-related materials have been posted online along with a description of how to access the materials.

Not all disclosure documents must be delivered to investors.  Materials such as news releases, annual information forms and material change reports need only be issued and filed online.

How Would Access Equals Delivery Change the Status Quo?

Access equals delivery would broaden what constitutes “delivery” of documents to investors, and scale back some mailing requirements that would otherwise apply. Under this proposed model, delivery would be effected by:

(a) publishing the document on SEDAR;

(b) posting the document on the issuer’s website; and

(c) issuing a news release which specifies that the document is available on SEDAR and the issuer’s website and that a paper copy may be obtained from the issuer on request.

The key difference under the current proposed model is that nothing would need to be sent by mail.  The system relies on investors finding and accessing materials online through SEDAR and the issuer’s website.

The CSA is contemplating implementing access equals delivery for prospectuses, financial statements and MD&A, and possibly other types of documents, including rights offering materials, proxy-related materials and bid circulars.

Some consequences of access equals delivery are still to be determined, such as how to address investors’ withdrawal rights (the right to withdraw from an agreement to purchase securities within two business days of receipt of the latest prospectus).  The CSA is also cognizant that introducing this model for documents requiring immediate shareholder attention and participation could raise investor protection concerns and could have a negative impact on shareholder engagement.

SkyLaw’s Comment Letter

SkyLaw has submitted a comment to the CSA raising concerns about how investors would be notified to access information through this model.

In particular, we are not aware of any way for investors to be sure that they receive these news releases in a timely manner and in a way that they can distinguish them from other news releases.  There is currently no mechanism through SEDAR by which a person might receive alerts that a SEDAR filing has been made.

Looking Forward

While the proposed access equals delivery model may require more scrutiny, we applaud the CSA for taking this initiative.  If done right, access equals delivery should make communication between reporting issuers and their investors more efficient, timely, and convenient, while reducing the use of paper and mailing resources.  We look forward to the CSA’s response to the comments they have received.