PDAC seeks securities reform

The Prospectors & Developers Association of Canada will make presentations to the federal government’s “wise persons” committee and a provincial committee, both of which are examining ways to reform securities regulations.

Last March in Toronto, at the PDAC’s annual convention, federal committee member Harold MacKay urged those interested in reform to carry out research and make submissions in order to provide compelling evidence to policy-makers.

Responding to these challenges, the PDAC board of directors has approved a budget for research into the costs of securities regulation and is looking for a partner to help gather data.

The association also presented a 12-page brief to the steering committee of the Canadian Securities Administrators (CSA) uniform securities legislation project. In it, the PDAC says two of the most pressing issues for junior resource companies are streamlined access to capital markets and stronger and more effective enforcement of securities law. The brief addresses several areas of concern, including: registration requirements; registration and prospectus exemptions; continuous disclosure requirements; insider reporting obligations; takeover and issuer bids; civil liability; and joint hearings.

The association is urging that the uniform securities legislation contain a statement of principles, and that the legislation and the matters it regulates be interpreted, applied and enforced in a harmonized and consistent manner across jurisdictions.

The legislation’s endorsement of the use of “local rules” is cause for concern. If local rules are considered necessary, they should be used only in exceptional circumstances. The local rule should also be examined every two years to determine if exceptional circumstances still exist.

The association hopes that the uniform securities legislation and local rules will make the application of unwritten policies unnecessary.

The CSA suggests that legislation stipulate a continuous, disclosure-based primary offering system, and that adherence to an integrated disclosure regime be a precondition to an issuer making use of such a system.

The PDAC brief supports this but adds that adherence to the integrated disclosure regime should be voluntary. Issuers should be free to determine whether or not they wish to make use of the simplified system for primary offerings. If they do, the PDAC says, the trade-off is adherence to the integrated disclosure regime.

“We would not support imposing additional continuous disclosure obligations on all issuers which would have the effect of increasing the compliance costs of being a reporting issuer,” the brief states.

The PDAC believes that no area of Canadian securities regulation is more in need of harmonization than the patchwork system of exemptions from the registration and prospectus requirements of the various provincial acts. Although the exemptions are comparable in scope and principle, they are inconsistently worded and confusing.

In its brief, the securities committee says harmonization of this system of exemptions would be a major improvement. It also supports an exemption from the registration and prospectus requirements for trades in securities of an issuer as consideration for mining claims or oil an gas rights without the need for the vendor to enter into an escrow agreement.

However, the brief cautions that “the wording of the exemption needs to be broad enough to deal not only with mining claims but with any mineral properties or mineral interests, including options to acquire such properties or interests, as well as royalties.”

A problematic area for junior issuers is the cost associated with providing mandated disclosure documents to shareholders. These costs include printing and photocopying, mailing of bulk packages, and the fees paid to intermediaries for sending materials to beneficial shareholders.

While National Policy 11-201 permits delivery of documents by electronic means in certain circumstances, it stipulates prior consent of the shareholder.

This can be a difficult task, the securities committee brief points out. Shareholders often do not respond to materials sent to them and new consents would constantly have to be obtained as shares changed hands. To resolve this problem, the committee urges the CSA to incorporate permissible electronic document delivery into the uniform standards legislation. And it suggests a further step: if a shareholder does not respond to a request for consent, the brief says, the issuer could satisfy its delivery obligations to that shareholder by mailing a 1-page notice each time a document has to be delivered, offering either electronic access or a hard copy.

— The preceding is an excerpt from In Brief, a monthly publication of the Prospectors & Developers Association of Canada.