Scottish wisdom for Canada’s mining securities regulators on NI 43-101 overhaul

My first half century on this planet was filled with the great joy, and occasional terror, of having a Scottish mother. Gladys brought to Canada an arsenal of words and phrases that explored gradations of foolishness, from “numpty” to “daft.” Once, when the vice-principal sent home a letter asking my mother to explain my recent absence — I’d skipped school with friends to watch our high-school basketball team play an away game — she wrote back: “Don’t be daft. He was at the basketball game. It was championships.”

When she wanted to double down on something truly silly, she’d throw in the verb “haver,” which means something like “to babble foolishly.” Wagging her finger, she would say “Dinna haver daft,” making it clear you had no right of appeal, because you were a numpty. God, I miss her!

The Canadian Securities Administrators (CSA) could use a bit of Scottish wisdom in the National Instrument 43-101 public consultation they opened in mid-April. They go through this about once every seven years, a kind of spiritual regrowth exercise in which they consult the public about how to improve the regulatory framework that governs public disclosure of Canadian mining companies. Their consultation paper, available online explains the issues they hope to address in this rebirth. Anyone can provide feedback, even your Scottish grandmother, by sending comments, before mid-July, to: ccollins@bcsc.bc.ca, comments@osc.gov.on.ca, or consultation-en-cours@lautorite.qc.ca.

Judge, jury and executioner

One of the numpty bits in the CSA’s consultation paper is their desire to be judge, jury and executioner on who can take responsibility for technical disclosure. Central to NI 43-101 is the notion that a Qualified Person (QP) must review all technical disclosure and approve its publication. The requirements for being a QP are clear: a degree in a relevant discipline; at least five years of relevant experience; and membership in one of the named professional organizations, all of which have the power to sanction members, including revoking their licence to practice. The CSA’s consultation paper notes that some people who claim to be QPs are, in the opinion of securities regulators, not qualified. They point out that they have informed mining companies that “the qualified person does not meet the requirements of NI 43-101 in the circumstance under review;” and they ask for feedback on additional criteria to strengthen their power to disqualify improper QPs.

Here’s the feedback I’m going to send them: Disqualifying professionals from doing their work is not a power that securities regulators have; it’s a power that governments have given to the bodies responsible for professional accreditation, like PGO in Ontario, EGBC in British Columbia, AusIMM in Australia or IOM3 in the U.K. A solution already exists to the problem of someone misstating their QP qualifications: file a complaint with the body that accredited them as a professional. For any professional body whose members can be QPs, it is a violation of their code of conduct to claim qualifications or expertise you don’t have. That’s why professional accreditation has been part of the QP definition from the earliest days of 43-101: so that people who falsely claim to be QPs can be properly sanctioned by their regulatory body: ordered to take specific classes, reprimanded, or have their licence suspended or revoked.

There are three perils in allowing securities regulators to disqualify professionals from their livelihood: 1) They can (and have) abused this power; 2) They do not follow (or, perhaps, do not understand) the norms of professional discipline; and, 3) They are usurping a power granted specifically to another body.

This past month, the BCSC has forced the retraction of a 43-101 Technical Report because, according to them, one of the QPs did not meet the requirements. The BCSC claims (as does the CSA in its consultation paper) that a QP must be a registered professional for at least five years. Since professional accreditation bodies typically require five years of relevant practical experience, as something like a Geoscientist-in-Training, the CSA is saying that you’ve got no hope of being a QP until you’re 10 years past graduation: the five you earned in order to be able to register as a professional, then five more as a professional before they’ll accept your claim that you meet the requirements of a QP.

Unfortunately, National Instrument 43-101 does not say what the CSA and its individual regulators want it to say. What the Instrument does say, in Section 1.1, is that a QP must have “at least five years of experience in mineral exploration, mine development or operation or mineral project assessment, or any combination of these, that is relevant to his or her professional degree or area of practice.” That wording, which the CSA wrote, does not say that you must be a registered professional while you acquire your five years of experience; the professional registration requirement is in a separate clause, later, and says nothing about a minimum period of time you must have worked as a professional. Their consultation paper makes it clear that the CSA is frustrated by people claiming to be QPs before they have five years of professional practice under their belt. But that’s not the fault of people who read the rules and who correctly understand the plain English words of NI 43-101. It’s the fault of the CSA, who did not create a definition that says what they want it to say. If they want to change the definition, they have the power to do that; it is, after all, their definition. But that’s a project for the future. There is zero fairness in already ruling according to an imagined alternate definition before new wording has been worked out and published.

Abuse of power

Regulators are playing “gotcha” with individuals and companies who followed written, published rules. If, amongst themselves, regulators intend to continue ruling according to unwritten requirements for being a QP, then they should maintain, publish and update a list of people who are allowed to be QPs… because none of us can guess what new rule they might invoke. Tomorrow, it might be that your shoe size is wrong. The only thing we peasants can work with, outside the castle walls, is what was written down and presented as “the rules.” Regulators might complain that it’s not up to them to qualify people; but they seem fine with the notion that they can disqualify people… for any reason. This is an abuse of power, and not an imagined or hypothetical one; they are already doing this.

The norms of professional sanction include the principle that people have the right to defend themselves when their qualifications are challenged, and to appeal any sanction. All professional accreditation bodies adhere to these principles; they are not kangaroo courts. In the aforementioned situation, when the regulator informed the company that one of their QPs was deemed to be unqualified, the regulator decided not to inform that individual. The only reason that person became aware they’d been kicked into the moat was that the company passed on the news. Running whispered smear campaigns behind someone’s back is the stuff of high school hallways and locker rooms; it has no place in a securities regulatory system that aims to be transparent and accountable. But the securities commissions act as if accountability does not apply to them: no explanations are necessary; they are not obliged to give cogent reasons.

The only place where professional qualifications should be queried and challenged is in the professional organizations created by law to serve this function. Anyone who is a member of such an organization, globally, or who has an administrative or executive role in one, should make clear to the CSA that although they do have the power to create definitions, they do not have the authority to disqualify a professional from his or her livelihood. If the CSA is unhappy with someone’s claim of being a QP, they need to use the existing professional complaint system; the professional body handling the complaint will be more likely to sympathize with the complaint if the CSA can cite a rule that was clearly written and widely published.

Need for appeals body

The other feedback I will give to the CSA is that they should work with groups like the Canadian Institute of Mining, Metallurgy and Petroleum (CIM) and the Prospectors & Developers Association of Canada (PDAC) to create a Dinna Haver Daft Committee to adjudicate technical disagreements. This is actually a serious suggestion, serious enough that I will consider other names for the committee; but, for the moment, it is the DHD Committee.

A DHD Committee is needed because regulators sometimes haver daft on technical issues. As an example of regulatory decrees that made little technical sense, a Canadian regulator once ordered a company to change its public technical disclosure to suit the regulator’s wishes and then, mere months later, told the same company that the disclosure they ordered did not comply with NI 43-101. That same regulator has also said that calculating significant intervals in exploration drill holes is tantamount to estimating mineral resources, and that reporting calculated significant intervals before resource estimates have been published is misleading because it creates a false impression that the project has mineral resources. Think about that… well, actually don’t; it will make your head spin and your brain hurt. Instead, walk around the booths at PDAC and count up how many companies report calculated significant intervals; without doubt, there are hundreds. And all of them out of compliance, according to this one regulator, if the company has not yet reported mineral resources. It is hard to decide which is more alarming: that confusion can run so deep, or that one can be so blissfully unaware of one’s own confusion that this kind of statement goes into a letter. In a country respected for the know-how it brings to mining projects throughout the world, it’s an embarrassment to have a regulator who conflates calculated significant intervals with resource estimates. Daft, as my mother would say.

No one expects every regulator to be knowledgeable, educated and experienced in every aspect of mining exploration, development and production. There are far too many specialized areas for any one person to know everything about everything. Regulators will err, from time to time, in their technical pronouncements; they’re not infallible. If the CSA does not want an individual regulator’s technical misunderstandings to cause disclosure to occasionally be uninformative or badly done, it needs a technical review system: a DHD Committee that companies can use to appeal rulings when a disagreement exists on technical issues.

All good regulatory systems have an appeals procedure; it’s surprising that the CSA has not yet developed one for technical matters arising out of 43-101. In an appeals procedure commonly used in such situations, the regulator and the company each choose their independent reviewer and those two choose a third, creating a panel that reviews submissions from both sides, then makes a decision that is binding on everyone. We need an appeals procedure of this type to deal fairly with technical misunderstandings. The regulator-always-wins system does not work well; it has, in the past, forced disclosure that is not fully informative to investors. Companies have been prohibited by regulators from disclosing information that investors find helpful as they weigh investment decisions.

Dinna haver daft.

— Mo Srivastava has been a geologist for 46 years and a geostatistician for 43 of those. He has run public short courses, been on industry panel discussions and podcasts hosted by The Northern Miner and taught in universities at both the graduate and undergraduate level. He currently works as a consultant with RedDot3D.