Amendments to British Columbia’s Securities Act grant BCSC new powers
Overview
On July 17, 2023, legislative amendments to British Columbia’s Securities Act (the Act), targeted at “modernizing” the statute and improving investor protection, came into force. The amendments are part of a broader package of legislative amendments under the Finance Statutes Amendment Act, 2023 (Bill 4), which also modifies the Pension Benefits Standards Act and the Pooled Registered Pension Plans Act.The amendments provide the British Columbia Securities Commission (BCSC) with stronger compliance and enforcement powers and provide the BCSC with additional collections-related tools.
British Columbia has tried to cast itself as being at the forefront of capital market enforcement reforms, having introduced a number of additional tools to its enforcement arsenal. In 2019, for example, British Columbia introduced Bill 33 (Securities Amendment Act, 2019), (as we discussed here), which introduced wide-ranging amendments targeted at strengthening the enforcement powers of the BCSC, including expanding the BCSC’s investigative authority, providing the BCSC with new collection powers, increasing penalties for offences under the Act, and codifying protections for whistleblowers. And earlier this year in April 2023, the BCSC introduced a new mechanism for levying administrative monetary penalties without a hearing for contraventions of certain regulations or BCSC decisions (which we discuss here).
The BCSC’s latest set of enhancements, aimed at being more effective, also carry with them concerns that they come at the cost of reducing safeguards against abuse.
Enhanced enforcement powers
One of the most striking (and perhaps creative) revisions enables the BCSC to employ an administrative process that will impose more immediate consequences on persons or businesses for failure to comply with a summons or provide information without having to seek intervention of a court. Failure to comply can result in restrictions on market participation and/or penalties of up to $1 million. Previously, the BCSC would have to apply to the B.C. Supreme Court for an order to hold non-cooperative individuals and businesses in contempt, a process that was seen to provide greater judicial balanced oversight, but what was seen by enforcers as cumbersome and challenging. The amendments do away with the judicial process.
Moreover, pursuant to the amendments, the BCSC can now also seek court orders, including the payment of restitution or damages, if an individual has been convicted of a securities or derivatives-related offence under the Criminal Code, a power that may radically shift the focus of a regulator’s mandate from one of protector and market overseer, towards more of an advocate for aggrieved parties. Providing the BCSC with greater powers encourages efficiency in the enforcement process. However, British Columbia’s new approach places it on a unique path to other Canadian jurisdictions. For example, the Ontario Securities Commission (OSC) does not have the power to impose compliance with summons and must apply to the Ontario Superior Court of Justice to initiate contempt proceedings against noncooperative individuals. Further, while many regulators have authority to disgorge improperly obtained funds from wrongdoers, a process still needs to be determined to distribute such funds to aggrieved parties.
‘Access equals delivery’ regime for prospectuses
Another change brought into effect by the amendments is the ability of the BCSC to create an “access equals delivery” regime for prospectuses. Pursuant to the amendments, the BCSC can adopt a regime under which it could require businesses to provide access to a prospectus rather than requiring the prospectus to be delivered or sent. If access is not provided as required, investors can start an action for damages or recission against the dealer or offeror who failed to comply with the applicable requirement under the Act.
In January 2021, the Ontario Capital Markets Modernization Taskforce recommended transitioning towards an “access equals delivery” model of all disclosure documents of all issuers and investment funds, and in April 2022, the Canadian Securities Administrator (CSA) proposed amendments to allow for an “access equal delivery” regime for prospectuses in Ontario and other Canadian provinces. The CSA and OSC have yet to publish formal amendments.
Regulating auditors of registrants
The BCSC also has been granted the authority to regulate auditors of registrants, including imposing standards for the audits conducted of registrants or, in the case of auditors of reporting issuers, requiring auditors to be a member of the Canadian Public Accountability Board (CPAB). This amendment makes B.C.’s approach to regulating auditors consistent with the current American approach adopted by the Securities Exchange Commission (SEC), which stipulates auditor requirements, including compliance with standards established by the SEC or by the Public Company Accounting Oversight Board, under Rule 2-01 to Rule 2-07 of Regulation S-X. Other Canadian jurisdictions have not yet to follow these requirements. However, in January 2022, National Instrument 52-108 was amended to provide the CPAB with access to audit working papers for work performed in foreign jurisdictions, providing for further oversight over auditing work.
Continuous disclosure obligations on non-reporting issuers
Additionally, the amendments expand the BCSC’s ability to impose continuous disclosure obligations. In addition to reporting issuers, non-reporting issuers also may now be subject to continuous disclosure requirements, which include providing disclosure about its business and affairs, material changes, and other prescribed disclosure. The broadly worded amendments could capture non-reporting issuers like certain investment funds, such as pooled funds, and subject them to a more comprehensive continuous disclosure regime. In comparison, other Canadian jurisdictions only impose limited continuous disclosure obligations, primarily related to financial disclosure, on certain types of investment funds.
Amendments to the Pension Benefits Standards Act and the Pooled Registered Pension Plans Act
Bill 4 also includes amendments to the Pension Benefits Standards Act and the Pooled Registered Pension Plans Act as they specifically relate to B.C.’s Securities Act. Pursuant to the amendments, certain pension derived funds no longer will be exempt from the enforcement processes under the B.C. Securities Act. Accordingly, these pension funds may be subject to orders, such as preservation or forfeiture orders, and/or penalties imposed by the BCSC.
Implications
British Columbia’s package of legislative amendments provide the BCSC with a broader set of tools than other Canadian jurisdictions and significantly increased powers to advance investigations of investment market misconduct and hold individuals accountable for illegal acts. The Ontario Capital Markets Modernization Task Force recommended similarly broad powers (which we discussed here, here, and here) many of which remain under consideration. It will be interesting to see if other jurisdictions follow British Columbia’s lead.