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Is Access Equals Delivery on the Horizon?

On January 9, 2020, the Canadian Securities Administrators (CSA) issued Consultation Paper 51-405 - Consideration of an Access Equals Delivery Model for Non-Investment Fund Reporting Issuers ("CP 51-405"). CP 51-405 is a continuation of Consultation Paper 51-404 Considerations for Reducing Regulatory Burden for Non-Investment Fund Reporting Issuers, published on April 6, 2017, where the CSA was requesting comments on ways that securities legislation could be updated to allow issuers to reduce unnecessary regulatory burden without compromising investor protection. One area identified was electronic communications with shareholders, which is what CP 51-405 focuses on.

An "access equals delivery" model is a jump beyond the concept of a shareholder receiving material by electronic delivery. Electronic delivery of material is currently a common and well-accepted method in the Canadian market. A shareholder who consents and provides their email address will receive an email when material is available, which will typically contain links to documents that have been posted on a website. An email sent in connection with a shareholder meeting will also contain unique codes that allow the shareholder to vote electronically, or attend a virtual meeting to vote in person.

The "access equals delivery" model that the CSA is contemplating accomplishes the delivery of the document by the issuer publishing a press release alerting investors that the material is publicly available, and advising them to access it on SEDAR and the issuer's website. Shareholders would no longer receive mail or an email addressed to them specifically. Given the different material that is sent out to shareholders by different types of issuers, it is important that each situation is considered.

Some of the document types included in the proposal include prospectuses, financial statements and MD&As, rights-offering materials, proxy-related materials, and take-over bid and issuer bid circulars.

Prospectus documents are one of the material types that the CSA is prioritizing in their review. As set out in Schedule A to CP 51-405, the United States, Australia, and the European Union have already implemented an "access equals delivery" model for prospectuses. It is noted that many potential investors already access this type of material electronically, so an "access equals delivery" model could be appropriate, as long as investors' rights were provided for, including withdrawal rights.

Material such as financial statements and MD&As are provided to current shareholders; in some cases to all shareholders, and in other cases to certain shareholders who have requested them. Issuers already have the ability to electronically deliver these documents to shareholders under the current regime. One possible issue with the "access equals delivery" model, is that not all issuers listed on the TSX Venture exchange are required to maintain a public website and post financial material, or are not always required to issue a press release when releasing financial statements. For these issuers, setting up a website and processes to allow for an "access equals delivery" model may be more cumbersome or expensive than the current mailing or electronic delivery process. These issues, and others, are discussed in a joint comment letter submitted by TSX and TSX Venture Exchange.

In terms of rights-offering materials, proxy-related materials, take-over bid and issuer bid circulars, the Securities Transfer Association of Canada (STAC) submitted a comment letter setting out a number of specific concerns. In these situations, shareholders generally must submit information back to the issuer's agent in order to participate. For example, when proxy material is delivered to a shareholder, it contains a unique identification number that the shareholder uses to submit their vote, or, in the case of a virtual meeting, log on to the meeting to allow them to vote. In an "access equals delivery" model, there is no ability to provide this unique identification number, which could pose significant challenges. For rights offerings, a rights certificate must be delivered for the shareholder to take part in the program, which would not be possible. For take over bids and issuer bids, a shareholder must similarly respond to the agent with certain information, which is typically provided on a personalized letter of transmittal document.

We support the CSA's goal of modernizing the communication processes and reducing regulatory burden on issuers. However, we believe that given the multiple types of material that are delivered, and the differing requirements and processes, it is essential that each situation be reviewed and assessed individually prior to any changes being implemented.