Canadian firms can’t use social media to report key information, CSA rules

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Canadian companies will not be joining in the U.S. trend of releasing big news first on Twitter or Facebook.

The Canadian Securities Administrators, an umbrella group for provincial securities commissions, issued new guidelines Thursday for social media usage, telling companies they must continue to report material information with traditional press releases but can use social media to further disseminate the news.

The guidance steers Canada in a different direction from the United States, where the Securities and Exchange Commission allows companies to report key information first through social media outlets as long as they alert investors which platform will be used.

Sonny Randhawa, OSC deputy director of corporate finance, said regulators believe it is still important that companies disclose information with a press release because it must be filed with regulators on the public SEDAR website, and all investors can see it at the same time.

"One of the beauties of social media, of course, is that entities can post something on social media and also remove it at their own will. And, from a selective disclosure securities regulatory issue, that does create some concerns on our end if unbalanced or misleading disclosure is put out there and then momentarily taken down," Mr. Randhawa said. "We don't have the same concerns with press releases which go on SEDAR and remain as part of the permanent record."

The guidance applies to "material" information, which is information deemed likely to affect a company's share price – typically involving financial matters or key corporate developments.

Companies can continue to use social media for marketing, promotions and customer outreach without issuing press releases if it does not veer into material disclosure that triggers regulatory rules, said Huston Loke, director of corporate finance at the OSC.

Mr. Loke said regulators understand that social media have become the main place where many people get their information, and the securities commissions will revisit the guidance in the future as practices evolve.

"This area will continue to develop," he said. "I think more companies will be using social media over time and there will be more aggregators and disseminators of information, and I think at the appropriate time we may revisit that."

While the guidance maintains the status quo in Canada, it clarifies an area where companies have been increasingly pushing boundaries.

The Canadian Securities Administrators said it reviewed social media disclosures by 111 Canadian reporting issuers, and found four cases where companies had seen "significant" share price increases after information was only disclosed on social media, including projections about revenue, earnings per share and cash flow targets.

"These projections were often material because they were significantly more favourable than historical results or any other information reflected in the issuers' continuous disclosure record," the report said.

Regulators required 30 per cent of companies to take action to improve social media disclosures in response to issues raised during the review.

Mr. Loke said a key message coming out of the review is that standard disclosure rules for material news also apply on social media.

For example, regulators said they will require companies to report material information in a balanced tone that is not exaggerated or promotional on social media, which is the same standard for press releases. Reporting of non-GAAP financial measures on social media must also follow existing rules.

The CSA guidelines recommend that companies should develop specific policies and procedures for use of social media to announce information, saying 77 per cent of companies reviewed did not have a comprehensive social media policy.

Regulators said a policy should cover issues such as who can post for a company on social media and what approvals are required before posting.