Canadian securities regulators are launching a project to reduce the "regulatory burden" on publicly listed companies, proposing measures such as semi-annual reporting of financial results instead of quarterly reporting.
The Canadian Securities Administrators, an umbrella group for provincial securities commissions, issued a report Thursday outlining various ideas to streamline regulations for companies, and asking for suggestions of other areas to tackle.
Among the proposals, regulators are looking at the option of combining several mandatory documents that companies must issue annually into one report – including the annual information form, the management's discussion and analysis report (MD&A) and the annual financial statements.
They are also proposing ideas to streamline the information that must be included in prospectuses when companies want to do an initial public offering and list their shares on a stock exchange, suggesting, for example, that companies listing on the Toronto Stock Exchange could be able to use streamlined prospectus rules similar to those for listing on the TSX Venture Exchange. Companies could also include fewer years of audited financial statements in a prospectus, and not have to provide quarterly financial statements reviewed by an auditor.
Huston Loke, director of corporate finance at the Ontario Securities Commission, said the world has changed since many rules were drafted, and investors have much more access to information. Requirements to put stock price trading data into a short-form prospectus, for example, or physically mail certain documents to investors may be unnecessary in the Internet age, he said.
"If you look at some of the requirements in the prospectus, for example, that just mirrors information that any investor can receive from the Internet at a moment's notice," he said.
The proposal likely to face the most controversy from investors is the idea to only require semi-annual reporting of financial statements instead of quarterly reporting. Semi-annual reporting is the norm in Britain and Australia, but U.S. companies report quarterly.
Canadian regulators floated the idea of semi-annual reporting in 2011 for companies that trade on the TSX Venture Exchange, but did not adopt it after hearing many concerns from market participants who thought investors would have to wait too long between financial statements. Many said the quarterly reporting requirement was not excessively burdensome.
But the CSA said it is tabling the idea again because there has been a lot of discussion in recent years about reducing the market's focus on short-term thinking and instead promoting longer-term thinking. The CSA said some proponents argue that reporting on quarterly financial results is "inconsistent" with developing a long-term focus, but some opponents have said the move wouldn't necessarily encourage long-term decision making anyway, and would deprive investors of timely financial disclosure.
"We did think that given the ongoing debate, the time was right to revisit the issue and explore what stakeholders think about this potential idea, " said Jo-Anne Matear, manager of corporate finance at the OSC.
The CSA proposal asks for feedback on whether semi-annual reporting should be introduced for all companies, or should be limited only to smaller companies.
It also asks whether TSX companies should be allowed to replace extensive quarterly MD&A reports with a more streamlined quarterly highlights report, which companies are currently allowed to use if they trade on the TSX Venture Exchange.
The document also discusses broader ideas to expand other shortened reporting rules that currently only apply to companies listed on the TSX Venture exchange to a wider range of smaller companies listed on the main Toronto Stock Exchange.
It says some TSX-listed companies are smaller than venture companies, so reporting rules could be based on company size rather than which exchange companies are listed on. The change would allow smaller companies on the senior exchange to have the same rules as TSX Venture companies.
The U.S. Securities and Exchange Commission has reduced reporting requirement for smaller companies wherever they are listed, the CSA noted.
Mr. Loke said some information published by companies may be duplicated in more than one document, but may be difficult to streamline because different stakeholders use the different documents. But other disclosures may be easily combined or eliminated, he said.
He said regulators wanted to propose some ideas of their own in the consultation paper, but also expect companies and investors to have other ideas to propose. The comment period is open to July 7 and regulators will then publish their plans to prioritize reforms, Mr. Loke said.
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