The Canadian Securities Administrators (“CSA”) have published CSA Staff Notice 51-365 Continuous Disclosure Review Program Activities for the Fiscal Years Ended March 31, 2024 and March 31, 2023 (the “Staff Notice”). The Staff Notice summarizes key findings and outcomes of the Continuous Disclosure Review Program (“CD Review Program”), describes common deficiencies and provides illustrative examples to help issuers address these deficiencies and understand the CSA’s expectations.
Background
The purpose of the CD Review Program is to improve the completeness, quality and timeliness of reporting issuers’ continuous disclosure. In 2024, the CSA conducted 425 continuous disclosure reviews (2023 – 466 reviews), with 58% (2023 – 50%) of reviews resulting in substantive comments requiring improved and/or amended disclosure, refiling of documents or filing of missing documents. Eight percent of reviews in 2024 (2023 – 6%) resulted in issuers being referred to enforcement, cease-traded or placed in default.
The CSA recognize that issuers are preparing disclosure in a period of economic uncertainty and that assumptions used to prepare financial statements may change materially in the short term. Issuers should carefully evaluate and explain how economic uncertainty and changes in assumptions affect their operations and figures in their financial statements.
According to the CSA, issuers that are adopting new technology, such as artificial intelligence (“AI”) systems, will need to consider whether disclosure regarding the use of, and risks associated with, such technology is necessary. The Staff Notice provides examples of the type of information investors may consider material if an issuer uses AI in its products or services. Disclosure should be balanced and include a discussion of the benefits and risks of using AI systems while avoiding overly promotional statements.
Key Findings
The CSA observed the following in connection with the CD Review Program:
Financial statements and MD&A
- Financial statements: Common deficiencies relate to compliance with the recognition, measurement, presentation, classification and disclosure requirements in International Financial Reporting Standards pertaining to impairment of assets, business combinations, expected credit losses and disaggregation of revenue;
- MD&A: Issuers are not providing meaningful discussions of their operations and often include incomplete or boilerplate disclosure in their management’s discussion and analysis (“MD&A”). Issuers are also not providing specific details or sufficient contextual information to enable investors to understand their liquidity and capital resources. Where there are defaults or arrears, or significant risk thereof, on an issuer’s ability to fulfill payments towards debt obligations or to satisfy debt covenants, the MD&A should include disclosure of how the issuer intends to cure the default or arrears or address the risk; and
- FLI and FOFI: Some issuers disclose forward-looking information (“FLI”) that is not supported by reasonable assumptions. Issuers must ensure that they identify risk factors that may cause actual results to differ materially from FLI. Issuers that disclose future-oriented financial information (“FOFI”) or financial outlook must limit their projections to a period for which information may be reasonably estimated. In many cases, such period will not go beyond the end of the issuer’s next fiscal year. In addition, certain issuers are not discussing material differences between actual results and previously disclosed FLI in their MD&A.
Mineral project disclosure
- Technical reports (i.e., Form 43-101F1 Technical Report): Common deficiencies include: (i) reliance on information prepared by others beyond the limited exceptions for legal, political, environmental or tax matters; (ii) lack of data verification by the qualified person (“QP”); (iii) missing information about quality control, quality assurance, sample preparation, assay and analytical procedures, drilling and production activities; and (iv) information on adjacent properties not being accompanied by the required cautionary language. In some circumstances, QPs must be independent of the issuer; however, the CSA noted instances where technical reports were prepared by non-independent QPs. Some issuers also failed to file technical reports on material mineral properties; and
- QP certificates: Some QP certificates are missing prescribed information, including a summary of the QP’s relevant experience.
Other deficiencies
- Material contracts: Some issuers are not filing material contracts, including amendments to material contracts. The CSA also noted that certain material contracts have been filed with inappropriate redactions;
- Material change reports (“MCRs”): The Staff Notice reminds issuers of their disclosure obligations in the event of a material change, as some issuers are not reporting material events or filing MCRs on a timely basis. The CSA noted that some MCRs contain insufficient information and do not meet the form requirements. Issuers must disclose unfavourable news just as promptly and completely as favourable news; and
- Overly promotional disclosure: There has been an increase in disclosure that is untrue or unbalanced, such as greenwashing or AI washing (i.e., making false, misleading or exaggerated claims about the use of AI systems). All public disclosure, whether voluntary or required, should be factual and balanced.
[View source.]
