Law Clerks' Review

Disclosure Obligations Under Canadian Economic Sanctions and Anti-Terrorism Laws: A Primer

By: Shawn C.D. Neylan, Stikeman Elliott LLP

In this post we discuss disclosure obligations under Canadian economic sanctions and anti-terrorism laws, including in respect of financial services providers.

As discussed below:

• There are disclosure obligations that are applicable to all persons in Canada and all Canadians outside of Canada.
 
• Certain financial services providers are subject to a continuing obligation to determine whether they are in possession or control of property of a designated person and subject to requirements to file regulatory reports with their primary regulator pursuant to Criminal Code and Sergei Magnitsky Law.
 
• FINTRAC reporting requirements are distinct from reporting requirements under Canada’s economic sanctions and anti-terrorism laws.

Generally Applicable Disclosure Obligations

Most economic sanctions are imposed on a jurisdiction-by-jurisdiction basis under the Special Economic Measures Act and the United Nations Act. However, restrictions similar to economic sanctions are imposed under the Freezing Assets of Corrupt Foreign Officials Act, economic sanctions in respect of terrorists are imposed under the Criminal Code (as well as the United Nations Act) and economic sanctions in respect of individuals for engaging in gross human rights violations or significant acts of corruption are imposed under the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law). Persons listed in these sanctions are generally referred to as designated persons or listed persons.

Almost all of these sanctions have generally applicable disclosure obligations that require persons in Canada and Canadians outside of Canada to disclose without delay to the Royal Canadian Mounted Police (or, alternatively, in some cases, the Canadian Security Intelligence Service (“CSIS”)):

• property in their possession or control that is owned or controlled by a designated person (in some cases this explicitly includes a requirement in respect of property owned or controlled by a person that is owned or controlled by a designated person); and
 
• information about a transaction or proposed transaction in respect of any such property.

Continuing Duty to Determine

Most of the above-noted sanctions regimes also impose an obligation on a wide range of financial services providers to determine on a continuing basis whether they are in possession or control of property owned, held or controlled by or on behalf of a designated person. These entities include banks, credit unions and caisses populaires, insurance companies, trust companies, loan companies, money services businesses (in some cases) and entities authorized under provincial legislation to engage in the business of dealing in securities or to provide portfolio management or investment counselling services (“Federally or Provincially Authorized Entities”).

Combined with the generally applicable disclosure obligations discussed above, the continuing duty to determine is intended to result in prompt disclosure to law enforcement (or CSIS in some cases) by specified financial services providers. However, not all specified financial services providers are either persons in Canada or Canadians outside of Canada. In particular, some Provincially Authorized Entities are non-Canadian entities located outside of Canada without any personnel in Canada. While such entities are subject to the continuing duties to determine, they are not subject to the generally appliable disclosure obligations except, potentially, if they have another relevant nexus to Canada.

Financial Services Provider Regulatory Filing Requirements

Two of Canada’s economic sanctions and anti-terrorism laws, namely the Criminal Code and the Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law), impose additional regulatory reporting requirements on specified financial services providers, including in some cases non-Canadian entities that are not subject to the generally applicable disclosure obligations.

The Criminal Code requires that a specified financial services provider must report monthly to the principal agency or body that supervises or regulates it under federal or provincial law either:

• that it is not in possession or control of any property owned or controlled by a listed terrorist entity; or
 
• that it is in possession or control of such property, in which case it must also report the number of persons, contracts or accounts involved and the total value of the property.

Thus, in many cases, monthly “nil” reports are required to be filed.

The Sergei Magnitsky Law requires that if a specified financial services provider determines that it is in possession or control of any property of a person designated under that statute it must disclose without delay, and once every three months after that, to the principal agency or body that supervises or regulates it under federal or provincial law the fact that it is in possession or control of the property, the number of persons or dealings involved and the total value of the property.

Because a wide range of financial services providers are subject to specific financial service provider regulatory filing requirements with the regulatory body that oversees their business, it follows that a wide range of regulators receive such reports. While some regulators have published forms that are intended to assist parties with filing requirements, in practice it is not always clear exactly what information is required to be filed. When making filings to comply with requirements imposed under the Criminal Code and the Sergei Magnitsky Law, it is helpful to refer to the provision that imposes the requirement, in order to better understand what information is required.

Asset Freezing and FINTRAC Reporting Obligations

This note focusses on disclosure obligations under economic sanctions and anti-terrorism laws. It is important to note that such laws also impose restrictions on dealing with designated persons as well as sectoral and geographic restrictions. In addition, it is important to keep in mind that obligations to report suspicious transactions to FINTRAC pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act are distinct from the obligations discussed in this note.

Conclusion

Disclosure obligations under Canada’s economic sanctions and anti-terrorism laws can in some cases be a significant burden on businesses. This is particularly true of financial services providers that are subject to more onerous requirements. Nevertheless, it is important for affected businesses to ensure that they have the processes in place to comply with such obligations, as a failure to comply can lead to criminal charges.

Majority voting and shareholder proposal amendments to the CBCA effective August 31, 2022

By: Andrew Cooley, Janet Holmes, Glen R. Johnson, and Rima Ramchandani, Torys LLP

Amendments to the Canada Business Corporations Act (CBCA), which initially received Royal Assent in 2018, and related regulations concerning the election of directors and the timing for submission of shareholder proposals will come into effect on August 31, 2022.

What you need to know

• CBCA distributing corporations (public companies) will be required to provide for the annual election of directors on an individual basis (consistent with TSX rules in place since 2014).
• In uncontested director elections (where there is only one candidate nominated for each position available on the board), CBCA distributing corporations will be required to give shareholders the ability to vote “for” or “against” each director nominee (instead of a vote “for” or “withhold”) and such nominee will not be elected if he or she fails to receive majority support, but may be reappointed in limited circumstances.
• Shareholder proposals will have to be submitted to the corporation between 90 and 150 days before the anniversary date of the previous annual meeting (instead of the current deadline of 90 days before the notice of the previous annual meeting).
• These new requirements will be effective for meetings after August 31, 2022.
• Certain other amendments to the CBCA have not yet come into effect, including notice-and-access for meeting materials, mandatory say-on-pay voting and required disclosure concerning clawbacks of executive compensation and the well-being of employees, retirees and pensioners.

Discussion

Director election requirements

The CBCA currently permits directors to be elected as a slate and for a term of up to three years. The CBCA amendments require that directors of distributing corporations be elected annually and on an individual basis. For distributing corporations listed on the TSX, this is consistent with the TSX rules.

The CBCA currently provides for shareholders to vote “for” or “withhold” their vote in the election of directors (with the consequence that a director nominee will be elected as long as the nominee receives a single vote in favour). The CBCA amendments provide for the following changes for director elections of distributing corporations where there is only one candidate nominated for each position available on the board:

• Shareholders will be able to vote “for” or “against” each director nominee and such nominee will not be elected if he or she fails to receive majority support, or such greater number of votes required under the corporation’s articles.
• An incumbent director who fails to receive majority support is permitted to remain in office until a successor is appointed or elected, up to a maximum of 90 days after the meeting.
• This is stricter than the TSX rules under which a director receiving less than majority support must immediately tender his or her resignation subject, in exceptional circumstances, to the board declining to accept the resignation.
• The board will not have discretion to re-appoint the director before the next meeting at which an election of directors is required, unless necessary to satisfy the Canadian residency requirement or the requirement that at least two directors not be officers or employees of the corporation or its affiliates.

Under TSX rules, TSX-listed issuers (other than majority-controlled issuers) must adopt a majority voting policy for uncontested director elections, unless the TSX’s majority voting requirement is satisfied in another manner such as in the issuer’s governing statute or articles or by-laws. Going forward, the CBCA amendments should satisfy this requirement, so TSX-listed CBCA distributing corporations may consider amending or repealing their majority voting policies once the amendments become effective.

CBCA distributing corporations, including those that may not have a majority voting policy, will have to describe this new procedure for electing directors in their meeting materials and amend their form of proxy to provide for voting “for” or “against” directors for meetings held after August 31, 2022.

Time period for submitting shareholder proposals

The CBCA currently provides that a corporation does not have to include a shareholder proposal in its management proxy circular for its upcoming annual meeting if the proposal was not submitted to the corporation at least 90 days before the anniversary date of the notice of meeting delivered in connection with the previous annual meeting.

The CBCA amendments require a shareholder proposal to be delivered in a 60-day period between 90 and 150 days before the anniversary date of the previous annual meeting.

A management proxy circular must include a statement indicating the final date by which the corporation must receive a proposal for the following annual meeting. CBCA distributing corporations that have not yet delivered their 2022 meeting materials should consider disclosing the new deadline for delivery of shareholder proposals for their next annual meeting.

A CAREER IN WILLS AND ESTATES – COULD IT BE FOR YOU? 

By:Sandra Arsenault, Fasken LLP

As our fellow blog writer, Audrey Miller wrote earlier this week (here), new Census data indicates that the number of seniors over age 85 is expected to triple in the next 25 years. Could this be an opportunity?

This week we welcomed summer law school students and co-op law clerk students into our firm. As I chat with these new members, I always ask what area of law they are considering. Often the answer is Corporate, Litigation or Family law.  No one ever says, I think I’d like to go into Wills and Estates.

It is true, we don’t stand up in court rooms advocating for justice like TV lawyers often do. Most of the time, neither do most real-life litigators, given the number of cases that settle.

We don’t save innocent children and abused spouses from terrible situations like Family lawyers can. But based on my experience, Family law is not always like that either. Those moments are extremely rare, and frequently the results are heartbreakingly unfair, often leaving no real winners at the end of the day.

Perhaps we don’t sound as fancy, important and big business as Corporate law.

Maybe we don’t seem as exciting as Criminal law or as noble as Environmental law.

And yet, I’d like to invite those of you entering into the legal field and even those already well into it, to reconsider the often overlooked area of Estate Planning and Estate Administration.

Working in this area of law is like reading the biography of a thousand different and interesting people. These wonderful, intricate, sometimes fascinating lives are full of love and hate, wealth and poverty, success and failure, relationships, lies and secrecy. It has all of the makings of a great Netflix drama or a juicy reality tv show.

The work is new each day, simply by the fact that no two people live the same life.

Estate planning and administration is a specialty that regularly intersects with several other areas of law including corporate, real estate, family, litigation and even criminal, on occasion.

Estate Planning can be seen as helping people write the final chapter in their book, helping them tell their story in the way they want it to be told. They can leave a lasting impression through generous and thoughtful gifts, bettering the lives of people they love or making an incredible difference through charitable bequests. Testators can and often do show their love or dislike of others by including or excluding them as main characters in their final scene.

Estate Administration is really a helping profession. We assist executors as they step into the shoes of our hero or heroine to finish his or her story in the best way possible. Our role is to take that person by the hand, lead them through those final instructions, step by step, so that ultimately the story is complete.

This unique legal field challenges us to talk about and bring to light things that are not talked about. Perhaps new lawyers, clerks and assistants don’t choose this area of law because talking about death may feel scary and uncomfortable. The thing is, death is really our universal truth. It is what connects every human being on Earth. Talking about things that scare us can be helpful in facing our greatest fears.

Estates is an area that is universal and inclusive. No matter what race, religion, ethnicity, sexual orientation, or gender, the one thing that every human will face is death. Everyone’s story will eventually end. When exposed to this daily, it can allow you to understand how alike we all really are. In spite of all the hatred and fear around us, we are able to see all people as just people like us. It is easy to see we share so many common basic desires such as to be loved and remembered. And to pay as little tax as possible, of course.

Mindfulness is built into this kind of law. Working in Estates is a constant reminder that life is finite, that no person lasts forever, allowing me to feel incredibly grateful for each day that I have and for the people in my life. It helps me to see beyond my own problems and to recognize how truly small little inconveniences can be. I am more consciously aware of how I choose to spend my limited time and energy. Being happy and enjoying what I have is clearly preferable to being angry or wishing things were different and living with regret.

The kind of people you work with can also make all the difference. It seems people with good hearts often find their way into this field, perhaps not choosing it initially but somehow, it finds them. I work with some of the most amazing people I have ever met. They are kind, generous, patient and thoughtful. They are compassionate not only with their clients, but with their colleagues as well.

And if that isn’t enough to convince you, the demand for good, experienced legal professionals in this field is extremely high. There always seems to be positions available and because of that, it can be not only an interesting area of law, but a lucrative one as well. And if the statistics are true, that demand is going to be greater with each passing year.

So next time you consider your career options, I encourage you to look beyond the obvious choices. You may just find yourself in a job you actually love.

Bill 96 - Dates To Remember And Top Five (5) Take-Aways From The Amendment Process

By: Enda Wong, Émile Catimel-Marchand, Jonathan Kalles, McMillan LLP

Timeline

Bill 96, an Act respecting French, the official and common language of Québec was first introduced on May 13, 2021 (see our note on the initial Bill, offering a general overview of its impacts), seeking to reform Québec’s language laws, notably the Charter of the French Language (also know as Bill 101)[1].  After significant debate and less significant amendments, Bill 96 has now been adopted and the new requirements it creates will gradually come into force over the next few months.  Businesses based or operating in Québec should keep this timeline in mind.

Top 5 Changes From Original Bill 96

1. Companies with limited operations and presence in Québec may be able to avoid developing French versions of their standard Terms and Contracts.

Bill 96, as originally drafted, would have required all contracts of adhesion (i.e. contracts whose terms are imposed by one party) and contracts containing standard clauses (with no minimum number of such clauses) to be provided in French.  In fact, where a version in French can not be provided along with the version in another language at the time the contract is concluded, it risked being voided[17].  This was a marked departure from the CFL, where parties could expressly choose a language other than French, often resulting in a simple choice of language clause in the contract to that effect[18].

This far reaching change was curtailed in a two significant ways, perhaps owing to the significant backlash to the original wording:

• This obligation no longer applies to contracts “used in relationships outside of Québec / with parties outside Québec”[19]. Those can still be drafted in a language other than French. Interestingly, this was an exemption that the Québec government previously kept for itself only[20].  This may be useful for entities based in another country or Canadian Province, where they have a Québec clientele, but no establishment there yet (although it is not yet clear which parties will be considered as being “outside” Québec);
• The application of translation requirements for contracts containing standard clauses has been removed altogether. Narrowing the obligation to contracts of adhesion only gives some much needed clarity and removes antiquated references going forward.

In these situations, parties will maintain their right to use a contract in a language other than French, provided they expressly choose to do so.

2. Certain types of contracts typically entered into between sophisticated business actors will be exempted from translation requirements.

Certain types of contracts were also exempted from the blanket translation requirements, even where those contracts are contracts of adhesion and where the above exemption is not available.  These can generally be characterized as contracts associated with sophisticated financial products, where Québec companies would have been excluded from participation in the niche markets targeted had the requirements not been lifted. They are[21]:

• Loan agreements;
• Financial instruments and contracts whose object is the management of financial risks, including currency exchange or interest rate exchange agreements, contracts for the purchase or sale of options, or futures contracts;
• Contracts entered into with a person or company that carries on the activities of a clearing house;
• Contracts entered into on a platform for trading a derivative instrument referred to in the Derivatives Act (chapter I-14.01), a security referred to in the Securities Act (chapter V-1.1) or other movable property, provided, in the latter case, that the contract is not a consumer contract;
• Insurance policies, where there is no French-language equivalent in Québec and the policy originates from outside of Québec or it is not widely used in Québec.

3. CIPO trademark applications should be prioritized.

The CFL and associated Regulations contained certain exemptions, such that trademarks, even those in a language other than French, could be used in Québec without being altered, for instance on a product and its packaging, or on public signage or advertising[22]. This was available to all “recognized” trademarks, including common law trademarks (i.e. created through public use of the term)[23].

Under the MCFL, trademarks now have to be formally registered with CIPO in order qualify for exemptions and to be partly or fully in a language other than French. From a practical standpoint, this means acting now to finalize trademark applications, although the requirement will only come into force in three years.  CIPO built a significant backlog in its review of trademark applications during covid, such that the registration process currently also takes 3+ years to complete.

Moreover, if a generic description of the product is included in the trademark, it must be present in French as well[24].

4. Professionals may be required to translate their opinion, but no longer for free.

Bill 96 introduces a requirement for members of professional orders to translate their opinions, reports, expert reports or other documents upon request from “any person authorized to obtain them and who so requests” (vs. the professional’s client, as was previously the case under the CFL).

That request could be made at any time, and without translation fees where the client for whom the original documents were produced is an individual. Under the final MCFL, where the original client was a legal person, the person requesting the translation shall pay the translation fees should it require a French version of any of the aforementioned documents[25].

This applies to all professional orders in Québec, such as the Collège des médecins du Québec, the Barreau du Québec or the Ordre des Comptables professionnels agréés du Québec.

5. The McMillan Vantage Perspective : Bill 96 is largely here to stay.

While there has been some backlash to the Bill within the English community and the business world, the Bill is generally very popular with a majority of Québecers. The Government plans to use its passage to highlight its success in protecting the French language to the general electorate ahead of October elections. The Bill will become law without any further changes on June 1 with the official assent, and while there certainly will be a number of lawsuits on specific provisions within the law, businesses should understand that the large majority of the changes in the law are here to stay for the foreseeable future.

Burden Reduction for Registrants Effective June 2022: Outside Activities Clarified and Registration Requirements Simplified

By: Alix d'Anglejan-Chatillon and Darin R. Renton, Stikeman Elliott LLP

Final amendments to National Instrument 33-109 Registration Information (NI 33-109) and related instruments (the Final Amendments) clarify outside activity reporting requirements, among other things. The Ontario Securities Commission has also issued a related extension on the moratorium on “outside activities” late filing fees.

The Final Amendments were published in December 2021, came into force on March 3, 2022, and take effect on June 6, 2022 (Effective Date). The Final Amendments are based on proposed amendments that the Canadian Securities Administrators (CSA) published for comment last year (as previously discussed) to help registrants provide up-to-date complete and accurate registration information and reduce the regulatory burden of doing so (the Proposed Amendments). Reflecting comments received on the Proposed Amendments, the Final Amendments include the following changes to NI 33-109 (and related forms and instruments):

• Firms will no longer be required to report small changes in the ownership of the firm’s voting securities on an ownership chart referred to in Form 33-109F6 Firm Registration (Form 33-109F6) unless the change results in a person or company’s percentage of ownership falling below or exceeding 10%, 20% or 50% of the firm’s voting securities.
• To reduce multiple filings of the same information by corporate groups, registered firms will be permitted to delegate the requirement to notify the securities regulatory authority of changes in certain registration information to an authorized affiliated registered firm where they have a shared principal regulator. Changes in information related to the following items of Form 33-109F6 are eligible for notification by the authorized affiliate: ownership chart, securities registration, membership of exchange or SRO, refusal of registration, licensing or membership, registration for other financial products, regulatory action and legal action.
• Section 12.7 of NI 31-103 Registration Requirements, Exemptions and Ongoing Registration Obligations has been amended to no longer require reporting of a change in the expiry date of a firm’s insurance policy where the insurance policy has not lapsed and there have been no other changes to the insurance policy.
• The companion policy to NI 33-109 (NI 33-109CP) has been amended to clarify that certain changes in outstanding legal actions considered immaterial, such as documentary discovery and adjournments, will not be required.

Outside Activities

Particularly noteworthy are certain changes and clarifications included in the Final Amendments with respect to the new reporting framework for reporting activities carried on by registered individuals outside of their sponsoring firms, referred to as “outside activities”. Categories of outside activities that must be reported to regulators include:

• activities with another registered firm (including affiliated entities);
• activities with an entity that receives compensation from a registered firm;
• other securities-related activities;
• provision of financial or financial-related services; and
• positions of influence.

With respect to positions of influence, a new rule will be implemented that replaces the existing practice of imposing terms and conditions which restrict the client base of registrants whose outside activities are positions of influence over certain clients. The new rule prohibits registered firms and registered individuals from selling to or advising an individual that:

• the registered firm knows the registered individual is in a position of influence over; or
• the registered firm or registered individual knows are certain close family members of an individual they are in a position of influence over.

The Final Amendments include guidance for reporting positions of influence of registered individuals regarding activities that tend to have high levels of conflicts of interest, including, registrants’ acting as elected officials, or activities with community, cultural or religious organizations. The CSA indicate that this list is not meant to be exhaustive, and that positions of influence are a matter of judgment of a reasonable person based on particular facts.

Other Changes and Clarification

• Additional guidance has been provided in NI 33-109CP, clarifying that required updates to new and outstanding legal actions reported on Form 33-109F6 should include any new claims, defenses, counterclaims, third-party claims, amendments, settlements or resolutions of the claims, and appeals, as well as any decision that could significantly adversely affect the firm’s financial health or business or affect the outcome of the legal action. As mentioned above, non-material updates such as documentary discovery and adjournments are not required.
• Instructions have been added to Form 33-109F4 Registration of Individuals and Review of Permitted Individuals (Form 33-109F4) to clarify that only registrations and licenses required for dealing with the public in any capacity must be disclosed.
• Individual registrants will be required to report business titles and professional designations on Form 33-109F4 where such titles and designations are used or will be used once the individual is registered. Individuals will be required to keep this information up-to-date.
• Required disclosure with respect to resignations and terminations on Form 33-109F4 have been clarified. Disclosure should include any existing allegations of non-compliance with statutes, regulations, orders of a court or regulatory body, rules, or bylaws or failure to meet any standards of conduct (including a firm’s policies and procedures or of a professional body) that existed at the time of resignation or termination from a firm, whether or not they are the reason for termination or resignation.
• Criminal offences under any foreign jurisdiction will be required to be disclosed on Form 33-109F4.
• Financial disclosure obligations on Form 33-109F4 have been clarified to ensure correct reporting of all bankruptcy, consumer proposals and other insolvency events no matter how long ago they occurred, including discharges and releases from bankruptcy.
• Clarification has been provided for the use of Form 33-109F7 Reinstatement of Registered Individuals and Permitted (Form 33-109F7). When an individual leaves a sponsoring firm and joins another registered firm, they may only use a Form 33-109F7 for reinstatement of registration if all the information previously submitted on their Form 33-109F4 is up-to-date, and if there are no allegations relevant to an assessment of suitability for registration existing at the time of leaving a sponsoring firm (such as those noted above). They are otherwise required to file a Form 33-109F4 by making a “Reactivation of Registration” submission on NRD.
• Certification has been moved to the front of each registration form to remind regulated persons of their obligations to provide complete and accurate information.
• The notice of use and collection of personal information for each registration form has been updated to improve readability.

Reporting Deadlines

Deadlines for reporting changes in registration information have been extended. Generally, notice periods listed in NI 33-109CP have been extended from 10 days to 15 days, while others have been extended from 15 to 30 days. These extensions include, among others: 

• The deadline for a firm to file a Form 33-109F1 Notice of End of Individual Registration or Permitted Individual Status with the regulators and provide the registrant with a copy of the form is extended from 10 to 15 days.
• Permitted individuals will have 15 days to submit Form 33-109F4 to the regulator after becoming a permitted individual (instead of 10).
• Changes to the name of an agent for service of process or address for service of process required by Form 33-109F6 must be reported within 15 days (instead of 10).
• Changes to or opening a business location required by Form 33-109F3 Business Locations Other than Head Office must be reported within 15 days (instead of 10).
• Notice of changes to a firm’s information on Form 33-109F6 to be provided within 30 days to the regulator includes changes to: business history and structure (already 30 days), securities registration, auditor, client assets and conflicts of interest. Changes to any other information must now be reported within 15 days (instead of 10). 
• Notice of changes to an individual’s information on Form 33-109F4 to be provided within 30 days to the regulator includes changes to: current and previous residential addresses, mailing address, citizenship (already 30 days), reportable activities, previous employment (already 30 days) and other activities. Changes to any other information must now be reported within 15 days (instead of 10).

Implementation

As a result of the Final Amendments, responses to new questions or those requiring clarification on individual NRD records will state “there is no response to this question” until they are updated. Registrants are required to review and update their registration information and respond to these questions by the earlier of (i) June 6, 2023; and (ii) the date on which the registration next has a reportable change in registration information (provided such date is on or after June 6, 2022). The CSA has clarified that current individual registrants do not have to update their registration information for their titles as of the effective date of the Final Amendments or immediately after that date. Individual registrants will be required to update their titles by the earlier of when there has been a change in registration information previously provided and June 6, 2023. The Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) are expected to implement similar amendments to their rules.

In connection with the anticipated Effective Date, in December 2021 the Ontario Securities Commission also published a Notice of General Order – Ontario Instrument 13-508 Extension of Moratorium on Outside Activities Late Filing Fees and Ontario Instrument 13-509 Extension of Moratorium on Outside Activities Late Filing Fees (Commodity Futures Act) to extend the temporary exemption from the requirement to pay late fees on the late submission of outside activity disclosure. A moratorium on the payment of late fees for disclosing outside activities past the required filing deadline was originally put into place in May 2019 for the timeframe January 1, 2019 to December 31, 2021 while the CSA worked on clarifying outside activity disclosure obligations. The moratorium has been extended to June 6, 2022.

Bill C-26: Introduction of New Mandatory Breach reporting Requirements in Canada

By: Eugen Miscoi, Daniel G.C. Glover and Charles S. Morgan, McCarthy Tétrault LLP

On June 14, 2022, the House of Commons of Canada introduced Bill C-26, a new cybersecurity bill that will require mandatory reporting of cyberattacks against systems of critical importance to Canadian interests.

Bill C-26[1] enacts the Critical Cyber Systems Protection Act (“CCSPA”), which provides a framework for the protection of cyber systems that are vital to Canada’s national security or public safety. CCSPA will require designated organizations known as “vital services” or “vital systems” – including federally regulated banks and clearing systems, telecommunication services, transportation services, and nuclear or other energy systems[2] – to, among other things:

• establish and implement cyber security programs;
• mitigate supply-chain and third-party risks;
• report cyber security incidents; and
• comply with cyber security directions.

This development is unprecedented in the world of Canadian cyber security statutory obligations which, until today, were drafted exclusively through the lens of privacy and the protection of personal information. Instead, CCSPA borrows language that appears to be inspired by the regulatory guidelines of the Office of the Superintendent of Financial Institutions (“OSFI”)[3] and expands its scope to other critical sectors of the Canadian economy regardless of whether personal information is involved or not.

The objective of CCSPA is to support the continuity and security of vital services and vital systems of the Canadian economy against disruptive cyberattacks. As such, CCSPA is unique in that it does not require for any personal information to be involved in a cyber breach in order to trigger mandatory incident reporting requirements. The mere presence of a “cyber security incident” (as defined by CCSPA) on any “vital service” or “vital system” is sufficient to trigger reporting obligations without the need for a “real risk of significant harm” (i.e. RRoSH) or other similar threshold tests.

CCSPA defines a “cyber security incident” as any act, omission, or circumstance that interferes or may interfere with (a) the continuity or security of a vital service or vital system; or (b) the confidentiality, integrity, or availability of a critical cyber system.[4] Again, this definition appears to be inspired by that of OSFI and is expanded to include a two-step mandatory breach notification process outlined below. Importantly, while there is no RRoSH standard, judgment may be exercised as to whether an incident carries any risk of impacting the “continuity” or “security” of a vital service or system either directly or through undermining a “critical cyber system”.

First, CCSPA requires that organizations affected by a cyber security incident must immediately report the occurrence to the Communications Security Establishment (“CSE”) for the purpose of enabling CSE to exercise its powers or perform its duties and functions. CSE’s mandate includes:

• defending Government of Canada networks;
• advising and assisting other levels of government and the operators of Canada’s critical infrastructure, such as banks, telecommunications companies and other companies that are essential for the functioning of our society and economy;
• offering simple and effective tips that all Canadians can use to help keep themselves safer online;
• gathering of foreign intelligence;
• conducting defensive or active cyber operations; and
• assisting other federal organizations.[5]

Second, immediately after reporting an in-scope cyber security incident to CSE, CCSPA requires organizations to report the incident to any appropriate regulator of their particular industry (e.g. an energy or financial industry regulator).[6] The relevant regulators are named in section 2 of CCSPA. The vital services and systems currently within CCSPA’s scope include:

• Telecommunications services (overseen by the Minister of Industry);
• Interprovincial or international pipeline and power line systems (overseen by the Canadian Energy Regulator);
• Nuclear energy systems (overseen by the Canadian Nuclear Safety Commission);
• Transportation systems that are within the legislative authority of Parliament overseen by the Minister of Transport);
• Banking systems (overseen by OSFI); and
• Clearing and settlement systems (overseen by the Bank of Canada).

CCSPA grants significant enforcement powers to the regulatory authorities of the sectors listed above, including the power to order internal audits, issue compliance orders, and enter into compliance agreements. CCSPA also accelerates order-making powers by providing for exemptions from the Statutory Instruments Act and provides each regulatory authority with the power to issue administrative monetary penalties of up to $15,000,000 for each violation.[7]

Stay tuned for more McCarthy Tétrault publications on this topic as Bill C-26 continues its journey before Parliament over the upcoming months.

To learn more about how our Cyber/Data group can help you navigate the privacy and data landscape, please contact national co-leaders Charles Morgan and Daniel Glover.

More Speed and More Haste: Significant Amendments to Canada's Competition Act Come Into Force

By: Jason Gudofsky, Dominic Thérien and Michael Caldecott, McCarthy Tétrault LLP

Just two months after the announcement of a series of significant amendments to the Competition Act (the “Act”) in the Canadian federal government’s 2022 budget, the Budget Implementation Act, 2022 (the “BIA”) has now received royal assent. As in prior years, the government has pushed the BIA – an omnibus bill covering various policy objectives – through the legislative process prior to the start of Parliament’s summer recess, meaning that several noteworthy changes to Canada’s competition law regime are now in effect.

The passage of the BIA through both chambers of Parliament did not result in any amendments to the proposed legislative text. A comprehensive summary of the key changes was provided in our prior update. To recap, they include:

• The criminalization of certain buy-side agreements between employers – namely no-poach and wage fixing agreements (although it is not clear of the extent to which this amendment applies to agreements pertaining to self-employed persons and contractors). These amendments will come into force in June 2023;
• A significant increase in the criminal and civil financial penalties available for infringements involving criminal conspiracy, abuse of dominance and civil marketing misrepresentations, as well as expanding rights of access for private litigants to the Competition Tribunal for alleged abuse of dominance infringements;
• Adjustments to the analytical framework described in the Act for abuse of dominance, merger review and competitor collaborations in order to strengthen enforcement in digital markets; and
• The introduction of an anti-avoidance provision for mergers “deliberately structured” to avoid mandatory pre-notification.

Unlike in previous processes that reformed the Act, there has been no public consultation prior to the introduction of these amendments, with the federal government characterizing the changes as closing uncontroversial loopholes in the regime and better aligning Canada’s regime with peer jurisdictions. In reality, the changes are the most significant since the wholesale reform of the Act in 2009. Moreover, they contain some fundamental ambiguities, which would have benefited from a meaningful consultation process with the business community, members of the bar and other relevant stakeholders, and more time for debate as part of the legislative process.

Key Implications for Companies Operating in Canada

• While naked wage fixing and no-poach agreements will be criminalized, there is a 12-month moratorium on these provisions coming into force, which is designed to enable companies operating in Canada to review their current employment practices and consider whether any changes are warranted to reduce the risk of possible criminal investigation from July 2023 onwards. Given the textual ambiguity of the BIA, it will also be important for the Competition Bureau (the “Bureau”) to clarify how it intends to enforce this new provision. For example, the prohibition applies to all agreements between employers affecting “conditions of employment”, a term that is broad enough to capture almost all types of (potentially pro-competitive) collaboration between employers. 
• The amendments will require significant adjustments to the Bureau’s various official publications, including the Competitor Collaboration Guidelines, Merger Enforcement Guidelines and Abuse of Dominance Enforcement Guidelines. For example, the Competition Bureau will need to clarify how criminal wage fixing and no-poach agreements will be treated under the Bureau’s Immunity & Leniency program. The Bureau has signaled that it plans to work with stakeholders to implement these changes to its enforcement guidance, as well as announcing an intention to convene online information sessions open to the public in the coming weeks to provide guidance on the amendments. These plans should assist in reducing some of the regulatory uncertainty with the speed and content of the legislative reform process. Thus far, the Guide to the 2022 Amendments to the Competition Act the Bureau has published to clarify the nature of the BIA’s reforms says little about how the Bureau intends to enforce these amended provisions in the Act.
• With the expansion of private rights of access to third parties to pursue abuse of dominance claims before the Competition Tribunal (the “Tribunal”), the Bureau will also need to clarify its position on the circumstances in which it will seek to intervene in such cases. In 2005, the Bureau published an Information Bulletin on Private Access to the Competition Tribunal to provide potential private litigants with guidance on the role the Bureau plays in those private enforcement actions. The addition of abuse of dominance to the list of possible private actions before the Tribunal may necessitate the Bureau to re-visit this framework. 

Given this uncertainty, the coming months represent an important opportunity for businesses to assess the status of their compliance programs and business practices in Canada. Combined with a Bureau that is now receiving a substantial uplift in financial resources from the government, the Bureau is expected to become a more assertive enforcer of the Act as it seeks to emulate the aggressive enforcement stance taken by agencies in other countries.

Moreover, the BIA has been characterized as only a “preliminary step” in modernizing Canada’s competition regime. Sources suggest that the next phase of reform – which is anticipated to include some welcome public consultation before proceeding to the legislative process – could be initiated in the summer or fall of 2022. The exact scope of those additional amendments – which may involve the partial or full revocation of Canada’s merger efficiency defence - will therefore likely be subject to the contours of stakeholder debate. This will be a crucial phase in a process that is likely to shape the Canadian competition enforcement landscape for the next decade or more.

For more information, please consult our Competition/Antitrust & Foreign Investment Group.

2021 Oversight Report of SROs and Investor Protection Funds Published

By: Darin R. Renton and Alix d'Anglejan-Chatillon, Stikeman Elliott LLP

The Canadian Securities Administrators (CSA) publish their 2021 activities report (Report) summarizing the key activities of the CSA and their assessment of self-regulatory organizations (SROs) and investor protection funds (IPFs) for the January 1 to December 31, 2021 period.

The SROs operate under the authority of the CSA pursuant to Recognition Orders to oversee dealer activities and include the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Funds Dealers Association of Canada (MFDA). The IPFs are granted the authority to provide coverage for financial losses suffered by eligible clients in the event of the insolvency of an IIROC or MFDA member and include the Canadian Investor Protection Fund (CIPF) and the MFDA Investor Protection Corporation (MFDA IPC). 

Key CSA Activities

The CSA report that their oversight activities over the year included: 

• Ongoing work on the plan to create a new single SRO consolidating the functions of the existing SROs, which we previously wrote about. This work is expected to be completed by the end of 2022. The CSA are also planning the integration of the CIPF and the MFDA IPC to operate as a combined investor protection fund separate from the single proposed SRO.
• Receiving regular updates from the SROs and IPFs about their operations and meeting their regulatory responsibilities while they have been working remotely due to the COVID-19 pandemic.
• Completion of a phased project to streamline and modernize Recognition Orders and Memorandums of Understanding to enhance SRO and IPF oversight in preparation for the new SRO framework.
• The implementation of enhanced methodology on April 1, 2022 to identify and improve the CSA methodology for coordinated oversight of SROs and IPFs, including updates to the risk assessment framework and introducing a concept of core “regulatory activities” to be examined at least once every 5 years, among others.
• Conducting a risk based desk review of IIROC targeting IIROC’s Equity Market Surveillance and Debt Market Surveillance functions, which we previously wrote about.

CSA Assessment of SROs and IPFs

The CSA’s oversight program for SROs and IPFs consists of an annual risk assessment, review and approval of proposed new rules and changes to existing rules and by-laws put forth by SROs or IPFs to ensure they meet the public interest, and meetings and discussions with the SROs (quarterly) and with IPFs (semiannually) to discuss emerging and ongoing regulatory issues and trends. A summary of key information, oversight activities and observations for each organization noted by the CSA is set out below.

IIROC Activities

IIROC oversees all investment dealer and trading activity on debt and equity marketplaces in Canada and is an approved information processor for corporate and government debt securities. The CSA noted the following from their oversight review of IIROC: 

• Market Surveillance - enhanced software for market surveillance was implemented in March 2019 improving IIROC’s ability to (i) quickly detect trading anomalies across multiple products, individual traders and firms and, (ii) identify and respond to emerging trends such as monitoring daily message and trade volumes more efficiently. Upgrades to market surveillance infrastructure resulted in increased server and storage capacity to handle up to 3 billion real time messages per day and 2 billion messages per day in the end-of-day processing (1 billion prior to the pandemic). Issues raised in the risk-based desk review were resolved to the satisfaction of CSA staff through enhancements to the market wide circuit breaker process for equity market surveillance. IIROC continues to assess the need for further enhancement to the process.
• Exemptive Relief - applications for exemptive relief for hardship experienced by dealers due to pandemic measures were streamlined with the approval of the CSA. 
• Order Execution Only (OEO) Platform Service Levels - a working group has been established for an appropriate response to increased service level complaints from clients related to delays in opening new accounts, system response times and service disruptions that occurred during the pandemic. 
• Crypto/Digital Assets - a member intake group was created in the summer of 2021 to review and assess applications from new crypto-asset trading platforms and existing IIROC dealers planning to expand into crypto asset products and services. The first IIROC dealer to offer trading and custody of crypto assets was approved in November 2021. IIROC intends to develop new guidance and standardized compliance procedures. However, interim guidance was published in March 2021 (which we wrote about here.)
• Cybersecurity Incidents - dealer members are required to report certain cybersecurity incidents to IIROC. Past support has been provided to help small and medium sized firms with preparedness and risk management. To address the increase in cyber attacks generally during the pandemic, further guidance has been issued on how to prevent, detect, respond to and recover from ransomware attacks.
• IIROC information Processor Order - in an effort to provide post-trade transparency to the Canadian debt markets, IIROC’s role was expanded in 2021 to include the publication of information about all trades in corporate and government debt securities executed that were not already subject to reporting.
• IIROC’s Plain Language Rules – revised Dealer Member Rules that have been written in clear, concise and organized plain language format became effective on December 31, 2021 and are now referred to as the IIROC Rules.
• Client Focused Reforms (CFR) - the CSA and both SROs harmonized their compliance modules specific to the CFR conflicts of interest requirements that became effective in June 2021. In addition to specific questions on the annual request of information form used to assess compliance risk, CFR conflicts of interest reviews are incorporated into the regularly scheduled business conduct compliance exams. A targeted CFR conflicts of interest sweep in coordination with IIROC and the MFDA is underway and a report of findings will be published to provide additional implementation guidance to the industry. 

MFDA Activities

The MFDA oversees mutual fund dealers in Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario Prince Edward Island, Saskatchewan, Yukon, Northwest Territories and Nunavut. Based on an annual risk assessment of the MFDA, an oversight review was not conducted for 2021. CSA staff note the following from meetings and discussions with the MFDA: 

• COVID-19 Regulatory Relief - the MFDA’s process for granting regulatory relief to members as a result of disruptions in business operations was assessed by CSA staff to ensure that relief was within the scope of the MFDA’s authority and that reasons for granting relief were properly documented.
• Cybersecurity - external IT consultants were engaged to test security controls and assess the maturity of the cybersecurity framework. A mandatory cybersecurity survey issued to all members demonstrated that smaller members tended to have resource issues in dealing with cybersecurity but were relatively prepared and invested compared to other sectors.
• Client Research Project - as in past years, the reporting of client data was mandated to obtain insight into members business models, approved persons and their clients.
• Continuing Education (CE) - a CE requirement for mutual fund approved persons and a CE accreditation process commenced in December 2021.
• Client Focused Reforms - the MFDA will use information gathered from its regular examinations to review member firms’ implementation of the enhanced conflicts of interest requirement. As mentioned above, these finding will be coordinated with the CSA and IIROC and will be published along with additional guidance. 
• Performance Reporting Targeted Review - the findings from a 2020 targeted review of performance reporting for accounts with highly unusual positive or negative returns was published in July 2021.

CIPF Activities

CIPF was approved to provide protection to eligible clients of IIROC dealer member firms if client property held by the member firm is unavailable due to insolvency of the dealer member. Based on an annual risk assessment of the CIPF, a risk-based oversight review was not conducted for 2021. CSA staff note the following from meetings and discussions with the CIPF: 

• Statement of Member Assets by Location (SMAL) - the requirement for member firms to file an annual SMAL was resumed after being temporarily suspended during the pandemic.
• Asset Level Adequacy - a credit-based fund model is used by CIPF to project its liquidity resource requirement and setting of its fund size. To ensure the adequacy of the level of resources available in relation to the risk exposure of member firms and mitigate volatility in liquidity resource requirements, CIPF is enhancing its model by recalibration of a stress multiplier and implementing a five-year weighted average methodology. 
• Simulation Exercises – simulation exercises were conducted throughout the year to expand industry knowledge of financial institution bankruptcies, focusing on the manner in which operational strategies, tools and regulatory processes changed during the pandemic (such as virtual hearings) and how they could impact the handling of a member firm insolvency.
• Insolvencies - there were no IIROC member insolvencies involving CIPF in 2021.
• New Reporting Requirements - updated requirements came into effect in 2021, and include unaudited semi-annual financial statements, annual and semi-annual operations reports, and a 2022 financial budget.

MFDA IPC Activities

The MFDA IPC was approved to provide protection to eligible clients of MFDA mutual fund dealer member firms suffering losses as a result of insolvency of a mutual fund dealer member. As a result of the 2021 risk assessment a risk-based oversight review of MFDA IPC was not conducted for their 2021 activities. CSA staff note the following from meetings and discussions with the MFDA IPC: 

• Fund Size Target - the MFDA IPC has achieved its targeted fund size of $50M. A secondary layer of $20M in insurance was added for any losses to be paid in excess of $50M, on top of the existing $20M for losses in excess of $30M.
• Insolvencies - there were no member insolvencies involving MFDA IPC in 2021.
• Simulation Exercises - simulation exercises were conducted for board members facilitated by external legal counsel and third-party consultants to go through key events and decisions requiring board involvement during an insolvency. 
• Governance - a new code of conduct for MFDA IPC staff was implemented to strengthen governance controls aimed at helping to mitigate any potential conflicts of interest. 
• New Reporting Requirements – new Approval Orders came into effect in January 2021updating reporting requirements.

The full Report can be found here.