Canada Gets it Right on Fair Disclosure — Again

March 18, 2011
by Neil Hershberg, Senior Vice President, Global Media

Neil HershbergThe United States is often thought of as the global disclosure leader, but the truth is that there is a lot we can learn from our next-door neighbor: Canada.

In Canada’s typically unassuming way, the Canadian regulatory model has been adopted as the de facto prototype for the disclosure regime that has taken root in the United Kingdom and the European Union.

I’ll elaborate on the background as to how this all came about shortly. What’s important, however, is to spotlight the reasons why global regulators have come to recognize Canada’s disclosure framework as a world-class model worth emulating.

The Canadian Investor Relations Institute [CIRI], a widely respected association of industry professionals, has just updated its “Standards and Guidance for Disclosure and Model Disclosure Policy,” to reflect the regulatory and accounting changes, social media, and other factors that have transformed the investor relations landscape since its guidelines were last modified in 2006.

CIRI’s authoritative “Best Practices” resource for reporting issuers and industry professionals reinforces the central role of a simultaneous, broadly disseminated news release in achieving full and fair disclosure.

Unlike the United States, where the term “disclosure standards” is rapidly becoming an oxymoron, Canadians are crystal clear in what constitutes fair disclosure.

According to the timely disclosure policies of the TSX Exchanges and the CNSX, a full-text news release disseminated via a sanctioned news service is the only acceptable way to disclose material information. No ambiguity here. While the U.S. trumpets full and fair disclosure in principle, Canada practices it daily as a matter of regulatory policy. The result is that the entire investment community benefits from a level playing field. (Note: Business Wire is one of several approved news dissemination services in the Canadian marketplace.)

CIRI’s guidelines take a pragmatic approach to the arsenal of available investor relations tools that greatly facilitate investor outreach.

The CIRI report specifically notes that standalone web postings, conference calls, and other complementary communications channels do NOT meet Canadian disclosure requirements. Issuers, however, are encouraged to use additional delivery platforms to supplement a simultaneous, widely disseminated news release.

“As material information should be released in a manner designed to reach the widest public audience possible, including individual investors, companies are encouraged to use various technologies to supplement the news release. Some of the most obvious technologies include conference calls, webcasts, email, fax, video conferences, company websites, and more recently, corporate blogs, RSS feeds, podcasts, and social networking sites. While new technologies are important and useful ways to disseminate information, they are not substitutes for a broadly disseminated news release.” [CIRI Standards and Guidance for Disclosure, Page 18]

Talking about disclosure, Business Wire is the sponsor of  CIRI’s ‘Standards and Guidance for Disclosure and Model Disclosure Policy.”  To be clear, however, our involvement in the project came after CIRI completed its revisions; we in no way influenced CIRI’s research or conclusions. Business Wire is proud to support the activities of CIRI, NIRI, and other investor relations organizations worldwide that promote professional development of IR practitioners, and the ideal of effective disclosure.

Now, back to our story.

The London Stock Exchange went public in 2001, a decision that forced the LSE to relinquish its monopoly on regulatory news dissemination via its subsidiary, The Regulatory News Service [RNS].

The Financial Services Authority, the UK equivalent of the SEC, used the opportunity to rethink its approach to regulatory disclosure.

The FSA formed the Information Dissemination Advisory Group (“IDAG”), a committee of industry participants and outside experts to study various models and scenarios. IDAG was charged with making its recommendation to the FSA as to the UK’s future regulatory structure.

FSA officials also crossed the pond to North America, where they conducted extensive interviews with a wide range of market participants in the United States and Canada, as well as to conduct their own  observations, research and analysis.

After completing its due diligence, the FSA ultimately embraced a competitive disclosure regime whose nucleus closely mirrors the key tenets of the Canadian regulatory system.

Soon after the UK model went live in 2002, the European Union began a similar exercise — and not surprisingly, concluded with virtually identical results.

The Committee of European Securities Regulators (CESR) exhaustively evaluated a range of disclosure options over several years. CESR’s final assessment, memorialized in the Transparency Obligations Directive that took effect in January 2007, once again ratified the core Canadian/UK disclosure model as the best of all possible worlds.

With its characteristic low-key style, Canada deserves to finally be recognized as a  regulatory role model whose commitment to full and fair disclosure sets the standard for leading global financial markets.


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