The securities and futures act in Canada is composed of a wide range of requirements imposed upon investors and corporations. It is important to follow these regulations to prevent any sanctions and to ensure the legality of the transaction.
What are the securities and futures act in Canada?
Canada’s securities and futures laws outline how securities are offered, traded, and issued. This ensures fairness and transparency for investors and corporations.
Regulation of securities in Canada falls under the provincial and territorial laws, since there is no single federal law for this matter.
As a result, each province and territory has enacted its own securities and futures act. These statutes have also set up their own provincial or territorial securities regulator.
Most of these securities and futures acts are commonly titled as Securities Act, such as in British Columbia, Manitoba, New Brunswick, among others.
In other provinces, its Securities Act is complemented by another law on commodity futures. For instance, Ontario’s Commodity Futures Act is in addition to its Securities Act.
In most cases, these provincial or territorial securities and futures acts work similarly with each other. For specific differences, especially if an entity is covered by more than one law, it’s important to consult a corporate finance and securities lawyer.
Other related laws to securities and futures
In addition to a provincial and territorial securities and futures act, there are other federal laws that may apply to transactions related to the trading of securities, such as:
- Competition Act: applies to mergers and acquisitions, where a pre-merger notification will be needed if a transaction reaches the set “size of transaction” and “size of parties” thresholds
- Investment Canada Act: covers reviews of foreign investments, such as when a non-Canadian buys the control over a Canadian business or entity
- Canada Business Corporations Act: regulates the incorporation of entities after a take-over bid
These laws are part of the overall regulatory framework in Canada concerning transactions of securities and futures.
Who regulates securities and futures in Canada?
Because there is no Canadian securities and futures act at the federal level, it also means that there is no federal regulator of securities in Canada. Instead, each Canadian province and territory has its own securities regulator.
Here are examples of these securities regulators in some provinces and territories:
- Alberta: Alberta Securities Commission
- Northwest Territories: Office of the Superintendent of Securities
- Québec: Autorité des marchés financiers
To harmonize the regulation of securities in the country, these provincial and territorial regulators formed the Canadian Securities Administrators (CSA).
This video explains the work of these provincial and territorial securities regulators, including the self-regulatory organizations (SROs):
The video mentions the IIROC (Investment Industry Regulatory Organization of Canada) and MFDA (Mutual Fund Dealers Association). These bodies merged in early 2023 to form the CSA.
How are securities and futures regulated in Canada?
The securities regulatory framework of Canada consists of the following basics:
- the scope of these laws’ application
- who is a “reporting issuer”
- what is a prospectus and who must file it
- harmonization through the “passport system”
These are either outlined in the provincial and territorial securities and futures act, or in the regulations by the CSA (the passport system).
1. Scope of securities and futures act
Generally, these securities and futures acts of each province and territory cover transactions related to the offering, trading, and issuance of securities.
While it covers transactions that happened within the province or territory, it may also apply to cross-border transactions.
For example, a reporting issuer is still covered by the statute of its province or territory, even if the securities are issued to an entity in another province or territory. A “reporting issuer” is the company that registered and sold the security.
2. Reporting issuer
Under the securities and futures act, an issuer of securities in Canada becomes a “reporting issuer” if it has either:
- filed and obtained a receipt for a prospectus; or
- listed its securities on a Canadian stock exchange or to the public; or
- merged or exchanged securities with an entity which has been a reporting issuer for a specific period; or
- held the securities of another issuer, related to a merger or reorganization transaction, where a party was a reporting issuer; or
- filed and issued securities under a take-over bid circular, related to buying securities of a reporting issuer
These are just some of the definitions of a reporting issuer. Each securities and futures act has its own specific definition of a reporting issuer.
Continuous disclosure
When an entity becomes a reporting issuer, they must comply with many requirements under the securities and futures act.
One of these requirements is the continuous disclosure requirements, which consists of two disclosures:
- periodic disclosure
- timely disclosure
Other requirements imposed upon reporting issuers are:
- financial reports: annual or interim financial statements must be given to security holders upon request, given that a request form is sent to each security holder
- early warning reporting: applies to person or entities that buy securities of reporting issuers, where they must issue a press release and file an early warning report
- insider reporting: “reporting insiders” of reporting issuers must publicly file a disclosure upon becoming a reporting insider
Violating these requirements can result in administrative penalties and civil liabilities for damages. It also includes misrepresentations for publicly disclosed communications released by the reporting issuer.
3. Prospectus requirement
According to the provincial and territorial securities and futures act, an issuer must file a prospectus with the securities regulator when securities are issued or distributed. A receipt must also be issued related to the same transaction.
A prospectus is a document which discloses all the necessary information set by law, such as the details about the issuer and its business, including the securities being offered.
A reporting issuer may be exempt from this prospectus requirement. Examples of these exemptions are:
- accredited investors exemption: when securities are distributed to accredited investors, investors whose net worth or taxable income reach a certain threshold
- private issuer exemption: applies to private corporations that have less than 50 non-public investors and whose transfers of securities are restricted to a certain degree
4. Passport system
The CSA has developed a “passport system” that applies across all provincial and territorial securities regulators except for Ontario. Under this system, an entity will have access to markets of other jurisdictions by dealing with the securities regulator of their own province or territory.
To find out how it works in Ontario, contact one of its best corporate finance and securities lawyers as ranked by Lexpert.
Know and comply with the securities and futures act
Knowing Canada's securities and futures acts can be daunting, especially as there’s no single federal law. Just remember that each province and territory has its own act, so specific regulations can vary.
Know and comply with your local act and regulations. Use the power of the "passport system" for streamlined cross-border transactions. Most importantly, consult a corporate finance and securities lawyer to help avoid costly oversights and errors.
Consult with a Lexpert-ranked best corporate finance and securities lawyers in Canada to know more about the different securities and futures acts in Canada’s provinces.