CSA disclosure reviews show rampant deficiencies

What are the threats posed by the reported disclosure deficiencies?

A commentary piece published on FAIR Canada’s website suggests that Canadian investors are being hurt by deficiencies in disclosure reporting.

“That’s the takeaway from reading the Canadian Securities Administrators’ annual reviews of continuous disclosure by reporting issuers for the past seven years,” reads the piece. “During every one of those years except 2013, regulators found deficiencies in more than half of all issuer disclosure.”

In more than half of the instances observed, deficiency rates were at least 70%. Though it’s acknowledged that some defects flagged by regulators were just points for improvement, a sizeable number are still classified as “requiring immediate correction”. Orders to restate and refile have climbed above 20% in the past two years.

Egregious flaws – those that require some form of enforcement, including cease trade orders – have averaged about 6% for the past seven years, but has risen to the 8-9% range in the past three.

“Why is this happening? Are the majority of issuers unable to fully understand their disclosure obligations? That’s hard to believe,” the piece asserts. “More likely, the high rate of deficiency reflects issuers’ attitudes toward compliance.”

It elaborates by alleging a minimalist approach to revelation throughout the industry, “if not a widespread willingness to varnish the truth”. And with so many thumbing their noses at regulators, the piece says, investors are bound to get hurt, and public confidence in issuers’ integrity – and, by extension, in the capital markets – will get eroded.

“No matter how rigorously our regulators screen filings for misstatements and omissions, some are bound to get through…Even if most retail investors never read any of this defective material, it contaminates the information that advisors use in formulating their recommendations to those investors.”

With the clear and present danger presented by unabated high rates of attempted non-compliance, the piece calls on securities watchdogs to not be complacent.

“The statistics are shocking. They’re a wake-up call — and that call has been ringing, unanswered, for too long.”

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