Canada announces pilot on semi-annual financial reporting to cut regulatory burden

Bay Street in Toronto's financial district is shown on Wednesday, March 18, 2020. THE CANADIAN PRESS/Nathan Denette

Canadian securities regulators on Thursday announced a pilot project to allow smaller issuers to voluntarily adopt a semi-annual financial reporting framework, in a bid to ease the regulatory burden for public companies.

The move by the Canadian Securities Administrators mirrors a similar push in the United States, where regulators are working on fast-tracking U.S. President Donald Trump’s call to nix quarterly corporate disclosure requirements.

The CSA is an umbrella organization for Canada’s provincial and territorial securities regulators.

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Under the pilot project, eligible so-called venture issuers listed on the TSX Venture Exchange or the CNSX Markets will be exempted from the requirement to file first- and third-quarter financial reports.

Canada is working to reinvigorate its dormant IPO market and reverse years-long shrinkage of publicly traded companies, driven by delistings and takeovers.

“The semi-annual financial reporting pilot is a great example of harmonization by Canada’s regulators to support the competitiveness of Canadian capital markets, particularly for smaller venture issuers,” said Stan Magidson, CSA Chair and Chair and CEO of the Alberta Securities Commission.

Issuers must have revenue of less than $10 million and at least a 12-month continuous disclosure record to be eligible to report on a semi-annual basis under the pilot project.

TMX Group, Canada’s top exchange, is pushing for the newly proposed rules to also include larger publicly listed companies, CEO John McKenzie told Reuters last week.

The CSA plans to use the learnings from the pilot and work on a broader rule-making project related to voluntary semi-annual financial reporting for eligible companies.

While quarterly reporting provides timely information to investors and market participants, some stakeholders argue the cost of preparing such disclosures creates burden for smaller issuers.

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Critics, however, argue that relaxing disclosure requirements and reducing cost of going public often comes at the expense of investors.

(Reporting by Arasu Kannagi Basil in Bengaluru; Editing by Shailesh Kuber)