OSC identifies concerns arising from review of emerging market issuers

March 20, 2012

The Ontario Securities Commission today published a Staff Notice outlining areas of concern relating to emerging market issuers. As we discussed last summer, the OSC recently undertook a targeted review of Ontario reporting issuers with significant business operations in emerging markets following the disclosure-related allegations made against Sino-Forest. According to the OSC, the regulator wanted to “ensure that any systemic or specific issues” affecting such issuers were addressed in light of the importance of emerging market issuers in the Canadian and global marketplace.

To that end, the OSC reviewed 24 issuers ranging across various industries such as mining, forestry, financial services and technology. Among other things, the review involved an examination of the public disclosure records of the selected issuers, as well as examinations of board and audit committee activities.

Ultimately, the OSC identified four principal concerns arising from its review, namely with respect to: (i) the level of issuer governance and disclosure; (ii) the adequacy of the audit function for annual financial statements; (iii) the adequacy of the due diligence process conducted by underwriters in offerings of securities; and (iv) the nature of the exchange listing approval process. Of particular interest, the OSC noted that it is concerned that emerging market issuers may be employing an approach of “form over substance” with respect to compliance. Meanwhile, the OSC also noted that the fact that many of the issuers had little presence in Canada contributed to a “separation” between management functions in the emerging market jurisdiction and Canadian governance.

Ultimately, the report provides a list of recommendations to guide emerging market issuers, their auditors and underwriters and exchanges in addressing the OSC’s concerns. For more information, see OSC Staff Notice 51-719.

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