Disclosure Requirements - Canada
Disclosure Category: 2
Investment in a limited number of industries is monitored and foreign investors must declare their nationality and complete a declaration form when purchasing shares.
An obligation may fall on CBL, as a custodian, to disclose details of its account holders to issuers and/or to regulators on request in certain specific circumstances.
Customers holding Canadian shares consent and are hereby deemed to consent to disclosure and to the appointment of the requestor (that is, the issuer) as their attorney-in fact, under power of attorney to collect from CBL such information as is required to be disclosed. Customers who do not want to grant such authority to CBL should refrain from holding such shares in their account with CBL.
Customers should be aware that a Canadian issuer may require CBL, through its local custodian, on request and/or on a regular basis, to disclose to that company information relating to the identity of CBL customers holding any of the company’s shares in CBL.
If the disclosed information about the holding reveals that a customer’s holding in the shares of a Canadian issuer eligible in CBL exceeds a certain percentage, such issuer may require CBL to request that customer to disclose information about the final beneficial owners of that holding.
In addition, the National Instrument 54-101 that addresses shareholder communication requires that the local custodian releases information about beneficial owners to issuers or third parties on request, unless they have expressly objected to such disclosure in the proxy related materials in connection with shareholder meetings.
The disclosure request and the information required on a declaration of beneficial ownership also varies from industry to industry and from company to company. Some companies may require the name, address and residence status of the beneficial owner(s) to be disclosed; others may only require information to know whether beneficial owners are residents or non-residents of Canada.
Background and legal basis
It is the responsibility of the issuer to ensure compliance with regulations limiting foreign ownership in “constrained share” companies - the issuer usually delegates appropriate enforcement to its transfer agent. The major industries, subject to various forms of foreign ownership restrictions include, among others: Banking, Trust services, Insurances, Broadcasting, Communications, Transportation and Public utilities.
Legislative restrictions on foreign ownership for these industries do not conform to a standard, each industry being governed by rules outlined in a separate act (the Bank Act, the Insurance Companies Act, the Telecommunications Act, the Trust and Loan Companies Act etc.).
In general, these regulations usually limit single-investor ownership (foreign or domestic) to 10% and total foreign ownership to 25%. Due to the variety of legislation among the industries, there is no standard approach to monitoring the foreign ownership in a “constrained share” issue - even within industries, the approach to operational monitoring varies between companies. We therefore invite you to consult appropriate professional local advisers for additional information on the legal thresholds applicable to the Canadian securities held with CBL.
The National Instrument 54-101 (“NI 54-101”), effective since 1 July 2002, permits reporting issuers and, in certain circumstances described by the NI 54-101, interested third parties to obtain from intermediaries information about beneficial owners.
The NI 54-101 introduces the concept of non-objecting beneficial owner (NOBO) and objecting beneficial owner (OBO), as the beneficial owner has the possibility to object or non-object that his/her personal data is disclosed to the issuer by filling in a form.
Accordingly the local custodian shall obtain the written instructions from the beneficial owners concerning the release of such information to issuers or third parties on request.
Obligation to report threshold crossings
If ownership limits are exceeded, the issuer or its appointed transfer agent may refuse to register the securities in the non-resident’s name or in the name of its nominee. Failure to transfer the shares in a timely manner can, if the shares are due to be sold on, result in settlement problems.
With the regulations being subject to various interpretations, it is best to contact the issuer’s transfer agent for their full list of actual declaration requirements.
Failure to comply with the appropriate disclosure requirements will be subject to sanctions as explained at the time of the request for the declaration.