CIRI Advocacy and Issues Update

On September 19, two items were issued that we wanted to update you on.

The first item is CSA Notice 25-301: Update on CSA Consultation Paper 25-401 Potential Regulation of Proxy Advisory Firms. The CSA issued a Consultation Paper in June 2012, on which CIRI made a submission. In that submission, CIRI proposed the following regulations:

• Proxy advisory firms should be required to disclose methodologies, sources of information, assumptions used to prepare their research reports, and rationale for their voting recommendations.
• Proxy advisory firms should prominently identify in the research reports and voting recommendations provided to their institutional investor clients, any specific potential conflicts of interest with regard to the issuer and analyst/reviewer ownership interests.
• Proxy advisory firms should be required to provide to all issuers draft research reports and voting recommendations for review for factual accuracy, allowing 48 to 72 business hours for issuers to respond, prior to the report being distributed to the proxy advisory firm’s clients.
• Proxy advisory firms should be required to include in the final report to investors any comments provided by issuers regarding the review process, the research report and the voting recommendations.
• Proxy advisory firms should establish an appeals process and identify an independent third-party or Ombudsman to adjudicate on behalf of those issuers who have concerns about a research report that cannot be resolved through direct dialogue with the proxy advisory firm.
• Institutional investors who use a proxy advisory firm should comply or explain why they do not comply, with a requirement to disclose how they assess the advice received from the proxy advisory firm and not automatically follow it.

The CSA received 62 comment letters from various market participants, including issuers, institutional investors, industry associations, proxy advisory firms and law firms. As expected, differing views were presented. 

As a result of the feedback received, the CSA has decided to develop a policy-based approach that will provide guidance on recommended practices and disclosure for proxy advisory firms. This approach will be published for comment in the first quarter of 2014, which CIRI will respond to.

The second item is a news release issued by the Department of Finance Canada announcing that the Ministers of Finance of British Columbia, Ontario and Canada have agreed to establish a cooperative capital markets regulatory system. They also invite all provinces and territories to participate in the proposed system.

CIRI's Issues Committee is monitoring both of these issues and will keep you apprised of updates as they unfold.