CSA Staff Notice 51-348 - Social Media And Disclosure Issues For Reporting Issuers
Updated: Jan 24
It simply cannot come as a surprise to anyone who has paid even the slightest attention to U.S. news media over the past year or so. Social media has changed how almost anyone or anything communicates opinions, information and/or disinformation.
The Canadian Securities Administrators (the “CSA”) recently released CSA Staff Notice 51-348 - Staff’s Review of Social Media Used by Reporting Issuers (the “Notice”) and while acknowledging the emergence of social media as an important venue for reporting issuers to connect with potential customers, shareholders and other stakeholders, the CSA was quick to remind reporting issuers the importance of adhering to high quality disclosure practices regardless of the venue used for dissemination or the intention to communicate with investors.
Despite the perceived “newness” of discussion and disclosure regarding reporting issuers through chat rooms, investor presentations, blogs and social media websites, the legal requirements applicable to any those new (as well as traditional) venues are set out in National Policy 51-201 - Disclosure Standards (“NP 51-201”) published in 2002 and National Instrument 51-102 - Continuous Disclosure Obligations (“NI 51-102”) which was originally published in 2004. The CSA reviewed the disclosure provided on social media by 111 non-investment fund reporting issuers (in what appears a fairly accurate representation among Canada’s three predominant exchanges, over five predominant industries; and weighted across junior to senior market caps). This included a review of information provided on websites such as Facebook, Twitter, YouTube, LinkedIn, Instagram and GooglePlus, amongst others as well as the disclosure issuers posted on their own websites, including on any message boards or blogs hosted on those websites. The results of the CSA review identified three key areas where issuers are expected to improve their disclosure practices, including establishing social media governance policies to support social media activity. The areas of concern were summarized as follows:
Selective Disclosure on Social Media. The CSA noted that many reporting issuers use social media as a tool for general marketing and customer outreach that may, intentionally or not, interact with their obligations under securities law. When issuers disclose material information, they are required to ensure this information is “generally disclosed” consistent with the disclosure expectations outlined in NP 51-201. Subsection 6.11(1) of NP 51-201 provides that information is not considered to have been generally disclosed solely because it has been disclosed on an issuer’s website. Similarly, the disclosure of material information on a social media website alone would not be sufficient in order for information to be considered “generally disclosed” under NP 51-201. As a result, CSA staff outlined several selective disclosure concerns in instances where material information was posted only on a social media website.
Unbalanced or Misleading Disclosure on Social Media. The CSA noted that information posted by issuers on social media websites generally had a strong positive tone and, while not having regulatory concerns solely because an issuer’s social media disclosure focused on positive information, further noted a number of instances where social media postings were, individually or in the aggregate, sufficiently promotional or unbalanced that they raised concerns under securities law. NP 51-201 states that an issuer’s disclosure should be factual and balanced, giving unfavourable news equal prominence to favourable news. It also indicates that disclosure should include sufficient detail for investors to be able to understand the substance and significance of the events being discussed, and that exaggerated reports and promotional commentary should be excluded.
Social Media Governance Policy. The CSA emphasized the importance of reporting issuers having rigorous governance policies and disclosure practices which ensure the integrity of the disclosure they provide in formal regulatory filings but noted that a significant number of issuers did not have such policies, procedures or controls in place to ensure that similarly high standards are met in the disclosure they provide on social media. The CSA recommended that in light of the of the wide popularity of social media and the lack of significant obstacles for issuers and their executive officers to access it; as well as the risk to reporting issuers of incurring significant reputational, regulatory and other costs when addressing deficiencies; all reporting issuers should enhance the strength of their social media governance frameworks including the adoption, if required, of a strong social media governance policy.
Thirty percent of the issuers reviewed where deemed to be deficient in one manner or another and agreed, as a result of the review findings, to file or agree to file clarifying disclosure on SEDAR; remove social media disclosure; make other prospective commitments to improve social media disclosure; and/or make improvements to internal disclosure controls and/or policies. Further details regarding specific deficiencies found and the requirements of NP 51-201 and NI 51-102 are summarized in the Notice (see here).
All reporting issuers as well as their directors, executives, employees, advisers and agents should take care in any public communication – regardless of the forum – that may viewed by the investing public. It should never be assumed that, due to the informality of a particular public communication, neither the formalities of securities law nor the attention of securities regulators applies.
Does not constitute legal or other advice and must not be used as a substitute for legal advice from a qualified legal professional in your jurisdiction who has been fully informed of your specific circumstances. Information may not be up-dated subsequent to its initial publication and may therefore be out of date at the time it is read or viewed. Always consult a qualified legal professional in your jurisdiction.