By Alan Gahtan - Law Times, March 15, 1999
Securities regulators across Canada are acknowledging the growing importance of the Internet and are drafting policies to accommodate its new communications potential. The Canadian Securities Administrators (ACSA@), a group which represents securities regulators from each of the provinces, recently issued a Request for Comments (the ANotice@) in respect of a proposed National Policy (11-201) concerning the ADelivery of Documents by Electronic Means@ (the APolicy@). The CSA is also proposing a Policy (47-201) to address ATrading in Securities Using the Internet and Other Electronic Means@.
The CSA indicate that, as a general principle, the delivery requirements of Canadian securities legislation may be satisfied by electronic means. Electronic means include delivery of documents by facsimile, electronic mail, CD-ROM, diskette, the Internet or other electronic mechanisms. The Policy would be applicable to many types of securities-related documents including prospectuses, financial statements, trade confirmations and, in most cases, proxy solicitation materials (but does not apply to circumstances in which the delivery obligations of Canadian securities legislation prescribe a method of delivery and that method does not include electronic means).
The Policy sets out four basic requirements which must all be satisfied in order to property effect electronic delivery of a document:
1. The recipient of the document must be provided with notice that the document has been, or will be, sent electronically or otherwise electronically made available.
2. The recipient of the document must be provided with easy access to the document (i.e. must have the necessary technical ability and resources to access the document).
3. The deliverer of the document must acquire evidence that the document has been delivered or otherwise made available to the recipient.
4. The document that is received by the recipient must not be different from the document delivered or made available by the deliverer.
Requirements 1-3 may generally be satisfied by obtaining the informed consent of an intended recipient to the electronic delivery of a document, and then delivering the document in accordance with the consent. Although a deliverer may effect electronic delivery without the benefit of a consent, it does so at the risk of bearing a more difficult evidentiary burden of proving that the intended recipient had notice of, and access to, the document, and that the intended recipient actually received the document, than if a consent had been obtained.
If a deliverer intends to effect electronic delivery by placing a document on a Web site, the consent could indicate how the deliverer would bring to the attention of the intended recipient that a document was available. Alternatively, the consent could evidence the agreement of the recipient to monitor the deliverer=s Web site on a regular basis.
A number of other requirements are also set out in the Policy.
Deliverers are required to take reasonable steps to ensure that electronic access to documents is not burdensome or overly complicated for recipients. The electronic systems utilized for document delivery should be sufficiently powerful to ensure quick downloading, appropriate formatting and general availability. In the case of documents posted to Web sites, the server should be capable of handling the volume of recipients attempting to access the document. Also in that respect, it is recommended that the consent to be obtained from recipients set out the technical requirements for proper electronic retrieval of a document and the software requirements for proper viewing of a document.
Where a document is being made available for downloading (such as where a document is posted to a Web site), the document should remain available for whatever period of time is appropriate and relevant, given the nature of the document. The means utilized should also enable the recipient to retain a permanent record of the document.
Presumably included to address the needs of less technically sophisticated recipients, or those that experience problems, the CSA also recommend that deliverers make a paper version of every document delivered by electronic means available upon request.
The CSA have indicated that they have no objection to a recipient consenting to the electronic delivery of more than one type of document on an ongoing basis with the same consent form, so that repeated requests for consent will be unnecessary. However, a consent must set out details of the process for revoking consent to electronic delivery.
The deliverer must also meet the requirement that the document that is received by the recipient is not different from the document delivered or made available by the deliverer. This means that the deliverer needs to ensure, to the extent possible, that no alteration or corruption of a document occurs during the electronic delivery process. This requirement cannot be waived by obtaining consents from intended recipients. All appropriate and necessary technical steps need to be taken to ensure that documents sent by electronic delivery are not corrupted on tampered with enroute and that such documents arrive at their destination in a complete and unaltered form.
The Policy states that any attempt to deliver documents by referring an intended recipient to a third party provider of the document, such as SEDAR will not likely constitute valid delivery of the document, in the absence of consent given by the intended recipient, unless the third party provider has agreed to act as agent for the deliverer in connection with the delivery and actually effects the delivery. In any case, SEDAR currently appears to be using dynamic URLs to prevent direct linking to specific documents.
The Policy also addresses the issue of hyperlinks. The use of hyperlinks within a document is considered appropriate. However, there is concern that a deliverer that provides a hyperlink in a document to information outside the document risks incorporating the hyperlinked information into the document and thereby becoming legally responsible for the accuracy of the hyperlinked information. Where hyperlinks are provided to information outside the document, the hyperlinking process should provide clear notice to recipients when they are leaving the document.
Finally, the Policy highlights the importance of clearly differentiating information contained in multimedia communications from statutorily required information. Deliverers are also reminded that multimedia communications are subject to any applicable promotional or advertising restrictions contained in Canadian Securities legislation.
The Notice, along with a copy of the Policy, is set out in the Ontario Securities Commission Bulletin (1998) 21 OSCB 7782 and is accessible from the Ontario Securities Commission=s Web site at:
<www.osc.gov.on.ca/en/Regulation/Rulemaking/Policies/np11-201.htm>.
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