On October 21, 2019, the British Columbia Legislature introduced over 100 significant and expansive changes to the Securities Act RSBC 1996, c 418 (the “Act“) via Bill 33, including broad new enforcement powers and the addition of a broad definition of “Promotional Activity”.
The proposed amendments, which are the most extensive since to the Act since it was enacted in 1996, are said to be a response by the province to protect investors and crack down on white collar crime. As stated by Minister of Finance, Carole James, “Our government is taking action to make sure we have the strongest protections in Canada for people who are investing and tough penalties for those who are abusing the system”.
Increased Penalties and Strengthened Enforcement Ability
The proposed amendments allow for increased penalties, including an increase in fines by $2 million (from $3 million to $5 million), and an increase in the maximum term of imprisonment for offences under the Act from 3 years to 5 years.
In addition, the proposed amendments significantly expand the ability of the Securities Commission to collect fines, including but not limited to:
- The ability to order administrative monetary penalties without a hearing;
- Expanded investigative powers, including powers to obtain information;
- Increased sanctions relating to disclosure of records;
- Increased whistleblower protections;
- Adding and expanding the definitions of “Claimable Property” to include family and third party property transfers with respect to Additional Collection Remedies;
- Adding and expanding the definition of “Family Member” to include up to current and former grandchildren or grandparents, and spouses with respect to Additional Collection Remedies;
- The ability to refuse renewal and/or issuance of ICBC driver’s licenses or license plates; and
- The ability to seize RRSPs.
It is likely these amendments were a response, in part, to negative publicity concerning the Securities Commission historical difficulty in collecting finds imposed under the Act.
Amendments Relating to “Promotional Activity”
The proposed amendments also add the following definition of “Promotional Activity”:
“promotional activity” means any activity, including, for greater certainty, any oral or written communication, that by itself or together with one or more other activities encourages or reasonably could be expected to encourage a person
(a) to purchase, not purchase, trade or not trade a security, or
(b) to trade or not trade a derivative,
but does not include an activity prescribed for the purpose of this definition; ,
This new broad definition is then used in two significant places in additional amendments to the Act.
First, “promotional activity” is added to section 50 of the Act, which deals with liability for misrepresentations made by individuals in the context of securities. The revisions make it an offence for those engaged in promotional activity to make misrepresentations. The specific and separate inclusion of liability for misrepresentations made by those engaged in promotional activity appears to be a signal by the legislature that promotional activity is conduct that is going to be scrutinized by the Securities Commission.
The proposed amendments to section 50 of the Act also create a new mechanism of liability for “unfair practices” by persons engaged in promotional activity. Clearly, this addition is intended to be different than liability for misrepresentations by those engaged in promotional activity.
By definition, “unfair practices” by those engaged in promotional activity includes, but is not limited to, the following:
(a) putting unreasonable pressure on a person to purchase, not purchase, trade or not trade a security or trade or not trade a derivative;
(b) taking advantage of a person’s inability or incapacity to reasonably protect the person’s own interest because of physical or mental infirmity, ignorance, illiteracy, age or inability to understand the character, nature or language of any matter relating to a decision to purchase, not purchase, trade or not trade a security or trade or not trade a derivative;
(c) imposing terms or conditions that make a transaction inequitable
Taken together, these proposed amendments to section 50 of the Act mean that individuals engaged in “promotional activity” cannot:
- Make deliberately false, or misleading claims while engaged in promotional activity;
- Omit, whether intentionally or negligently, any fact that a reasonable person would take as material when engaging in promotional activity;
- Fail to discuss the truthful positives of an issuer or fail to ensure frank and full disclosure of potential negatives, risks, and hurdles faced by that issuer is made when engaged in promotional activities;
- Put undue pressure on anyone while engaging in promotional activity;
- Take advantage of anyone while engaging in promotional activity; and/or
- Otherwise act unfairly when engaged in promotional activities.
“Promotional activity” is also referred to in section 161 of the Act, which deals with Enforcement Orders. These Amendments to section 161 appear to give the Securities Commission the power to require a person engaged in promotional activity to submit to a review of its practice and procedures and to make changes to its practices and procedures.
The proposed amendments are intended to send a clear message to potential fraudsters that the rules are clear in B.C. and there are significant consequences if they are broken.
It is anticipated by practitioners that defining the scope of the obligations of disclosure for individuals engaged in promotional activity, as well as the scope of “unfair practice”, will be a matter of sustained litigation over the next several years.
Given the scope and breadth of all proposed amendments, however, it is anticipated that it is going to take several years before the full implications will be evident.
We will be monitoring these proposed amendments, so please check back for more updates.
Please contact Patrick Sullivan with any questions related to these amendments or in relation to any of your securities related needs.
You can read more about these proposed amendments in the Ministry of Finance’s press release and backgrounder found here: https://news.gov.bc.ca/releases/2019FIN0112-002020