Since June 2019, private corporations governed by the Canada Business Corporations Act (the "CBCA") are required to create and maintain a register of individuals with significant control (the "ISC Register"). The purpose of the ISC Register is to increase corporate transparency to assist with combatting tax evasion, money laundering and terrorist financing. (For more background, please see our Timely Disclosure blog post "Bill C-86 – New record-keeping obligations for all CBCA private companies").
Shortly after the ICS Register regime came into force - given much uncertainty surrounding the new transparency requirements - the federal government entered into public consultations on whether to adopt regulations to clarify the obligations of CBCA corporations, which lasted until May 20, 2020 (For the scope of consultations, please see our bulletin: "Going Back to the Drawing Board - Public Consultations on Regulatory Proposals for the ISC Register under the CBCA.")
At end of last year, more than three years after the consultation had been concluded, the federal government finally published draft Regulations Amending the Canada Business Corporations Regulations, 2001 intended to provide more guidance on only three specific aspects of the ISC Register regime (the "Proposed Amendments"):
- Entities exempted from the ISC Register requirements;
- What is meant by "reasonable steps" that companies are required to take to identify significant individuals; and
- What corporations are to do if they cannot identify any individuals with significant control.
New Exemptions From the Requirement to Maintain ISC Registers
Currently, the CBCA only exempts CBCA corporations that are not considered "private" (so called "reporting issuers" under provincial securities laws and companies listed on certain designated Canadian and international stock exchanges) from the ISC Register rules.
If enacted as published, the Proposed Amendments would extend the exemptions to CBCA corporations that are wholly-owned subsidiaries of other CBCA corporations or business corporations incorporated or continued under provincial laws, provided that these parent corporations are either reporting issuers or listed designated stock exchanges (such as NYSE, NASDAQ, the London Stock Exchange or Euronext Paris).
The reason for this proposed additional exemption is that the relevant information on ownership and control of these federal or provincial parent corporations is already publicly accessible under the applicable securities regulations or stock exchange rules. Requiring these corporations to create and maintain ISC Registers would therefore be redundant, burdensome and create unnecessary cost.
Interestingly and disappointingly, as drafted, the proposed additional exemption only appears to apply to public parent corporations that are governed by the CBCA or provincial corporate legislation. They do not appear to apply to public corporations established under territorial or foreign laws, which are also "reporting issuers" or which are traded on designated stock exchanges. Even though these parent corporations are subject to the same public disclosure requirements relied on to justify such exemption, their CBCA subsidiaries would not enjoy the benefit of the exemption and therefore have to prepare redundant and burdensome ISC Registers and incur costs that could be avoided. This would, for example, affect CBCA corporations that are wholly owned subsidiaries of the many U.S. companies doing business in Canada. It is to be hoped that the federal government will review and extend the scope of the exemptions before enacting the Proposed Amendments.
The Proposed Amendments would also exclude federal and provincial Crown corporations and CBCA corporations wholly-owned by the federal and/or provincial governments from the ISC Register requirements.
What Are Reasonable Steps to Identify Significant Individuals?
At least once during each financial year, private CBCA corporations must take "reasonable steps" to ensure that their ISC Registers are accurate, complete and up-to-date. However, the legislation does not specify what these "reasonable steps" entail and has created considerable uncertainty whether or not corporations have complied with the statutory requirements. The Proposed Amendments are intended to clarify how this obligation can be met.
As proposed, "reasonable steps" will include sending a request for information to all of the following:
- Individuals listed in the ISC Register,
- Registered shareholders, and
- Any person that may have relevant knowledge about individuals with significant control.
To assist CBCA corporations with information requests, the federal government plans to publish a template notice. Such a notice would not only reduce the costs of annual compliance, it would also clarify how corporations are supposed to request information to update their ISC Registers.
While the Proposed Amendments only address the annual review and update of ISC Registers, they may – at least indirectly – also provide guidance on the steps a new private CBCA corporation can take in first preparing an ISC Register.
What to Do if No Significant Individual Can Be Identified?
Despite reasonable steps taken, it may still be impossible for a private corporation determine whether a significant individual exists. Since the CBCA does not address what to do in this situation and has therefore led to confusion in the business community, the Proposed Amendments try to close this gap.
Where a corporation is unable to identify any individuals with significant control, it would include in its ISC Register an express statement to that effect and also include in the register a summary of the steps taken to identify significant individuals.
What Happens Next?
The federal government invited and received further feedback on the Proposed Amendments. To date, it is not know when the new rules on the ISC Registers will come into force and whether any further changes will be made.
Other Recent Developments for Corporate Transparency Registers
At the beginning of the year, Ontario enacted its transparency register regime for private corporations governed by its Business Corporations Act. (For more details, please see our bulletin: New Transparency Register Requirements for Ontario Private Corporations.)
Quebec is following suit and has announced that its requirements for transparency register requirements for all corporations doing business in Quebec (independent of their incorporation jurisdiction) will come into force on March 31, 2023. Unlike other jurisdictions in Canada, Quebec corporate transparency register will be accessible to the public. For more information, please see our bulletin: Bill 78: What Impact Will It Have for Enterprises?
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