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On November 11, the Minister of Finance introduced Bill 72, An Act to amend the Securities Act and other legislative provisions. In addition to making several important amendments to the Securities Act, the Bill makes official the change in the name of the Agence nationale d'encadrement du secteur financier, which will from now on be known as the Autorité des marchés financiers (the "Authority"). It should be noted, however, that, even if they are adopted, a number of the proposed amendments to the Securities Act will not come into force until new regulations have been enacted.

THE PASSPORT SYSTEM

Bill 72 is a major step towards the introduction of the "passport" system among the Canadian provinces. The Bill would enable the Quebec government to enter into reciprocity agreements with the governments of the other Canadian provinces and territories regarding mutual recognition of jurisdiction over securities matters. Reciprocity agreements could allow acts or decisions of the competent authorities in one province or territory to be recognized in the other province or territory and powers exercised or decisions made in one province or territory to be presumed or deemed exercised or made in the other province or territory. Such agreements could also provide that persons or bodies that fulfill certain obligations in one province or territory would be exempted from fulfilling them in the other province or territory.

PROSPECTUS EXEMPTIONS

Bill 72 proposes major amendments to the prospectus exemptions system under the Securities Act. These amendments parallel an ongoing project of the Authority and the other provincial and territorial securities authorities, who we have heard are preparing a National Instrument (NI 45-106), which would be enacted as a regulation in Quebec, in order to harmonize the prospectus exemptions. A number of exemptions will therefore be removed from the Act. These include exemptions due to the nature of the distribution (a distribution to a sophisticated purchaser; a distribution of tax-shelter securities or to raise seed capital; the exchange of securities in the context of a consolidation or reorganization; a distribution of blocks of at least $150,000; a distribution to the issuer's own securityholders or to its own employees or senior executives or those of its affiliates; a distribution of voting securities to not more than five holders; a firm underwriting distribution; a distribution of securities given in guarantee by the issuer), as well as the final exemptions for these types of distribution and for the distribution of securities pursuant to an exchange take-over bid.

The prospectus exemption for the distribution of securities to governments, their departments or mandataries will remain in the Act. Meanwhile, the exemption for distributions to sophisticated purchasers will be replaced by an exemption, to be included in the Act, for the distribution of securities to accredited investors on conditions to be determined by regulation.

The exemption for securities issued by a closed company will be removed from the Act and the definition of "closed company" will be kept only for purposes of application of the Charter of the French language. However, we expect an equivalent concept to be included in a regulation. In a related amendment, an addition will be made to the definition of "distribution" so that the endeavour to obtain or the obtaining of purchasers for the securities of a company which corresponds to the existing definition of a closed company will in future be considered to constitute a distribution within the meaning of the Act.

It should be noted that the abolition of the exemptions in the Securities Act will not come into force until a National Instrument (adopted as a regulation in Quebec) containing a new system of prospectus exemptions has been adopted.

EXEMPTIONS FROM REGISTRATION AS A DEALER OR ADVISER

Certain exemptions from the requirement to register as a dealer or adviser will also be abolished. There is no mention in the Bill itself as to whether such exemptions will be incorporated into a regulation. However, in view of the Authority's powers to enact regulations for the purpose of exempting any category of persons from certain requirements, a regulation should ultimately provide for such exemptions.

DEALERS' AND ADVISERS' COMPLIANCE PROGRAM

The Bill creates a requirement for dealers and advisers to implement a compliance program and to designate a person to supervise its enforcement. The conditions of this program will be established in a regulation; therefore, this new requirement should only apply when the appropriate regulation is enacted.

FINES FOR OFFENCES

The Bill provides for an increase in the maximum fine payable in cases of serious offences, for example: influencing the market price or the value of securities by means of unfair, improper or fraudulent practices, misrepresentation, a distribution without a prospectus or the prohibited use of privileged information. In future, the fines could be as high as $5 million (or, in cases of prohibited use of privileged information, the greater of $5 million or four times the profit that may be realized) instead of the $1 million dollar limit currently provided for in the Act.

CLAIMS FOR COMPENSATION

A novel aspect of Bill 72 is the introduction of a claim for compensation which will allow the victims of acts or omissions of securities firms, dealers, advisers or representatives that are determined by a final decision to constitute a contravention to request the Authority to present a claim for compensation on their behalf to the Bureau de décision et de révision en valeurs mobilières. Only capital losses of up to $100,000 that result immediately and directly from the contravention may be claimed by the injured party. The request will have to be filed with the Authority within the year following the determination of the contravention or before the expiry of the prescription periods set forth in the Securities Act or any applicable prescription period, whichever expires later. The investor will have to waive his or her rights to any other available remedies in Quebec or outside Quebec. It is important to note that governments, their departments and their mandataries, the sophisticated investors mentioned in the Bill and certain other persons to be determined in a future regulation will not be able to use this remedy. Accordingly, the claims procedure is not expected to be available until such a regulation has been adopted.

AGREEMENTS FOR COLLABORATION WITH POLICE FORCES

Finally, in order to efficiently combat tax-related and economic and financial crimes, Bill 72 proposes to permit the Authority, on certain conditions, to communicate any information, including personal information, to a police force, the Minister of Revenue or certain other agencies. The Authority will also have the power to enter into agreements to facilitate the administration or enforcement of securities and tax legislation as well as criminal and penal legislation. In addition, the Bill provides for the Authority to access a common database containing personal information.

NEXT STAGE

The Minister of Finance hopes that this Bill will increase the confidence of Quebec investors while giving effective tools to the Authority to ensure market supervision and to permit it to take prompt action against financial crimes. The Bill also constitutes a significant step towards the harmonization of Canadian securities legislation.

As Bill 72 could well be adopted before the National Assembly rises for the holidays, we should not delay in familiarizing ourselves with the proposals it contains.

The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault or any member of the Firm on the points of law discussed.

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