In the interest of the investors and other actors in the financial markets — especially of the public — laws are enacted to regulate securities and transactions related to it.
In Québec, the Québec Securities Act is the main go-to for both investors and issuers of securities.
What is the Québec Securities Act?
In the absence of a federal law governing securities in the country, each province in Canada has enacted their own securities laws.
These laws also set up their own provincial securities regulator to fill in the gap of a federal securities regulator.
The Québec Securities Act is the province’s version of this law. It was enacted in 1982, which repealed the old securities law on the same matter. A separate law established the Autorité des marchés financiers (AMF), which is the financial markets and securities regulatory body in the province.
This Act is also in harmony with the other Securities Act of the other provinces, through the efforts of the Canadian Securities Administrators (CSA).
Scope of the Act
The Act provides for the following transactions and the forms of investments that it specifically covers. These include:
- securities, such as shares, bonds, capital stocks of any entity, or subscription rights or warrants
- instruments, other than bonds, which are evidence of loans
- deposits, except for deposits received by the government
- investment contracts
- options or other non-traded derivatives except for those covered by the Derivatives Act of Québec
What are the requirements under the Québec Securities Act?
The following are some of the requirements set by the Securities Act of Québec, in relation to the above-mentioned transactions and forms of investments:
- prospectus requirements
- disclosure obligations
- registration requirements
These obligations are also related to the regulations made through the harmonization of securities laws in Canada through the ASC.
As such, participants in the securities market may also refer to the National Instruments and other regulations released by the ASC.
Below are the summaries of these obligations. When in doubt, consult with a corporate finance lawyer.
Prospectus requirements
Common to all provinces is the prospectus requirement when securities are issued by a reporting issuer, or when it is distributed by a dealer acting as a firm underwriter.
A prospectus must contain a full disclosure of all the material facts on the securities being issued or proposed to be distributed, such as:
- how the money raised will be used
- the company’s activities, management, and financial condition
It is filed with the AMF, which shall issue a receipt to the reporting issuer, showing that the prospectus has been reviewed by the Authority.
Exemptions to the prospectus requirement
Under the Securities Act of Québec, there are two exemptions to the prospectus requirement:
1. Due to the nature of the securities
When the securities distributed are debt securities guaranteed by the/a:
- government
- municipality
- metropolitan community
- school service centre
- school board
- transit authority established by a Québec law
- public institution or regional council
- Québec university
2. Due to the nature of the distribution
When the securities distributed are made to an accredited investor, determined by the regulations, if it meets the conditions prescribed by the applicable regulation
The AMF also supplemented on these exemptions to the prospectus requirements under these three categories:
- private issuers: when the issuer has no more than 50 investors, who can only ask for investments from specific persons, but with restrictions on the resale of the issued securities
- crowdfunding: when the issuer raises small amounts of investments from many people through a funding portal, subject to certain regulatory obligations by the AMF
- offering memorandum: when the issuer substitutes a prospectus with an offering memorandum which contains similar information with a prospectus, but subject to a maximum subscription limit
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Disclosure obligation
Also known as the continuing disclosure obligation, this is imposed on reporting issuers, who are those that distribute securities to the public.
According to this obligation, reporting issuers must file reports or statements according to these two types of disclosures:
- periodic disclosure: consists of reports about the reporting issuer’s business, internal affairs, and governance practices. These include audited annual financial statements and interim financial reports
- timely disclosure: occurs when there’s a material change to the reporting issuer’s business
Violation of these disclosure obligations may open the reporting issuer to civil liabilities under the Québec Securities Act. This action can be brought by investors against the reporting issuer for misrepresentations.
Reporting issuers may also be subject to administrative penalties, in addition to these civil liabilities.
Registration requirements
Another requirement under the Securities Act of Québec is that dealers, advisers, and investment fund managers must be registered with AMF.
Subject to various exemptions, the AMF says that this includes registration of certain individuals within the registered firms, such as:
- dealing representatives
- advising representatives
- ultimate designated person
- chief compliance officer
When a firm is registered, it must also maintain its status by following the guidelines of the AMF related to:
- maintaining its policies to ensure compliance with Québec’s securities laws
- compliance with the firm’s disclosure obligations
- payment of annual dues
What is the role of the Autorité des marchés financiers?
One of the main roles of AMF is to administer the Québec Securities Act and its regulations.
It is also responsible for other functions and powers, as provided by the same law and the Act on the regulation of the financial sector.
The AMF’s other roles include:
- ensuring the efficiency of Québec’s securities market
- protecting investors against unfair practices and fraud
- imposing disclosure obligations on persons engaged in securities distribution and the securities they’re issuing, for the benefit of security holders and the public
- regulating the registration and activities of:
- professionals in the securities market
- organizations responsible for the operation of a stock market
If you want to know more about the law of the other provinces like Québec’s Securities Act, reach out to the best corporate finance lawyers in Canada as ranked by Lexpert.