Recent federal government regulations will allow banks and other financial institutions to do more business with customers online and electronically transmit documents currently mailed at hefty postage, printing, disposal and environmental costs.
But are the Feds leading with these new regulations? One needs to look no further than National Policy 11-201 of the Canadian Securities Administrators, adopted in 2000, to see it’s only just catching up.
This policy provides guidance on the use of electronic media to fulfil certain disclosure requirements. And while it doesn’t override corporate governance requirements that may not permit electronic delivery, it does clarify which documents can be sent using electronic media and still satisfy securities laws.
As it stands, there are four requirements to be satisfied before one can claim documents have been delivered electronically:
- Recipients must be notified a document has or will be sent electronically or made available. Just posting a document online won’t amount to notice without a properly worded consent from recipients;
- Records must be kept that can prove recipients have received the documents or they have been
made available electronically;
- The electronic document received by a recipient must not differ in content from the document sent, filed with securities regulators or otherwise printed for distribution;
- There’s informed consent of recipients—which would likely include a description of the documents to be delivered electronically, how they’ll be delivered and the software requirements. (Some consent forms go so far as to require recipients acknowledge they’ll actively monitor the relevant site themselves. This arguably frees issuers from the obligation to provide notice with respect to each new document posted on the site.)
As of June 1, 2011, banks and other financial institutions that post electronic documents on a readily accessible electronic venue, such as a Web site, will no longer have to deliver paper versions to recipients who have provided informed consent.
Alternatively, recipients who are asked to provide their consent must be notified:
- Of their right to revoke the consent;
- That the responsibility to inform the relevant party of a change in their electronic address lies with the recipient;
- That each electronic document will be available during a specified period (where applicable);
- It’s up to recipients to keep a copy of any document they wish to retain.
Where informed consent is provided verbally, confirmation of the granting of the consent must also be sent in paper or electronic form.
Electronic documents will be considered delivered once they leave the institution’s information system and are received by the recipients or once the documents are made available to recipients online.
The regulations require banks and institutions to send a paper copy of a document to a recipient immediately after it comes to their attention that the document may not have been received.
Finally, in the event a recipient decides to verbally revoke his consent, confirmation specifying when the revocation will take effect must be provided in either soft or hard form.
The obvious and significant benefits of electronic delivery, if it’s to be exploited, necessitate a careful review of the policy or regulations, applicable corporate governance documents and client documents to ensure operational policies and procedures are adequate.
Given the broad language of both, though, experience and judgment will need to be applied to avoid a breach of a disclosure requirement—inadvertent or otherwise.