Capital market participants in Canada face a variety of emerging securities regulatory and litigation risks. Climate disclosure-related litigation, including securities class actions, continue to increase, regulatory scrutiny of auditors and the quality of issuer financial reporting is growing, shareholder activism is on the rise and crypto’s financial effects across markets remain significant.

Stay ahead of these developments with McCarthy Tetrault’s Canadian Securities Litigation: Trends to Watch 2024. Authored by members of our Securities Litigation Group, and in collaboration with our Capital Markets, Critical Situations & Shareholder Activism and ESG and Sustainability groups, this publication contains unique market insights from some of Canada’s preeminent practitioners in the space.

This year’s publication covers:

• Shades of Green: The Continued Push for Disclosure and Growing Wave of Litigation
• Risk Alert: Increased Scrutiny of Auditors in 2023 and Beyond
• Shareholder Activism Abounds: Update on Trends and Tactics
• Crypto Clean-up: CSA Enforcement and Compliance Measures in 2023 and Predictions for 2024
• Living in Material World: Securities Class Action Update

Read excerpts from the publication below.

Shades of Green: The Continued Push for Disclosure and Growing Wave of Litigation

The “shift to green” in capital allocation continues even in the face of increased inflation, recessionary worries, global geopolitical turmoil and the lack of a global baseline for consistent comparable mandatory sustainability-related disclosures. Global sustainable assets topped US$30 trillion in the past two years. Although Canadian sustainable assets under professional management decreased slightly in 2023, their market share continued to increase. Globally, sustainable funds nearly doubled the return of traditional funds. This shift in the global allocation of capital demonstrates the importance of factoring climate-related risks and opportunities into the price of investments to ensure efficient capital allocation as well as the importance of managing the concomitant increased risk for greenwashing.

Risk Alert: Increased Scrutiny of Auditors in 2023 and Beyond

In light of recent corporate failures around the globe, regulators in Canada and the United States have placed auditors, and in particular auditors of public companies, under greater scrutiny. Trends in this regard include:

• Trend 1: Amendments to audit standards that create robust frameworks to strengthen audit quality;
• Trend 2: Increased inspection and enforcement action against auditors of public companies;
• Trend 3: Increased disciplinary action by provincial Chartered Professional Accountants’ (CPA) bodies for failures to comply with professional standards, and in Ontario, failing to co-operate with regulatory processes;
• Trend 4: Increased scrutiny by securities regulatory authorities of the practices and policies of auditors and audit firms;
• Trend 5: Greater focus on public accounting licensing issues by Canadian regulators; and
• Trend 6: Increased risk of being named as a defendant in securities class actions arising out of alleged misrepresentations in financial reporting by public issuers.

Shareholder Activism Abounds: Update on Trends and Tactics

The 2023 Canadian proxy season saw an increase in shareholder activism covering a wide range of M&A, balance sheet and traditional environmental, social and governance (ESG) objectives, including board change. During the first half (H1) of 2023, 39 Canada-based companies were publicly targeted with activist demands, up from 37 during the corresponding period in 2022, marking the highest number of H1 demands since 2019. Notably, demands to appoint new personnel, including to replace directors, doubled, and campaigns aimed at opposing M&A deals nearly tripled compared to prior seasons. Environmental and social shareholder proposals also increased roughly over 10%, with issuers in the financial services sector being the main targets.

Crypto Clean-up: CSA Enforcement and Compliance Measures in 2023 and Predictions for 2024

Over the past year, the Canadian Securities Administrators (CSA) strengthened Canada’s regulatory framework for crypto asset trading platforms (CTPs) and increased enforcement activities relating to crypto asset market intermediaries and issuers. Between July 2022 and June 2023, 56% of the CSA’s 758 investor alerts were related to crypto assets. The CSA confirmed our prediction in Crypto Crackdown: OSC Enforcement in 2022 and Predictions for 2023 that the CSA would continue to use co-operative regulatory initiatives and enforcement actions to address the risks associated with crypto asset activities in Canada.

Living in Material World: Securities Class Action Update

This article summarizes some important developments in securities class actions in Canada in 2023, namely: three 2023 decisions considering the question of materiality in public disclosure; a 2023 decision creating a global shareholder class; and two potential new class action risks for public issuers.

 

About McCarthy Tétrault

McCarthy Tétrault LLP provides a broad range of legal services, providing strategic and industry-focused advice and solutions for Canadian and international interests. The Firm has a substantial presence in all of Canada’s major commercial centres as well as in New York and London.

Built on an integrated approach to the practice of law and delivery of innovative client services, the Firm brings its legal talent, industry insight and practice experience to help clients achieve the results that are important to them.

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