Regulatory proposals for the register of individuals with significant control regime
This consultation is now closed.
Purpose of the consultations
The Bill C-86 amendments to the Canada Business Corporations Act (CBCA) to increase corporate transparency came into force on June 13, 2019. As of that date, most corporations governed by the CBCA must keep a register of individuals with significant control (ISC Register). The ISC Register provides greater transparency about who owns and controls Canadian corporations, and helps law enforcement agencies expose activities like money laundering and tax evasion.
To promote awareness of the new requirements, Innovation, Science and Economic Development Canada (ISED) provided details on the information that must be maintained in an ISC Register. In addition, Corporations Canada held numerous sessions with businesses, and accounting and legal professionals from April to June 2019. Participants indicated that the amendments did not provide enough guidance and they wanted more clarity on how they applied in in certain situations.
To respond to the feedback received, ISED is considering using the regulatory authority set out in the CBCA to bring further clarity. The scope of the regulatory authority includes:
- prescribing classes of corporations that are not subject to the requirements to create and maintain an ISC Register;
- prescribing steps to be taken if a corporation is unable to identify any individuals with significant control over the corporation; and
- prescribing steps to be taken by a corporation for the purposes of updating the ISC Register.
Consequently, ISED is seeking feedback and suggestions from stakeholders to three questions:
- Are there additional classes of corporations that should be exempt from the requirements to create and maintain an ISC Register?
- What should be the steps to follow if a corporation is unable to find any individuals for its ISC Register?
- What reasonable steps should a corporation take to update its ISC Register?
Increasing corporate transparency has been an ongoing international concern. In recent years, many nations have committed to beneficial owner transparency under: the Financial Action Task Force (FATF) of the OECD; the Global Forum on Transparency and Exchange of Information for Tax Purposes; and various G8 agreements. All of these initiatives are an effort to safeguard against misuse of corporations as vehicles for tax evasion and money laundering.
In 2017, federal, provincial and territorial Finance Ministers in Canada formally agreed to strengthen beneficial transparency, and have since committed to pursuing amendments to their corporate statutes to require corporations to hold accurate and up-to-date information on beneficial owners that would be available to relevant authorities.
In 2018, the federal government amended the CBCA under Bill C-86 to require corporations to identify and document who has ownership or control over them. These amendments came into force on June 13, 2019 and apply to most corporations subject to the CBCA. Of the provinces and territories, British ColumbiaFootnote 1 has passed legislative changes that will come into force May 1, 2020. ManitobaFootnote 2 has passed legislation that came into force January 1, 2020.
Question A - Are there additional classes of corporations that should be exempt from the requirements to create and maintain an ISC Register?
All CBCA corporations are required to prepare and maintain an ISC Register, except a corporation that is:
- a reporting issuer or an émetteur assujetti under a law of a province or territory relating to the regulations of securities; or
- listed on a designated stock exchange, as defined in subsection 248(1) of the Income Tax Act.
These corporations are essentially those whose shares are publicly-held.
The Director, appointed under the CBCA, does not have authority to exempt a corporation from these requirements nor to exempt an individual from being listed in a corporation’s ISC Register. However, the CBCA does provide authority for regulations to exempt classes of corporations from creating and maintaining an ISC Register. The regulatory authority does not allow for exemption of classes of individuals or professionals from being listed in an ISC Register.
Consideration is being given to exempting the following classes of corporations from having to create and maintain an ISC Register:
- a corporation that is a wholly-owned subsidiary of a corporation that is exempted in the ISC Register provisions; and
- a corporation that is wholly-owned by the Crown (Crown corporation).
The reasons to support the exemption of these two classes of corporations are the following:
- The Bill C-86 amendments to the CBCA exclude publicly held corporations from the requirements to keep an ISC register because they are already subject to disclosure requirements under relevant securities laws. If a wholly-owned subsidiary was required to meet the ISC Register disclosure rules, the publicly held parent corporation would also be subject to those disclosure rules and would, in effect, have to identify ISCs and ensure that they are included in the ISC register. This would defeat the purpose of exempting publicly held corporations. Other countries have a similar exemption for wholly-owned subsidiaries of exempt corporations.
- As for Crown corporations, ownership of the corporation is maintained by Her Majesty the Queen, so no further information on ownership would be necessary.
- Questions A1. Do you agree with the proposed classes for exempt corporations? Please explain why you either support these proposals or are against them.
- Questions A2. Do you have other suggestions for classes of corporations that should be exempt from the requirements for the ISC Register? Please explain your suggestions.
Question B - What should be the steps to follow if a corporation is unable to find any individuals for its ISC Register?
The ISC Register provisions do not provide any information on what a corporation is to do if it cannot identify any ISCs. This can occur when a corporation determines that no individuals qualify as an ISC, or it receives insufficient information from its shareholders to determine if any of them are an ISC. There is authority for the regulations to set out the steps to be taken by a corporation when this situation occurs.
Under the amendments to British Columbia’s Business Corporations Act, 2019 (Bill 24), a corporation can:
- set out a statement in its transparency register, which is the same as the ISC Register, that there are no individuals who qualify as an ISC in respect of the corporation, if applicable; or
- set out in the transparency register whatever information the corporation was able to obtain or confirm in respect of its ISCs and set out the steps taken to obtain or confirm the remaining ISC information.
Other countries’ corporate transparency regimes provide similar instructions. For example, in the UK, a corporation must note in its register that it knows or has reasonable cause to believe that there is no person with significant control. If a company has identified an ISC but the required particulars of the ISC have not been confirmed, the company must note this in its register.Footnote 3
In situations where no ISC can be found after best efforts are made, it could be appropriate to provide corporations with clear instructions to follow. It could be useful and informative to disclose to whomever requests a copy of the ISC Register that no individual qualifies as an ISC or the steps the corporation undertook to obtain ISC information. Alternatively (or concurrently), in those situations, the corporation could enter the name of an individual with leadership involvement in the affairs and governance of the corporation in the ISC Register, such as a director or a senior member of management.
- Questions B1. Do you agree that there should be rules in the regulations on the steps that a corporation must follow if it is unable to find any individuals for its ISC Register? Please explain.
- Questions B2. Do you agree that the proposed steps should be the similar those in the British Columbia legislation? Please explain why you either support this proposal or are against it.
- Questions B3. Do you think it would be useful to enter the name of an individual related to the affairs of the corporation in the ISC Register, such as a director or a senior member of management, when a corporation is unable to find an ISC? Please explain why you either support this proposal or are against it.
- Questions B4. Do you have other suggestions for other steps to be prescribed in the regulations?
Question C - What reasonable steps should a corporation take to update its ISC Register?
The ISC Register provisions require that a corporation take reasonable steps to update its ISC Register at least once a year. This includes taking reasonable steps to find out:
- if any of the information contained in the ISC Register has changed, and
- if new individuals need to be added.
The ISC Register statutory provisions do not provide any information on what are acceptable or reasonable steps. However, the CBCA allows for regulations that specify what those reasonable steps are to be. They could include, for example:
- require a notice to be sent to registered shareholders to request information; or
- set out what a corporation must do at a minimum to update the ISC Register.
Corporations often benefit from clear guidance on how to be compliant with their statutory obligations. In other jurisdictions, such as the United Kingdom and Singapore, the steps are prescribed. For instance, the United Kingdom legislation provides detailed steps a corporation should take to identify its persons with significant control. Similarly, Singapore legislation requires corporations to take reasonable steps, including sending a prescribed notice to prescribed persons in order to identify the registrable controllers of the corporation. This creates certainty within the corporate community and promotes a regime that is applied consistently throughout Canada.
At a minimum, the regulations could require the sending of a notice as a reasonable step. The notice would be sent to all registered shareholders, ISCs and any other person that the corporation thinks would have relevant knowledge on information that should be included in the corporation’s ISC Register. A model notice could be made available on ISED’s website to assist corporations in complying with this requirement.
- Questions C1. Do you agree that there should be rules in the regulations about reasonable steps that a corporation must follow to update its ISC Register? Please explain.
- Questions C2. Do you agree with the proposal, that the minimum required to meet the statutory requirement to update the ISC is the sending of a notice to registered shareholders, ISCs and any other person that the corporation thinks would have relevant knowledge? Please explain why you either support this proposal or are against it.
- Questions C3. Do you have other suggestions for the steps to be followed?
Comments received will be treated as part of the public record and may be made publicly available on ISED’s website. Stakeholders wishing to make comments should send their written submissions to Corporations Canada:
By email: firstname.lastname@example.org
Innovation, Science, and Economic Development Canada
235 Queen Street, Floor 7
Ottawa ON K1A 0H5
If you have questions about this consultation, please contact Corporations Canada.
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