On June 21, 2012, the Canadian Securities Administrators
(CSA) published Consultation Paper 25-401
— Potential Regulation of Proxy Advisory
Firms. In light of the increased demand for the services
of proxy advisors, the paper seeks to initiate a discussion of
concerns about the effect of such services on the Canadian capital
markets and how these concerns may best be addressed by Canadian
The potential concerns identified by the CSA which they are
seeking public response on include:
any possible conflicts of interest that arise due to the fact
that proxy advisors provide both vote recommendations on governance
matters and consulting services or that arise due to their
the perceived lack of transparency in how vote recommendations
are determined by proxy advisors and the lack of public disclosure
of their reports;
the limited engagement proxy advisors have with issuers which
may result in potential inaccuracies in their reports and
the potential for proxy advisors to become corporate governance
standard setters which may result in issuers being compelled to
adopt "one-size fits all" standards which may not be
suitable for their circumstances; and
the extent of institutional investor reliance on proxy advisory
recommendations. One particular distinction identified is how
reliance upon proxy advisors may differ between larger and smaller
The paper concludes that neither the current registration or
proxy solicitation regime is the appropriate framework for
regulation of proxy advisors, if regulation is in fact needed. The
CSA is seeking consultation on whether any of the following regimes
is appropriate for regulation: a separate regime applicable to
proxy advisory firms; a certification regime or a requirements and
The CSA staff initiative follows international regulatory
initiatives which are addressing the role of the proxy advisors in
capital markets and the appropriate standards of transparency and
accountability of such advisors. The paper invites public comment
on these issues until August 20, 2012.
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