CSA says no to social media

Guidance on material information steers Canada in different direction from the US

The Canadian Securities Administrators (CSA), composed of Canada’s 13 securities regulators, has issued guidance advising companies against using Twitter, Facebook or other social media platforms when revealing material information for the first time. 

In the US, companies can post material information on such platforms first – as long as they’ve already told investors which channels they’ll be using. Following a review of the social media disclosure by 111 reporting issuers, however, the CSA has found a number of failings. 

‘Our review reveals concerns about how issuers are using social media websites, including specific instances where deficient social media disclosure may have resulted in material stock price movements and investor harm,’ says Louis Morisset, CSA chair and president, and CEO of the Autorité des marchés financiers, in a press statement. ‘We expect issuers to adhere to high-quality disclosure practices, regardless of the venue of disclosure, and encourage issuers to implement a strong social media governance policy.’

The CSA finds that 72 percent of the companies it reviewed are actively using at least one social media channel, but 77 percent have failed to develop a specific governance policy to direct their disclosure practices on social media. 

One big issue with material information revealed first on sites like Twitter or Facebook is the user’s ability to edit, or completely remove, posts. By contrast, anything filed with regulators on the System for Electronic Document Analysis and Retrieval website are public and on permanent record. 

‘Of the issuers we reviewed that were actively using social media, 25 percent either filed clarifying disclosure, edited or removed disclosure, or made prospective commitments to improve disclosure,’ states the CSA’s report, Staff’s review of social media used by reporting issuers. ‘These actions were mainly taken in order to address inconsistencies between specific social media disclosures and certain securities law requirements.’ 

The report adds that ‘in the case of four specific issuers, the original non-compliant disclosure and/or the subsequent correction of that disclosure resulted on average in a 26 percent movement in the stock prices of the issuers involved.’ In these cases, the deficient disclosure appeared to be material, says the CSA, adding that it was considering further engagement with the firms.

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