By Zach Lechner-Sung
Welcome back to Friday Finds! This week, we will be discussing a new Ontario Instrument issued by the OSC, the FCA’s decision in Canadian Imperial Bank of Commerce v. The Queen, and a recent funding announcement by the Black Future Lawyers program.
Last week, the Ontario Securities Commission (OSC) took action to reduce regulatory barriers for Ontario investors seeking to participate in global securities offerings. The OSC issued Ontario Instrument 33-507 Exemption from Underwriting Conflicts Disclosure Requirements (Interim Class Order) on February 18, 2021 after receiving comments from several institutional investors who claimed the disclosure requirements “prevent investors from participating in global offerings on a timely basis”. These institutional investors also provided similar submissions to the Capital Markets Modernization Taskforce, which published its final report on January 18 recommending that the OSC “provide an exemption from the disclosure of conflicts of interest in connection with private placements to institutional investors”. The exemption relates to subsection 2.1(1) of National Instrument 33-105 Underwriting Conflicts, which requires that investors be provided with certain conflicts of interest disclosure where there is a “direct or indirect relationship between the issuer or selling securityholder and the underwriter”. Under the new Ontario Instrument, dealers selling private placements of “eligible foreign securities” to “permitted clients” will be exempt from “connected issuer” or “related issuer” conflicts disclosure. By reducing disclosure requirements for foreign issuers, Canadian investors should expect more opportunity to participate in global offerings. Ontario Instrument 33-507 will expire in 18 months (or earlier if an amendment is made to NI 33-105 that addresses the same subject matter).
Last month, the Federal Court of Appeal (FCA) released its decision in Canadian Imperial Bank of Commerce v. The Queen, 2021 FCA 10. The case concerned the classification of services provided by Visa to CIBC and their resulting tax treatment. The services in question were related to the Visa System, which allows Visa-branded credit card holders to immediately access credit through their financial institution – in short, the transactions that occur daily for millions of Canadians across the country. The FCA held that the service provided by Visa was a “financial service” as defined under the Excise Tax Act, and therefore CIBC was entitled to tax rebates for GST/HST payments on fees charged by Visa from 2003 to 2013. Under the Act, fees that come within the definition of a financial service are not subject to GST and HST. The definition of “financial service” excludes any services that are administrative, with some exceptions, however the Court held that Visa’s program’s predominant elements went beyond administrative logistics. While the Tax Court of Canada initially decided that “minimal decision making was involved” and therefore the services did not fall under the definition of a “financial service”, the FCA found that Visa still held “decision-making authority” when setting and maintaining the Visa System rules. The decision helps clarify what distinguishes a financial service from an administrative service, especially in the context of credit card issuers. While the decision is a win for financial institutions, it may result in lower profit margins for credit card businesses. In turn, companies like Visa and Mastercard may increase fees charged to banks and merchants, which will likely be passed down to end consumers. Whether or not the decision will be appeal to the Supreme Court remains to be seen.
On Thursday, the University of Toronto announced a new partnership with 14 of Canada’s largest law firms to provide $1.75 million in support of the Black Future Lawyers program. Black Future Lawyers (BFL) offers “supports and engagement opportunities to Black undergraduate students who aspire to go to law school and become lawyers”. Their programming includes mentoring and job shadowing, workshops, admissions and financial aid information sessions, an LSAT prep course, and an application process for Black candidates that accepts additional essay submissions. The new partnership will provide operational funding to the organization over the next 10 years, ensuring its stability for the foreseeable future. According to a study done by the Law Society of Ontario (LSO) in 2016, only 3.2% of the province’s lawyers are Black. BFL seeks to alleviate many of the systemic barriers that prevent Black students from accessing legal education, including costly LSAT prep course fees and underrepresentation in law school admissions offices. Since launching in January 2020, BFL has grown to represent over 382 undergraduate members and has matched 134 students with Black-identifying mentors. In recent years, the LSO has taken numerous steps to address barriers to equal access, including implementing additional training around equity, diversity, and inclusion. These initiatives, however, are limited in that they serve to primarily increase awareness of the issues relating to diversity in the legal profession. Organizations like BFL are better positioned to address practical issues around legal education, and contributions from the participating law firms represent an important investment in their future lawyers.
That wraps up this week’s Friday Finds! Thanks for reading and come back next week for more business law stories.