The Power of Perspectives

The Canadian Bar Association

Yves Faguy

Risk management

A new normal: Climate and cybersecurity risks in financial disclosures

By Yves Faguy August 9, 2017 9 August 2017

A new normal: Climate and cybersecurity risks in financial disclosures

Kevin LaCroix, discussing directors' and officers' liability, points to some telling signs of the times:

One of the fundamental principles on which our system of securities regulation is based is the importance of disclosure. The system is built on the notion that companies must disclose certain basic information about their operations and performance so that investors can make informed investment decisions. While the disclosures required are a matter of regulation and statute, investors’ and regulators’ expectations about what must be disclosed changes over time. Signs are that disclosure expectations  — and as a result disclosure practices — are changing rapidly in two particular areas: cybersecurity and climate change.

As if to underline the point, Australia's top bank is now the target of a shareholder suit over climate change risks. As The Guardian reports, the case marks a first test to gauge how courts will hold companies to account on disclosure requirements that should be identified in their annual reports:

The move comes six months after the Australian financial regulator warned climate change poses a material risk to the entire financial system, and called for companies to report on climate change-related risks as financial risks.

The sorts of risks the Commonwealth Bank might face as a result of climate change are diverse, said David Barnden, a lawyer at Environmental Justice Australia.

“CBA has exposure to the Australian economy in general. We could be talking about anything from extractive projects to the housing market, which might face risks from sea level rise,” Barnden said.

Reputational risks for the bank as the economy moves away from fossil fuels could also be significant, Barnden said, with the shareholders raising concerns about the bank’s position on funding Adani’s proposed Carmichael coalmine and associated infrastructure.

 

 

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Criminal law

Algorithms that predict crime need more public scrutiny

By Yves Faguy August 8, 2017 8 August 2017

Algorithms that predict crime need more public scrutiny

 

The predictive value of algorithms in criminal matters is obviously a controversial one.  Last year, the not-for-profit ProPublica newsroom published an investigative piece arguing that there is racial bias in a tool called COMPASS, used by courts in bail sentencing to predict the likelihood of people reoffending.

The case study found that black defendants are more likely to be incorrectly labeled high risk and white defendants low-risk, in large part because the algorithm itself tends to reflect existing social inequality and therefore reinforcing the bias. Ultimately, the study found that risk scores were unreliable in forecasting violent crime. The Chicago Police Department's Strategic Subject List, commonly called the Heat List, has also come under attack for its reliance on an algorithm that critics charge is assigning risk scores in an overly simplistic manner and without proper transparency (often because the owner of the predictive software will cite proprietary technology as a reason not to share details of its inner workings).

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Freedom of expression

Free speech on social media: Whose right is it anyway?

By Yves Faguy August 2, 2017 2 August 2017

Free speech on social media: Whose right is it anyway?

 

One of the privileges that presumably come with freedom of speech is that you don’t have to listen to what your critics say — unless, perhaps, you happen to be the President of the United States. 

Last month, a group of Twitter users, blocked by Trump, sued him on grounds that the president's account is a “public forum” and that they have a right to participate in public debate. The lawsuit reads:

The @realDonaldTrump account is a kind of digital town hall in which the president and his aides use the tweet function to communicate news and information to the public, and members of the public use the reply function to respond to the president and his aides and exchange views with one another.

Noah Feldman has suggested that the legal arguments are specious at best:

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Securities law

What the SEC's DAO ruling means for Canadian initial coin offerings

By Yves Faguy August 1, 2017 1 August 2017

What the SEC's DAO ruling means for Canadian initial coin offerings

 

Addison Cameron-Huff points to last week’s Securities and Exchange Commission report ruling that an initial coin offering (ICO) of Decentralized Autonomous Organization (DAO) tokens, dating back to 2016, are securities.  An ICO is essentially is similar to an initial public offering; only here it is the practice of raising funds in exchange for “digital tokens.” It has been mostly unregulated until now, but the SEC report confirms that U.S. securities law will apply to ICOs with a similar structure as the DAO.  The DAO, which was crowdfunded through its token sale in 2016, is a blockchain-enabled organization that exists as a set of contracts tied to the Ethereum network.

As Cameron-Huff notes, the SEC has opted not to enforce any action against the DAO at this particular time. But the message is pretty clear. The SEC is open to blockchain technologies and token sales, but is putting future ICO issuers on notice that they must register and be compliant:

Blair Wiley and Evan Thomas at Osler boil it down:

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Competition law

Antitrust leniency programs: A disincentive to self-report?

By Yves Faguy July 31, 2017 31 July 2017

Antitrust leniency programs: A disincentive to self-report?

 

Morgan Lewis has a report out showing a major downward trend this year in cartel fines (only US $1.2 billion so far in 2017, compared to $7.8 billion for the full calendar year in 2016). In Canada fines have reached $9.9 in 2017, due to an ongoing automotive parts investigation.

Gabe Friedman reports on why the fines are dropping, in spite of the success of leniency programs adopted around the world over the last decade and a half.  He quotes antitrust partner Clay Everett who suggests that, ironically, the proliferation of leniency programs in different juridictions could be making it more difficult for those companies willing to self-report to be the first in order to secure a promise of immunity:

“There’s been a real surge in enforcement in those types of cases,” said Everett, adding that “a very high percentage of international cartel cases, in the past fifteen years, have been generated through the leniency programs.”

But he said the proliferation of “leniency” programs, and the increased penalties around the world for price-fixing, means that coming forward to self-report a violation now requires a more complicated calculus: There are so many authorities with overlapping jurisdictions, and many cartel members are skeptical that they will receive global credit for being first to self-disclose.

Thus, cartel members must make a strategic calculation about whether self-disclosing and receiving only partial credit is better than staying quiet and hoping authorities never learn about their cartel, Everett said.

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