The results of the legal duty of care should be taken into account in the commercial due diligence and the insurer should monitor the absence of registrations and any information that appears to be contrary to the oral statements of management or disclosure in the draft prospectus. In such cases, it would be wise to focus due diligence on public registers. It would not be appropriate not to conduct very limited due diligence or due diligence for a private placement, given that these offers involve potential common law liability and reputational risk. IIROC recommends that underwriters understand and clearly communicate the boundary between business due diligence and legal due diligence, to ensure that issues that should be verified by songwriters are not delegated to the underwriters` advisor. A sub-author must perform sufficient business diligence for the songwriter to understand the issuer`s business and the main internal and external factors that influence the issuer`s activities and uses his or her professional judgment when determining which essential facts are independently verified (subject to limitations on “tips”) based on the circumstances of the offer. Much of the guidelines proposed by IIROC focus on procedural rather than substantive issues, although IIROC recommends that insurers not be allowed to “put form above substance.” Underwriters are reminded that due diligence requires the exercise of professional judgment when planning and implementing the due diligence plan. Legal counsel can play an important role in supporting the due diligence process, but non-authors must take the time to focus adequate resources to perform “appropriate” due diligence in the current circumstances. In its communication on the proposed guidelines, IIROC cautions that its compliance checks will focus in the future on the adequacy of a concessionaire member`s policies and procedures and whether the process has been followed in sampling files. Merchant members should review their current policies and procedures (of which IIROC has seen significant variations) and the compliance monitoring framework and make any necessary updates to be ready if and when IIROC compliance staff arrive to conduct a compliance check.
Insurers should heed IIROC`s warning and reconsider how they implement due diligence in light of the proposed guidance and how these procedures have been documented. IIROC expects sub-authors to have written policies and procedures regarding the underwriting process, including due diligence. Such guidelines and procedures should recognize the contextual nature of the duty of care. In addition, the IIROC Dealer Member Rules require underwriters to have a comprehensive and effective monitoring and compliance framework in place to ensure compliance with guidelines and procedures, IIROC requirements and applicable securities legislation. The supervisory function should be performed by a senior member of the underwriter`s investment banking division. The objective of the due diligence plan should be to define the approach of ensuring the inclusion of mandatory information in the prospectus, reviewing the information provided by the issuer and verifying the main essential elements. The proposed guidelines contain a list of contextual issues to consider when developing a due diligence plan. It is also necessary to examine the statements to be taken to demonstrate the duty of care and compliance with the insurer`s own guidelines and procedures, the requirements of the IIROC and the applicable securities legislation. . . .