Competition and Antitrust Law

Greenwashing is a form of marketing that misrepresents a product, service or practice as having positive environmental effects,1 thereby misleading consumers and preventing them from making an informed purchasing decision.2 Several initiatives have been launched around the world to counter this practice. In California, a law requires business entities to disclose information in support of environmental claims.3 In France, ads featuring environmental claims such as “carbon-neutral” and “net zero” must include a quick response (QR) code that links to the studies and data supporting such claims.4 Within the European Union, a proposal for a directive was published with a view to possibly banning generic terms like “environmentally friendly.”5 In South Korea, the Korea Fair Trade Commission proposed an amendment to its Guidelines for Review of Environment-Related Labeling and Advertising that would simplify the process of issuing fines to businesses engaged in greenwashing.6 The Parliament of Canada seemingly followed suit by tabling Bill C-59,7 which, if enacted, will introduce a provision into the Competition Act8 aimed at improving the means to fight greenwashing. Because the provision will apply to “any person,” all businesses will be subject to it, regardless of their size or legal form. Amendment to the Competition Act The proposed legislative amendment would allow the Commissioner of the Competition Bureau (the “Bureau”) to assess9 the conduct of any person promoting a product using an environmental claim or warranty.10 Insofar as a business or person is unable to demonstrate a product’s benefits for protecting the environment or mitigating the environmental and ecological effects of climate change, the Commissioner of Competition will be entitled to apply to a court for an order requiring such business or person to (i)cease promoting the product on the basis of a non-compliant environmental claim or warranty, (ii)publish a corrective notice and (iii)pay an administrative monetary penalty11 of up to, for a legal person, the greater of $10 million and three times the value of the benefit derived from the deceptive conduct, or, if that amount cannot be reasonably determined, 3% of the legal person’s annual worldwide gross revenue. The penalty for each subsequent offence could be as high as $15 million. A “product” within the meaning of the Competition Act may be an article (real or personal property of every description) or a service.12 Moreover, where a false or misleading claim relates to a material aspect likely to play a role in the process of purchasing a product or service covered by such claim, and where the claim was made knowingly or recklessly, criminal proceedings may be instituted.13 This new provision expressly requires any person or business to base their environmental claims on “an adequate and proper test”.14 A “test” within the meaning of this Act consists in an analysis, verification or assessment intended to demonstrate the result or alleged effect of a product. It does not necessarily have to be a scientific method nor do the results need to meet a test of certainty, as the courts have generally interpreted the term “proper” to mean fit, apt, suitable or as required by the circumstances.15 Regarding misleading claims, the courts16 have clarified the nature of the criteria that must be considered to determine whether a particular test is “adequate and proper.” Thus, an adequate and proper test depends on the claim made as understood by the common person. The test must also meet the following criteria: It must be reflective of the risk or harm which the product is designed to prevent or assist in preventing. It must be done under controlled circumstances or in conditions which exclude external variables or take account in a measurable way for such variables. It must be conducted on more than one independent sample wherever possible (e.g., destruction testing may be an exception). The results need not be measured against a test of certainty, but must be reasonable given the nature of the harm at issue and establish that it is the product itself which causes the desired effect in a material manner. It must be performed regardless of the size of the seller’s organization or the anticipated volume of sales.17   What impact will this amendment really have? Notwithstanding the proposed legislative amendment, the Competition Act already covers false or misleading representations with respect to green advertising.18 The current provisions already prohibit making representations to the public that are false or misleading in a material respect.19 In recent years, several complaints of greenwashing have been filed with the Bureau on this basis, and the Bureau has opened several investigations. The Bureau's investigations have led to significant settlements with regard to certain companies that have made representations in connection with their products20/21/22/23. The most recent complaints include one against Pathways Alliance, a group of six fossil fuel companies that ran a huge advertising campaign on the industry’s net zero targets, and another against Lululemon. Bureau investigations have led to substantial settlements, including with Keurig Canada, which agreed to pay a $3 million fine further to a Bureau investigation determining that the company had deceptively advertised its single-use K-pods as recyclable, and Volkswagen, which agreed to pay $2.1 billion for promoting certain vehicles equipped with “clean diesel engines with reduced emissions that were cleaner than an equivalent gasoline engine sold in Canada”. In all of these cases, the heavy burden of establishing that the business’s environmental claim was false or misleading fell on the Bureau. The proposed amendment to the Competition Act would change this by shifting the burden of proof onto businesses. The onus would therefore be on them to demonstrate that their product benefits the environment in some way or mitigates the environmental and ecological effects of climate change. It appears that the proposed amendment will confirm, in a specific legislative provision, what was already a general standard since 1999, while easing the Bureau’s burden of proof. In addition to the Competition Act, other laws applicable in Quebec provide a general framework for greenwashing, such as the Consumer Protection Act.24 Under this Act, no merchant, manufacturer or advertiser may, by any means whatsoever, make false or misleading claims to a consumer, which implicitly includes greenwashing.25 To determine whether a representation constitutes a prohibited practice, the general impression it gives, and, as the case may be, the literal meaning of the terms used therein must be taken into account.26 In particular, it is prohibited to falsely ascribe particular advantages to a product or service, or to claim that a product has a particular feature or ascribe certain characteristics of performance to it.27 Offences are subject to criminal28 and civil29 penalties. Best practices Regardless of whether the legislative amendment outlined here does eventually come into force, businesses must develop and convey an image of their environmental impact that is realistic and backed by credible data and facts. Making sure that claims are legally compliant is not all that’s at stake. A business’s failure to do the above is likely to seriously harm not only its reputation, but also its relationship with its stakeholders. Thus, before claiming to be “green,” businesses must consider the following questions. Are the real motivations behind the business’s sustainability commitments clear, legitimate and convincing? Is sustainable development an integral part of the business strategy? Is it applied when addressing key business issues and taking new actions? Does the company have a sustainable development policy that is credible and based on relevant issues? Was it developed collaboratively with and approved by its Board of Directors? Has the company set specific, clear, measurable and achievable objectives and targets?   Conclusion Parliament’s message could not be clearer: Shifting the burden of proof onto businesses means the end of an era when products could be marketed as green in the absence of tangible evidence. Definition of the Autorité des marchés financiers: 8 questions and answers about carbon credits and related concepts | AMF (lautorite.qc.ca) Definition of the Competition Bureau: Environmental claims and greenwashing (canada.ca) Assembly Bill No. 1305: Voluntary carbon market disclosures, California, 2023. Read it here: Bill Text – AB-1305 Voluntary carbon market disclosures Décret no 2022-539 du 13 avril 2022 relatif à la compensation carbone et aux allégations de neutralité carbone dans la publicité, Journal officiel de la République française, 2022. Read it here: Légifrance – Publications officielles – Journal officiel – JORF n° 0088 du 14/04/2022 (legifrance.gouv.fr) Proposal for a Directive of the European Parliament and of the Council amending Directives 2005/29/EC and 2011/83/EU as regards empowering consumers for the green transition through better protection against unfair practices and better information, Council of the European Union, Brussels, 2022. Read it here: pdf (europa.eu) KFTC Proposes Amendment to Review Guidelines Regarding Greenwashing – Kim & Chang (kimchang.com). An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023, 44th Parliament, 1st Session. Read it here: Government Bill (House of Commons) C-59 (44-1) – First Reading – Fall Economic Statement Implementation Act, 2023 – Parliament of Canada. The Bill is currently at second reading in the House of Commons. R.S.C. 1985, c. C-34. This power to make inquiry would be available, as the Act already provides, upon receipt of a complaint signed by six persons who are not less than 18 years of age, or in any situation where the Commissioner has reason to believe that a person has contravened section 74.01 of the Act (see R.S.C. 1985, c. C-34, ss. 9 and 10). An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023, 44th Parliament, 1st Session, section 236. Read it here: Government Bill (House of Commons) C-59 (44-1) – First Reading – Fall Economic Statement Implementation Act, 2023 – Parliament of Canada; section 236 of this Act adds a paragraph (b.1) to subsection 74.01(1) of the Competition Act Competition Act, R.S.C. 1985, c. C-34, para. 74.1. and Penalties and remedies for non-compliance (canada.ca). Competition Act, R.S.C. 1985, c. C-34, para. 2(1). Competition Act, R.S.C. 1985, c. C-34, para. 52(1). An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023, 44th Parliament, 1st Session, para. 236(1). The Commissioner of Competition v. Imperial Brush Co. Ltd. and Kel Kem Ltd. (c.o.b. as Imperial Manufacturing Group), 2008 CACT 2, para. 122 et seq. The Competition Tribunal, the Federal Court and the superior court of a province, Competition Act, R.S.C. 1985, c. C-34, s. 74.09: “courts” means the Competition Tribunal, the Federal Court and the superior court of a province. The Commissioner of Competition v. Imperial Brush Co. Ltd. and Kel Kem Ltd. (c.o.b. as Imperial Manufacturing Group), 2008 CACT 2. Louis-Philippe Lampron, “L’encadrement juridique de la publicité écologique fausse ou trompeuse au Canada : une nécessité pour la réalisation du potentiel de la consommation écologique?” Revue de Droit de l’Université de Sherbrooke, Vol. 35, No. 2, 2005, p. 474. Read it here: A:\lampron.wpd (usherbrooke.ca). R.S.C. 1985, c. C-34, s. 74.01(a). Amanda Stephenson, Des groupes écologistes misent sur la Loi sur la concurrence (Environmental groups banking on the Competition Act), October 1, 2023, La Presse. Read it here: Des groupes écologistes misent sur la Loi sur la concurrence | La Presse. Brenna Owen, Un groupe accuse Lululemon d’« écoblanchiment » et demande une enquête (A group accuses Lululemon of “greenwashing” and calls for an investigation) February 13, 2024, La Presse. Read it here: Un groupe accuse Lululemon d’« écoblanchiment » et demande une enquête | La Presse Martin Vallières, “Gare aux tromperies écologiques” (Beware of greenwashing), January 26, 2022, La Presse. Read it here: Écoblanchiment | Gare aux tromperies écologiques | La Presse; Keurig Canada to pay $3 million penalty to settle Competition Bureau’s concerns over coffee pod recycling claims – Canada.ca. The Commissioner of Competition v. Volkswagen Group Canada Inc. and Audi Canada Inc., 2018 Competition Tribunal 13. Consumer Protection Act, CQLR c. P-40.1, ss. 219, 220 and 221 Definition of the Competition Bureau: Environmental claims and greenwashing (canada.ca) Richard v. Time Inc., 2012 SCC 8, paras. 46 to 57. Consumer Protection Act, CQLR c. P-40.1, ss. 220 and 221. Consumer Protection Act, CQLR c P-40.1, ss. 277 to 279: Fines range from $600 to $15,000 in the case of a natural person and $2,000 to $100,000 in the case of a legal person. Offenders convicted a second time are liable to fines twice as high as those prescribed. Id., ss. 271 to 276: Consumers may request that the contract be annulled, that the merchant’s obligation be performed or that their obligation be reduced, among other things.

In recent decades, online advertising has become the single most efficient and interactive way to reach consumers and assess their behaviour. While television and print audiences continue to dwindle and overall marketing strategies that focus on these mediums are less able to effectively measure and assess performance, online advertising targets a growing market whose technological medium allows for the direct measurement of a marketing campaign’s success. These changes in the marketing world, exciting and new as they may be, pose an important set of legal risks. In using and displaying online ads, merchants and intermediaries should be wary of consumer protection and competition laws, both provincial and federal, so as to avoid unpleasant surprises in the form of pricy sanctions and lawsuits. The law may not have evolved as much as the technologies, but its broad language can adapt to the modern reality so as to protect those who receive the merchant’s new messages. The two main types of online marketing are Search Engine Marketing (“SEM”) and Social Media Marketing (“SMM”). Search engine companies index website content to organize and present the available information in an understandable format. Merchants offering products at retail can present themselves on top of these rankings, targeting specific keywords consumers search for. SMM is a form of display advertising that allows advertisers to present their services in an engaging manner on various popular social media platforms. This targeted conversation with consumers increases brand awareness and provides insights and feedback. Both SEM and SMM represent advertising formats governed by law. Provincial legislation The Consumer Protection Act1 of Québec (“CPA”) regulates and governs advertising activities in the Province of Québec. Namely, the CPA prohibits false or misleading advertising. The provisions of the CPA are aimed at both the merchants and the actors of the advertising industry. The CPA indicates that “no merchant, manufacturer or advertiser may, by any means whatever, make false or misleading representations to a consumer.”2 This prohibition applies to all media including print, radio and television, the Internet being no exception. The Province also enacted the Act to establish a legal framework for information technology3 (“LCCJIT”), in force since 2001, which provides for the liability of online intermediaries such as search engines and website hosts, in a context that is not specific to advertising. Indeed, Justice Rochon in the Court of Appeal case of Prud’homme c. Rawdon4 explains that while “a contributory fault may be committed by third parties who communicate, broadcast, or host the information [...] sections 22, 26, 36 and 37 of the Act to establish a legal framework for information technology (R.S.Q., c. C-1.1) appear [...] to reduce if not remove certain third parties from any liability.” Section 22 establishes that a non-search engine host will be exempt from liability unless it has knowledge that the information it stores is being used for illegal activity or if it does not promptly act to impede access to such illegal documentation. Similarly, a search engine will be liable if it has knowledge that the service it provides enables illegal activity and if it does not promptly cease to provide such a service to the people it knows are engaged in that activity. Either way, the determining factor is knowledge. Section 27 of this same Act states that: A service provider, acting as an intermediary, that provides communication network services or who stores or transmits technology-based documents on a communication network is not required to monitor the information communicated on the network or contained in the documents or to identify circumstances indicating that the documents are used for illicit activities. As such, knowledge is not presumed and hence, there is an implicit necessity of notifying the intermediary of the existence of such illicit content. Once such notice is given, the intermediary, as defined in section 22, must act promptly to take down the content or limit access to it. Federal legislation The Competition Act5 (“CA”) regulates most business conduct in Canada, its main purpose being to prevent anti-competitive practices in the marketplace. The CA prohibits false or misleading representation and deceptive marketing practices in promoting the supply of a product or any business interest. Moreover, persons who “caused the representation to be made” are held liable for false or misleading representations or deceptive practices. This implies that not only is liability imposed on the person who crafts misleading or false advertisement, but also on the person who permits a representation to be made or sent. The “Enforcement Guidelines – Application of the Competition Act to Representations on the Internet” mention that, in the online environment, the Competition Bureau will be called upon to consider the respective roles of the different intermediaries involved in advertising on the Internet. It is further explained that: [i]n its enforcement efforts, the Bureau focuses on the party who “causes” the representation to be made. Determining causation requires an analysis of the facts to ascertain which player possesses decision-making authority or control over content and to assess the nature and degree of their authority and control.6 [our emphasis]   Thus, the level of liability attributed to a given party will largely depend on the level of control they have over the content and whether they played a part in deciding whether the ad ran or not. Under the CA, there are two adjudicative regimes which sanction false or misleading representations: a civil track or the criminal track. The civil regime applies to most instances of misleading representations and deceptive marketing practices since the burden of proof is lighter. The general criminal process, however, covers “the most egregious matters” and requires that a component of criminal intent be demonstrated.7 Potential liability for advertising generators Merchant The merchant is the party that has the authority to decide whether an ad is run or not. As such, it is usually easiest to attribute liability to the merchant, who is the party most often held liable for deceptive marketing practices, be it with respect to the CPA or the CA. Media planning agency The media planning agency can have a dual role. That is, it may act as a creative agency that creates the advertisement (liable under the CA) and/or may assist an advertiser in determining which media to use, be it television programs, newspapers, bus-stop posters, in-store displays, banner ads on the web, or a flyer on Facebook. The liability of an Internet media planning agency will naturally depend on the exact role it plays in the advertisement. In terms of the criterion of authority and control, if the agency acts as “the creative” and is responsible for the ad content, then it is likely to be held liable for false or misleading representation. If, on the contrary, the media planning agency is solely responsible for speculating on the viewer demographics and accordingly elaborating strategies as to which media would be the most effective to run ads in, then it is not likely to be held liable for deceptive marketing practices. As the agency’s participation increases so does its duty of care.8 Participation, in the eyes of the Federal Trade Commission and the courts is taken to mean when the agency carries out the will of the advertiser.9 Ultimately, whether an agency’s participation is “active” depends on a case-bycase analysis.10 There could also be instances where the agency would be responsible towards the merchant. Potential liability for advertising disseminators Media placement agency The media placement agency, also known as media buyer, is responsible for the negotiation and placement of the media campaign. Its role includes optimizing and evaluating the ad’s effectiveness both during and after the advertising campaign’s completion. Additionally, the media placement agency generates added value by either negotiating lower rates with the host or adding layers of behavioural or location based targeting through ad-platforms (typically not liable). Website or web page host The host, also known as the publisher, is an entity that owns a web page or a website and that, in exchange for some economic compensation, is willing to publish ads of other parties in some spaces of its page or site. LCCJTI establishes that a non-search engine host will be exempt from liability unless it has knowledge that the information it stores is being used for illegal activity or if it does not promptly act to impede access to such illegal documentation. Similarly, a search engine will be liable if it has knowledge that the service it provides enables illegal activity and if it does not promptly cease to provide such a service to the people it knows are engaged in that activity. Either way, the determining factor is knowledge. With respect to the CA, a host may benefit from the publisher’s defense and not be held liable in a civil suit provided it does not knowingly or recklessly partake in or allow false or misleading advertising. The take-away In navigating new online marketing strategies, one should bear in mind that as efficient as online advertising can be, it has also significantly contributed to a rise in the potential for false or misleading representations. The threshold in assessing false or misleading representations is particularly low, as it is evaluated from the average consumer’s perspective, i.e. a “credulous and inexperienced” consumer.11 Although the various players in the marketing world are no strangers to the concept of false or misleading advertising, they should be cautious in using new forms of marketing so as not to go beyond this low threshold. Indeed, there are certain considerations that are specific to the Internet medium, which involve among other things, the speed and efficiency with which consumers can perceive ads. One should also be wary of legislative changes regarding consumer protection and competition law. For instance, Bill 13412 has recently set out to amend the CPA so as to prohibit merchants from “falsely or misleadingly representing to consumers that credit may improve their financial situation or that credit reports prepared about them will be improved.”13 There is a considerable volume of credit offering advertising that circulates via SEM and SMM. Advertisers should be cautious and make sure they respect these measures once they are enacted as well as the other legislative tools mentioned in this publication. R.S.Q., c. P-40.1. Ibid., s. 219. R.S.Q., c. C-1.1. 2010 QCCA 584, para 75 [Unofficial English translation]. R.S.C. 1985, c. C-34. Innovation Government of Canada, “Application of the Competition Act to Representations on the Internet”, (October 16, 2009). Innovation Government of Canada, “Misleading Representations and Deceptive Marketing Practices: Choice of Criminal or Civil Track under the Competition Act”, (September 22, 1999). Kelley Drye & Collier Shannon, “Ad Agency Liability” (2005) Ad Law Advisory. Ibid. Ibid. Richard v. Time Inc., 2012 SCC 8, [2012] 1 SCR 265, para 78. An Act mainly to modernize rules relating to consumer credit and to regulate debt settlement service contracts, high-cost credit contracts and loyalty programs, Bill 134 (Introduction – May 2, 2017), 1st Sess., 41st Legis (QC). Ibid., Explanatory Notes.

The March 22, 2017 Budget of the Government of Canada, through its “Innovation and Skills Plan” (http://www.budget.gc.ca/2017/docs/plan/budget-2017-en.pdf) mentions that Canadian academic and research leadership in artificial intelligence will be translated into a more innovative economy and increased economic growth. The 2017 Budget proposes to provide renewed and enhanced funding of $35 million over five years, beginning in 2017–2018 to the Canadian Institute for Advanced Research (CIFAR) which connects Canadian researchers with collaborative research networks led by eminent Canadian and international researchers on topics including artificial intelligence and deep learning. These measures are in addition to a number of interesting tax measures that support the artificial intelligence sector at both the federal and provincial levels. In Canada and in Québec, the Scientific Research and Experimental Development (SR&ED) Program provides a twofold benefit: SR&ED expenses are deductible from income for tax purposes and a SR&ED investment tax credit (ITC) for SR&ED is available to reduce income tax. In some cases, the remaining ITC can be refunded. In Québec, a refundable tax credit is also available for the development of e-business, where a corporation mainly operates in the field of computer system design or that of software edition and its activities are carried out in an establishment located in Québec. This 2017 Budget aims to improve the competitive and strategic advantage of Canada in the field of artificial intelligence, and, therefore, that of Montréal, a city already enjoying an international reputation in this field. It recognises that artificial intelligence, despite the debates over ethical issues that currently stir up passions within the international community, could help generate strong economic growth, by improving the way in which we produce goods, deliver services and tackle all kinds of social challenges. The Budget also adds that artificial intelligence “opens up possibilities across many sectors, from agriculture to financial services, creating opportunities for companies of all sizes, whether technology start-ups or Canada’s largest financial institutions”. This influence of Canada on the international scene cannot be achieved without government supporting research programs and our universities contributing their expertise. This Budget is therefore a step in the right direction to ensure that all the activities related to artificial intelligence, from R&D to marketing, as well as design and distributions, remain here in Canada. The 2017 budget provides $125 million to launch a Pan-Canadian Artificial Intelligence Strategy for research and talent to promote collaboration between Canada’s main centres of expertise and reinforce Canada’s position as a leading destination for companies seeking to invest in artificial intelligence and innovation. Lavery Legal Lab on Artificial Intelligence (L3AI) We anticipate that within a few years, all companies, businesses and organizations, in every sector and industry, will use some form of artificial intelligence in their day-to-day operations to improve productivity or efficiency, ensure better quality control, conquer new markets and customers, implement new marketing strategies, as well as improve processes, automation and marketing or the profitability of operations. For this reason, Lavery created the Lavery Legal Lab on Artificial Intelligence (L3AI) to analyze and monitor recent and anticipated developments in artificial intelligence from a legal perspective. Our Lab is interested in all projects pertaining to artificial intelligence (AI) and their legal peculiarities, particularly the various branches and applications of artificial intelligence which will rapidly appear in companies and industries. The development of artificial intelligence, through a broad spectrum of branches and applications, will also have an impact on many legal sectors and practices, from intellectual property to protection of personal information, including corporate and business integrity and all fields of business law. In our following publications, the members of our Lavery Legal Lab on Artificial Intelligence (L3AI) will more specifically analyze certain applications of artificial intelligence in various sectors and industries.

Martine Samuelian and Virginia Barat, JEANTET On July 18, 2016, the European Securities and Markets Authority (ESMA) issued a favourable advice for a future extension of the European passport concerning Alternative Investment Fund Managers (AIFMs)1 in Canada. This advice, which is based on objective criteria of cooperation and guarantee of overall protection level equal to that in force in European State members, constitutes the last stage prior to the effective extension of the European regime to Canada. 1. Assessment criteria The ESMA reviewed the individual situation of twelve non-European countries2, including Canada, to assess the guarantees offered by their respective local legislation against the requirements of the AIFM Directive (AIFMD). With respect to cooperation, the assessment criteria relate to: the possibilities for the exchange of information, on site visits, between the competent monitoring authorities respectively in Canada and those of the European State member; the fact that the non-European third country in which the Alternative Investment Fund (AIF) is established is not listed as a Non-Cooperative Country and Territory of the Financial Action Task Force (FATF); the existence of agreements for exchange of information in tax matters. Furthermore, sufficient guarantees (as defined by the AIFMD) must exist in respect of: investor protection, particularly in relation to complaint management, the safeguarding of assets, the prudential soundness of the depositary, the separation and management of conflicts of interests between the depositary function and that of alternative investment fund manager, the scope of monitoring by local regulatory authorities, compliance with the requirements of the AIFM Directive; market disruption as a result of a potential extension of the AIFM passport to a non-European country; competition, by the assessment of the level of reciprocity in respect of the marketing of European AIFs in a non-European third country; systemic risk management, particularly the mechanism for monitoring existing markets. 2. Final result of the assessment of Canada by ESMA The ESMA notes that the Canadian financial system had been assessed by the International Monetary Fund (IMF) in 2014, the IMF concluding that the international principles on securities regulations were “fully implemented” in Canada. In its advice dated July 18, 2016 respecting a possible extension of the AIFM passport to Canada, the ESMA thus confirms that there is no significant obstacle which may hinder the application of the passport to Canada with respect to the systemic risk, market disruption and obstacles to competition. Nevertheless, it notes differences between the Canadian regulations and the AIFMD. These differences particularly relate to the supervisory function that are imposed on the European AIF depositary (contrarily to the Canadian custodian which, pursuant to National Instrument 81-102 – Investment Funds (Regulation 81-102 respecting Investment Funds in the province of Quebec) (“NI 81-102”), is not subject to supervisory functions but rather only subject to obligations of custodianship of the portfolio assets). The ESMA also mentions the rules pertaining to the compensation of the manager (notably to align the interests of the manager and of the investors). There are various rules regarding compensation in Europe while NI 81-102 provides for very few rules in that regard (further, many investment funds in Canada are not subject to NI 81-102). However, the ESMA concludes that these differences between the Canadian regulatory framework and that of the AIFMD do not constitute a significant obstacle to the application of the European passport to Canada. Conclusion Where ESMA3 considers that “there are no significant obstacles regarding investor protection, market disruption, competition and the monitoring of systemic risk, impeding the application of the passport to the marketing of non-EU AIFs by EU AIFMs in the Member States and the management and/or marketing of AIFs by non-EU AIFMs in the Member States in accordance with the rules set out in Article 35 and Articles 37 to 41, it shall issue positive advice in this regard.” It is this positive recommendation that the ESMA sent on July 18, 2016 to the European Commission (EC), to the European Parliament and Council, which should allow the EC, within three months, to define by delegated act the date of coming into force and the terms for the extension of the European passport to Canadian Alternative Investment Fund Managers to market these funds in EU countries. Includes notably private equity funds, venture capital funds and hedge funds. See our article entitled “Impact of the possible extension of the European passport regime on Canadian fund managers” published in the Lavery Capital newsletter, May 25, 2016. Australia, Bermuda, Canada, United States, Guernsey, Hong Kong, Cayman Islands, Isle of Man, Japan, Jersey, Singapore, Switzerland. See article 67(4) of the Directive 2011/61/UE on Alternative Investment Fund Managers.