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Amendments to National Instrument 45-108: Prospectus and Registration Exemptions - Integrated Crowdfunding Exemption [Completed]

Issued: November 5, 2015

Transitional provisions:

Provided all necessary Ministerial approvals are obtained, MI 45-108 will come into force in the participating jurisdictions on January 25, 2016.

Last updated:

November 2015

Overview

On March 20, 2014, the securities regulators of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick and Nova Scotia (the “participating jurisdictions”) published for comment the Integrated Crowdfunding Prospectus Exemption (the Crowdfunding Exemption) and the Start-Up Crowdfunding Prospectus and Registration Exemption (the Start-Up Exemption). The proposed exemptions would, subject to certain conditions, allow both reporting and non-reporting issuers to raise money by distributing securities through internet portals. The prospectus exemptions are planned to be made by means of local exemptions rather than by amendment to National Instrument 45-106, Prospectus and Registration Exemptions.

The participating jurisdictions believe that the Crowdfunding Exemption and the Start-Up Exemption are complementary: they focus on different stages in the growth and business cycles of start-ups and SMEs. At the same time, the proposed exemptions have requirements that are intended to maintain an appropriate level of investor protection and regulatory oversight. The main differences between the proposed exemptions are that the Start-Up Exemption: (i) is available to non-reporting issuers only; (ii) does not require portal registration; and (iii) allows for lower capital raising and investment limits.

On March 20, 2014, the Ontario Securities Commission (OSC) also published for comment proposals that included a prospectus exemption in respect of crowdfunding which is similar in nature to the Crowdfunding Exemption. The OSC does not support the features of the Start-Up Exemption.  For further details, refer to this OSC Project.

On May 14, 2015, the participating jurisdictions adopted the Start-up Exemption, effective May 14, 2015.  For further details, refer to this CSA Project

Other developments

November 2015

On November 5, 2015, the securities regulatory authorities in Manitoba, Ontario, Québec, New Brunswick and Nova Scotia (collectively, the participating jurisdictions) published in final form Multilateral Instrument 45-108, Crowdfunding, which introduces a crowdfunding prospectus exemption for issuers as well as a registration framework for funding portals. The MI 45-108 crowdfunding regime will enable businesses to benefit from greater access to capital from a large number of investors online, through a funding portal operated by a registered dealer. Among the measures adopted to protect investors, issuers will be required to distribute their securities through a registered funding portal. These funding portals will fulfill certain gatekeeper functions that include reviewing the issuer’s disclosure and obtaining background checks on the issuer and its directors, executive officers and promoters. In addition, investment limits based on the investor’s income and financial resources have been adopted as a means of reducing their exposure to a risky investment. Provided all necessary Ministerial approvals are obtained, MI 45-108 will come into force in the participating jurisdictions on January 25, 2016.

October 2015

On October 30, 2015, the Securities Exchange Commission (SEC) issued a final rule, "Regulation Crowdfunding," (the SEC’s Rule, expected to be effective on May 16, 2016) which will permit eligible US companies to use crowdfunding to offer and sell securities. The SEC’s Rule is similar in many respects to the CSA’s Multilateral Instrument 45-108, Crowdfunding, which was issued on November 5, 2015 (the CSA’s Rule, expected to be effective January 25, 2016 in Ontario, Quebec, Manitoba, New Brunswick and Nova Scotia). It is our understanding that generally speaking, Canadian companies may crowdfund in Canada and U.S. companies may crowdfund in the United States. Both initiatives (i) establish an annual limit to the amount of capital that may be raised by an entity ($1.5 million under the CSA’s Rule, and US$1 million under the SEC’s Rule); (ii) establish limits on the investment that may be made by an individual investor (based on the status and location of the investor under the CSA’s Rule, and based on the investor’s income or net worth under the SEC’s Rule; (iii) require the use of an online funding portal registered with a securities regulator (or a registered broker-dealer in the case of the SEC’s rule); (iv) provide specific guidance on advertising to and/or solicitation of potential investors; (iv) establish requirements about the information required to be provided to potential investors in an offering document; (v) establish ongoing reporting obligations to investors; and (vi) establish restrictions on the resale of the securities purchased.

May 2015

On May 14, 2015, the AcSB released the IFRS Discussion Group Report, Definition of a Publicly Accountable Enterprise, where they give a refresher on the factors to consider when assessing whether an entity is a publicly accountable enterprise. They also describe the concept of crowdfunding.

March 2014

On March 20, 2014, the securities regulators of British Columbia, Saskatchewan, Manitoba, Québec, New Brunswick and Nova Scotia (the “participating jurisdictions”) published for comment the Integrated Crowdfunding Prospectus Exemption (the Crowdfunding Exemption) and the Start-Up Crowdfunding Prospectus and Registration Exemption (the Start-Up Exemption).

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