The Autorité des marchés financiers (Québec), the Financial and Consumer Affairs Authority of Saskatchewan, Financial and Consumer Services Commission of New Brunswick, the Manitoba Securities Commission and the Nova Scotia Securities Commission (CSA Participating Jurisdictions) published on March 20, 2014 for a 90-day comment period

  • the integrated Crowdfunding Prospectus Exemption (Crowdfunding Exemption); and
  • the draft blanket order relating to the Start-up Crowdfunding Prospectus and Registration Exemption (Start-up Exemption).

In line with the Crowdfunding Exemption and the Start-up Exemption, the CSA Participating Jurisdictions also published proposed registration rules and exemptions applicable to the funding portals participating in crowdfunding (Portal Requirements).

The Ontario Securities Commission concurrently published materials relating to, among other exemptions, a crowdfunding exemption and related portal requirements, by way of a local notice.  The British Columbia Securities Commission also concurrently published a local notice soliciting comments on the Start-up Exemption. The Financial and Consumer Affairs Authority of Saskatchewan implemented an exemption for start-up and small businesses and their portals on December 6, 2013. No portals have yet been established in Saskatchewan. Although the Alberta Securities Commission has not published any material, it will be considering the public comments received in respect of the other published materials.

This bulletin focus on the Portal Requirements under both the Crowdfunding Exemption and the Start-up Exemption. You can read our reports on the Start-up Exemption and the Crowdfunding Exemption. Both the Crowdfunding Exemption and the Start-up Exemption will coexist as they target issuers at different stages of development.

Crowdfunding Portal Requirements

It is a condition of the Crowdfunding Exemption that investments be made through a Portal registered under applicable securities law (Crowdfunding Portal).

The following is a high-level summary of the requirements for Crowdfunding Portals:

Registration – Crowdfuding Portals will be required to register as restricted dealers and will not be allowed to register in other categories (i.e., no dual registration of Crowdfunding Portals). Crowdfunding Portals would not for instance be able to register as a restricted dealer pursuant to the Crowdfunding Exemption and as an exempt market dealer.  The individuals involved in the operations of the Crowdfunding Portal will also have to be registered.

General Registration Requirement – Subject to certain exceptions, one of which is briefly discussed below, Crowdfunding Portals and registered individuals of a Crowdfunding Portal will be required to comply with the terms, conditions, restrictions and requirements applicable to an exempt market dealer under National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, including the minimum capital, regulatory reporting, record-keeping and record-retention requirements.

Suitability Exception – Crowdfunding Portals will be exempt from the requirement to take reasonable steps to ensure that the purchase of the security is suitable for investors.  They will be required, however, to understand the general structure, features and risks of the securities offered.

Additional Crowdfunding Portal Requirements – Crowdfunding Portals will be required to (i) conduct background checks on issuers and their directors, officers, promoters and control persons; and (ii) review the information presented by the issuers presented on the Crowdfunding Portal to confirm that the information adequately sets out the general features and structure of the security, issuer-specific risks, parties involved, any identified conflicts of interest and the intended use of the proceeds.

Risk Acknowledgement Form – Crowdfunding Portals will be required to provide potential investors with educational materials in plain language and obtain a signed risk acknowledgement form from investors.

Prohibited Activities – Crowdfunding Portals may not (i) provide specific recommendations or advice to investors regarding the securities offered on the Portal; (ii) solicit purchases or sales of the securities offered on the Portal; (iii) hold or handle investor funds or securities; or (iv) facilitate the resale of any securities issued pursuant to the Crowdfunding Exemption.

Restriction on Cross Ownership – Crowdfunding Portals must not allow an issuer access to the Portal if the Portal or any of its officers, directors or significant shareholders beneficially own or control more than 10% of the securities of that issuer.

Start-up Portal Requirements

The Portal Requirements applicable in relation to the Start-up Exemption are lighter than the ones applicable in the case of the Crowdfunding Exemption.

The following is a high-level summary of the requirements for Portals established to facilitate any start-up crowdfunding distribution (Start-up Portals):

Registration – There are no registration requirements for Start-up Portals.  Start-up Portals and their promoters, officers, directors and control persons must file a form with the applicable regulator at least 30 days before beginning to facilitate any start-up crowdfunding distribution.

Residency Requirement – The head office of the Start-up Portal must be in a CSA Participating Jurisdiction and its promoters, officers, directors and control persons must be residents of Canada.

No Provision of Advice – The Start-up Portal may not provide investment advice.

Relation to Issuer – The Start-up Portal must not be related to the issuer of the securities.

Obligations of Start-up Portals – Start-up Portals must (i) make the offering document of the issuer and the important risk warnings separately available to investors electronically online, (ii) allow an investment only once the investor confirms online that they have read and understood the offering document and important risk warnings, (iii) release funds to the issuer only when the minimum offering amount to close the offering has been reached, (iv) ensure that all funds received for an offering are held in trust for the investors, and (v) provide the issuer with the details of the investors within 15 days of the offering.

Comment Period Open until June 18, 2014

The CSA Participating Jurisdictions welcome all comments on the proposed exemptions on or before June 18, 2014.