On July 24, 2019, the Ontario Securities Commission (the “OSC”) approved a settlement agreement with CoinLaunch Corp. (“CoinLaunch”), a provider of various ICO-related services in the crypto industry. Following an investigation by the OSC, it was determined that CoinLaunch engaged in and held itself out as engaging in the business of

The Ontario Securities Commission released OSC Staff Notice 33-749 Annual Summary Report for Dealers, Advisers and Investment Fund Managers on August 23, 2018 (Staff Notice).

The Staff Notice included, at Part 1.3, a review of the recent activities of the OSC LaunchPad.  The LaunchPad is actively engaged with novel fintech businesses providing support in navigating regulatory requirements.  The Staff Notice highlighted the following key accomplishments of the OSC LaunchPad in fiscal 2017-2018:

  • 242 Meetings with fintech businesses and stakeholders
  • 156 requests for support received and direct support provided to fintech businesses
  • 55 events hosted by the OSC LaunchPad or in which it participated
  • 25 collaborative reviews with the Canadian Securities Adminstrators’ Regulatory Sandbox regarding novel business models that want to operate across Canada.

Although the industry was initially focussed on online advisors, online lenders and crowdfunding portals, OSC Staff advised in the Staff Notice that industry focus has largely shifted to cryptoasset-related businesses, including initial coin and token offerings, cryptoasset investment funds, traditional financial service businesses utilizing blockchain technology and crypto asset trading platforms.  In addition, the OSC Launchpad is seeing businesses focussed on RegTech services, technology-based compliance solutions and data analytics services.


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The Ontario Securities Commission released OSC Staff Notice 33-749 – Annual Summary Report for Dealers, Advisers and Investment Fund Managers on August 23, 2018 (OSC Staff Notice).

In the OSC Staff Notice, OSC staff identified that some investment fund managers (IFMs) have outsourced fund administration functions (including fund accounting and transfer agency) to related parties.  Under National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, IFMs are required to establish a system of controls and supervision to ensure compliance with securities legislation and are responsible and accountable for all functions that they outsource to a service provider.  Accordingly, IFMs should not rely solely on the related service provider and assume that all obligations under securities legislation are being met.


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On June 28, 2018, the Investor Office of the Ontario Securities Commission (OSC) published a report entitled “Taking Caution: Financial Consumers and the Cryptoasset Sector”. The report summarizes the results of a survey, conducted in March 2018, of more than 2,500 Ontarians aged 18 and older.

Cryptoasset Ownership

The report describes that 5% of Ontarians currently own cryptoassets (or, as the survey referenced, cyrptocurrencies). This translates into approximately 500,000 Ontarians. Furthermore, an additional 4% of Ontarians in the age bracket owned cryptoassets in the past but no longer do.

Of particular note was the report’s determination that men aged 18-34 are more likely to own a cryptoasset in comparison to any other demographic. However, of those surveyed, only half have invested approximately $1,000 and only 9% invested more than $10,000, primarily in Bitcoin and Ether.


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The Canadian Securities Administrators (CSA) have adopted amendments to National Instrument 45-102 Resale of Securities (NI 45-102) and changes to Companion Policy 45-102CP which provide for a new prospectus exemption for the resale by Canadian investors of securities of non-Canadian issuers. The amendments are expected to come into force as of June 12, 2018. The amendments will be applied to all Canadian jurisdictions other than Alberta and Ontario.

In Alberta and Ontario, the new exemption will be found in the following local instruments:


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On March 15, 2018, the Ontario Securities Commission (OSC) and the Financial and Consumer Affairs Authority of Saskatchewan (FCAAS) released highly anticipated reasons for a combined decision relating to Aurora Cannabis Inc.’s (Aurora) unsolicited take-over bid to acquire CanniMed Therapeutics Inc. (CanniMed). The reasons followed a December 21, 2017 decision in which the OSC and FCAAS, among other things:

  • Permitted Aurora’s use of “hard” lock-up agreements with other CanniMed shareholders to build support for its bid (finding that the locked-up shareholders were not “acting jointly or in concert” with Aurora).
  • Cease traded a tactical shareholder rights plan (poison pill) implemented by the CanniMed board in the face of the Aurora bid.
  • Declined to grant Aurora exemptive relief from the 105-day minimum deposit period.
  • Declined to restrict Aurora’s ability to rely on the exemption from the general restriction on purchases by a bidder to purchase up to 5% of the target company’s shares during the currency of its bid.


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On March 31, 2018, the new rules from the Ontario Securities Commission (OSC) on distributions of securities outside of Canada came into force. OSC Rule 72-503 Distributions Outside Canada (Rule 72-503) provides clarity on a previously opaque subject in Canadian securities law: how do market participants comply with securities law when selling securities to buyers that reside in other countries? In response to this ambiguity, Rule 72-503 creates four new exemptions from the Ontario prospectus requirement for issuers distributing securities to buyers residing in other countries.

Background

Since its publication in 1983, Interpretation Note 1 Distributions of Securities of Ontario (Interpretation Note) governed OSC policy on distributions outside of Canada. As a statement of principle, the Interpretation Note allows distributions of securities effected outside of Ontario without triggering Ontario’s prospectus requirement where “reasonable steps are taken by the issuer, underwriter and other participants effecting such distributions to ensure that such securities come to rest outside of Ontario.” The Interpretation Note then cites several examples of such “reasonable steps” including representations in the selling documents and legends on the securities, without committing to a bright-line test or concrete criteria. In the intervening decades, market participants have often complained about the vagueness of the Interpretation Note and the corresponding lack of certainty to international securities offerings in an increasingly globalized world.


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On January 18, 2018, the Ontario Securities Commission (OSC) published and requested comments for a proposed change to OSC Policy 15-601 Whistleblower Program (Policy). The  Whistleblower Program came into effect in July 2016 and is intended to encourage individuals to report information on serious securities-related misconduct to the OSC to prevent

As ICO regulatory landscape gradually takes shape, Kik Interactive excludes Canadians from Kin token sale

On September 7, 2017, Kik Interactive Inc. (Kik), a Waterloo-based digital messaging company, announced that it would not permit Canadian investors to purchase its “Kin” crypto-tokens in its currently ongoing public sales process. Kik had previously announced plans to sell up to U.S.$125 million of Kin tokens, including to Canadians. Kin tokens are envisioned as a general purpose cryptocurrency for use in services such as chat, social media, and payments, all within the Kin ecosystem.

The announcement was made in a blog post by Kik Chief Executive Officer Ted Livingston, who cited “weak guidance” from the Ontario Securities Commission (OSC) regarding whether Kin tokens are securities as the reason for banning Canadians. The OSC later clarified to the National Post that they had reviewed the Kin token and concluded that it is a security, but that they were willing to grant Kik exemptive relief from certain securities law requirements provided additional protections were granted to retail investors.

While Kik’s submissions to the OSC and the details of the OSC’s conclusion are not public, the OSC’s conclusion nevertheless provides some regulatory guidance at a time when industry participants are eager to determine precisely when tokens will be subject to securities laws. Another example of such guidance was provided in the case of Impak’s MPK tokens, which are designed to allow holders to purchase goods and services from like-minded merchants operating within the “impact” economy. Similar to Kin, the MPK tokens are considered a security, in this case by both the Autorité des Marchés Financiers in Quebec (AMF) and the OSC.


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On Thursday, July 27, 2017, staff of the Ontario Securities Commission and its counterparts in Québec, Alberta, Manitoba and New Brunswick (Staff) published important guidance on Staff’s expectations of market participants, including boards and their advisors, in material conflict of interest transactions.[1]  The guidance highlights the important role of public company directors in such transactions, including conducting a sufficiently rigorous and independent process while appropriately addressing the interests of minority security holders and ensuring detailed public disclosure of the board’s review and approval process.  In addition, the guidance confirms that Staff are actively reviewing such transactions “on a real-time basis” to assess compliance, to determine whether a transaction raises potential public interest concerns, and, if appropriate, to intervene on a timely basis prior to any security holder vote or closing of the transaction.

“material conflict of interest transactions” and “minority security holders”

Staff note that a “material conflict of interest transaction” is a transaction governed by Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (MI 61-101) that gives rise to substantive concerns as to the protection of minority security holders, being equity security holders who are not “interested parties” in the transaction.  For example, a transaction pursuant to which an insider of the company acquires the company would be considered to be a material conflict of interest transaction.  Among other things, MI 61-101 prescribes detailed procedural safeguards when a company undertakes an insider bid, issuer bid, business combination, or related party transaction, including enhanced disclosure and, absent an exemption, a requirement to obtain “minority approval” (essentially an affirmative vote by a majority of the votes cast by minority security holders) and a formal valuation of the subject matter of the transaction.  In interpreting MI 61-101, Staff note that they apply a “broad and purposive interpretation” to these requirements that emphasizes the instrument’s underlying policy rationale.


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