Regulators Adopt Crowdfunding Exemption
As of November 5th, 2015 the securities regulatory authorities of Manitoba, Ontario, Quebec, New Brunswick, and Nova Scotia collectively published Multilateral Instrument 45-108 Crowdfunding. The final form sets the foundation for a crowdfunding exemption for issuers in addition to a registration framework for funding portals.

The new piece of legislation is designed to provide businesses with increased access to capital through a network of online investors. In order to explore sources of funding, businesses will log into online portals controlled by registered dealers. According to Louis Morisset, Chairman of the Canadian Securities Administrators (CSA) and CEO of the Autorité des marches financiers, “This new crowdfunding regime is another way to facilitate capital raising for start-ups and small and medium-sized enterprises while protecting the interests of investors.”

What The Change Means?

The exemption is meant to protect investors by requiring issuers to distribute securities using a registered funding portal. As part of their duties to fulfill the role of gatekeepers, registered funding portals will review issuer’s disclosures and obtain background checks on the issuer itself, as well as all directors, executives, and promoters.

In order to decrease chances of investors biting on a less-than-favorable investment, the exemption places limits on investments depending on the specific investor’s income and financial resources. When issuers decide to utilize the crowdfunding prospectus exemption, they are only able to offer non-complex securities. Under the exemption, issuers are also prohibited from advertising and are now subject to a standard of liability on given information presented to investors.

Manitoba, Ontario, Quebec, New Brunswick, and Nova Scotia coordinated to finalize this crowdfunding regime and each jurisdictions will go through its’ own Ministerial approval process in order to successfully implement the 45-108 exemption. If all necessary approvals are obtained, the exemption will be adopted by January 25, 2016.

Purpose of 45-108

According to the Ontario Securities Commission, “Securities law [should contribute] to the efficient functioning of our capital markets, while maintaining adequate investor protection. This includes assessing whether the securities regulatory framework remains responsive and relevant in a dynamic environment that is being shaped by advances in technology and a broad array of demographic, cultural and economic forces.”

The Internet has given resourceful startups much greater access to investors. Raising capital remains of the utmost importance for fledgling startups, but not all teams are equipped to make the most of the funding they do receive. Crowdfunding allows startups to garner funding that otherwise wouldn’t be available. “The 45-108 crowdfunding regime is intended to leverage the use of the internet and social media to facilitate capital formation primarily for start-ups and [small and medium-sized enterprises] SMEs that foster innovation and to provide new investment opportunities for investors.”

The new crowdfunding exemption is also meant to provide a higher degree of protection for investors. Regulatory oversight will help to ensure investor’s security while also providing appropriate support for global market developments in the crowdfunding sector.

Bolstering Legal Framework for Startup Support

The 45-108 crowdfunding exemption has not arrived unexpectedly. In fact, the new regulations are designed to provide a compliment to existing startup crowdfunding exemptions adopted in Manitoba, Saskatchewan, Quebec, New Brunswick, and Nova Scotia on May 14th, 2015.

For those interested in reviewing 45-108’s final form, the details of the exemption will be republished by the Financial and Consumer Affairs Authority of Saskatchewan (FCAA) for a 60-day comment period.

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Posted by: DSR
Tuesday, December 1, 2015
Tag: Legal
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