In November 2011, the Canadian Securities Administrators (the
CSA) undertook to consult with stakeholders on the continuing
utility and appropriateness of the C$150,000 minimum amount
prospectus exemption and the accredited investor prospectus
exemption contained in National Instrument 45-106 Prospectus
and Registration Exemptions.
On June 7, 2012, the CSA published Staff Notice 45-310 (CSA
Notice) which updates the state of the consultation undertaken by
the CSA. Concurrent with the publication of the CSA Notice, the
Ontario Securities Commission (OSC) published Staff Notice 45-707
(OSC Notice) which highlights the feedback the OSC received in
connection with the CSA's review. The OSC Notice also sets out
the OSC's intention to broaden the review undertaken by the CSA
by continuing to assess whether the two exemptions remain
appropriate, and to consider whether Ontario should introduce other
prospectus exemptions to facilitate capital raising while still
providing for an appropriate level of investor protection.
Feedback from Consultation
Below are some highlights of the CSA Notice and OSC Notice:
Comments on Accredited Investor Exemption
The CSA received comments which include raising, keeping, and
lowering the current income and asset thresholds for an accredited
investor. Some commenters noted that while the current income and
asset thresholds are not perfect proxies for investor
sophistication, they are administratively efficient and practical
to apply. Others suggested adding new categories of accredited
investor based on an investor's education, work experience or
Comments on Minimum Amount Exemption
The CSA received many comments that investing in a minimum
amount of C$150,000 is a flawed basis to measure investor
sophistication or ability to withstand loss and operates to
discourage diversification or appropriate investment strategies.
Many recommended that the CSA repeal the exemption because of these
concerns. Similarly, the OSC received many comments that questioned
the rationale for this exemption and the effect of causing
investors to invest C$150,000 in one investment when an investment
in smaller amounts or a more diversified approach would be more
The OSC received a number of views on whether there should be
prospectus exemptions based on the provision of disclosure to
investors. Some stakeholders suggested that Ontario should adopt an
offering memorandum prospectus exemption, which would allow a
broader range of investors to participate in the exempt market on
the condition that a minimum level of disclosure is provided to
investors. Some stakeholders supported more rigorous risk
disclosure to enhance investor protection.
Both the CSA and the OSC noted that commenters have encouraged
CSA members to renew their efforts to harmonize the current
Additionally, both the CSA Notice and OSC Notice indicated that
many stakeholders expressed concern that any changes to the exempt
market regime might restrict access to capital by businesses.
Before making any recommendations, the CSA have indicated that
they intend to gather and analyze information from filed exempt
distribution reports. The CSA intend to finalize their review and
publicly report on the conclusions later this year.
In light of feedback received from stakeholders, the OSC
announced that it is broadening the scope of its review to consider
the exempt market regulatory regime more generally. Notably, in
this fiscal year, the OSC will:
Publish a second consultation note which will seek further
feedback on the exempt market regulatory regime;
Consider the experience of the other CSA jurisdictions with
prospectus exemptions not currently available in Ontario,
specifically the offering memorandum and the "friends and
family" prospectus exemptions (both of which are available in
some form in each of the provinces and territories of Canada, other
than Ontario); and
Consider developments in other jurisdictions – in
particular, the OSC will consider developments in the U.S. with
respect to capital raising as set out in the Jumpstart Our
Business Startups Act (or the JOBS Act).
While it remains to be seen what changes, if any, the CSA and
the OSC may recommend with respect to the prospectus exemption
regime, the CSA study of exempt distribution reports should provide
additional insight into the appropriateness of changes. Market
participants, investors and other stakeholders should also look for
the forthcoming consultation note from the OSC which will explore
whether the OSC should adopt any new prospectus exemptions and, if
so, under what terms and conditions.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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