On January 3, 2013, the British Columbia Securities Commission
(BCSC) gave notice that it is considering revoking a trade-based
exemption which permits finders to place prospectus-exempt (private
placement) securities without the requirement for registration
under the Securities Act (British Columbia). The following
summarizes (i) the current registration regime and (ii) the impact
the proposed changes may have on finders.
Current registration regime
In 2009, the Canadian Securities Administrators (CSA) adopted
National Instrument 31-103 – Registration Requirements,
Exemptions and Ongoing Registrant Obligations (NI 31-103). NI
31-103 created a new category of registration for exempt market
dealers (EMD) and created a "business trigger" for dealer
registration. Concurrent with the implementation of NI 31-103 the
CSA also revoked certain dealer registration exemptions under
National Instrument 45-106 – Prospectus and Registration
Exemptions (the capital raising exemptions). In short, under
the current registration regime a person in the business of trading
securities in Canada is required to register as a dealer, unless an
exemption from registration is available.
In conjunction with NI 31-103, the securities commissions in
each of British Columbia, Alberta, Manitoba, Saskatchewan,
Northwest Territories, Nunavut and Yukon provided an exemption from
the requirement to register for persons selling only private
placement securities under the capital raising
exemptions.1 Persons seeking to rely on the exemption
must, among other things, (i) not be registered in any
jurisdiction, (ii) not have provided advice to the purchaser with
respect to suitability, (iii) with the exception of British
Columbia, not provide financial services to the purchaser, (iv)
obtain from the purchaser a signed risk acknowledgement in the
prescribed form, (v) not hold or have access to the purchaser's
assets and (vi) file an information report in the prescribed
The BCSC is now proposing to revoke the trade-based exemption
summarized above. According to BC Notice 2013/01, the BCSC proposes
to revoke the exemption because:
(a) the impact on capital raising will be negligible;
(b) those relying on the exemption are not complying with its
investor protection conditions; and
(c) private placement market investors will be better protected
if they purchase securities through registrants.
The proposed revocation of the exemption is noteworthy to
persons receiving a finder's fee in a private placement.
Impact on finders
If the exemption is revoked then any finder who is considered to
be in the business of trading securities who places a British
Columbia resident in a private placement will be required to
register as a dealer or EMD, as the case may be.
Determining whether a person is in the business of trading
securities is highly fact dependent. Likely persons who receive
finder's fees on a semi-regular basis would be considered in
the business of trading securities. Operating without registration
is a serious offence under applicable securities legislation and
for that reason if the exemption is revoked a finder would be
prudent to seek legal advice to determine whether his/her/its
activities trigger dealer registration.
The BCSC has extended the comment period and is accepting
comments on its proposal until February 28, 2013.
1. In British Columbia see BC Instrument 32-513 -
Registration Exemption for Trades in Connection with Certain
The foregoing provides only an overview. Readers are
cautioned against making any decisions based on this material
alone. Rather, a qualified lawyer should be consulted.
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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