In an important step towards establishing equity crowdfunding in
Canada, the Ontario Securities Commission (the "OSC") has
released a significant decision which allows MaRS VX, a
not-for-profit entity and a wholly-owned subsidiary of MaRS
Discovery District, to operate an online platform (the
"MaRS Platform"). The MaRS Platform will facilitate
"impact investing" by bringing together Ontario
accredited investors and small or medium-sized ventures or
funds. To qualify, ventures or funds must have less than $25
million in revenues at the time of initial access to the online
platform, a prioritized mission, earned revenues and proven
"social impact" or "environmental impact",
including for-profit corporations, non-profit corporations,
for-profit cooperatives and non-profit cooperatives. The MaRS
Platform will have two portals: one public and the other private
(the "Private Portal").
The decision grants exemptive relief to MaRS VX from a major Ontario securities law hurdle to operating crowdfunding sites: the know-your-client and suitability requirements (the "KYC Requirements"). Seeking to balance investor protection concerns and the objective of MaRS VX to bring together investors and certain issuers in need of capital, the OSC's decision sets out operating parameters for the MaRS Platform. These requirements include:
1. Access to the Private Portal will be password-protected. The Private Portal will only be accessible to:
a. Ontario "accredited investors" who have signed a written agreement and provided supporting documentation to establish their status and their residence; and
b. issuers seeking to raise capital on a private placement basis via the issuance of debt or equity securities that have satisfied certain access criteria, provided supporting documentation and signed a written agreement agreeing to comply with the certain OSC-imposed requirements.
2. MaRS VX will monitor the Private Portal and any interactive communication channels on its website. MaRS VX must remove any material from the Private Portal or its website that it deems inappropriate, including material that raises investor protection concerns.
3. Directors and officers of issuers using the Private Portal will provide comprehensive background information to MaRS VX and consent to criminal record and other background checks.
4. MaRS VX must comply the registration requirements of an exempt market dealer under applicable Ontario securities laws, with the exception of the KYC Requirements.
5. The exemption from the KYC Requirements contains dollar limits on investments. Specifically,
a. if the investor is a "permitted client", which includes individuals who own at least $5 million in financial assets (see complete definition at www.osc.gov.on.ca/documents/en/Securities-Category3/ni_20120928_31-103_unofficial-consolidated.pdf), who has waived the KYC Requirements, there will be no maximum amount that he or she may subscribe for on the Private Portal;
b. if the investor is either: (i) an accredited investor that is not a permitted client; or (ii) a permitted client that has not waived the KYC Requirements:
i. the investor will be limited to investing a maximum of $25,000 in a single offering on the Private Portal in a calendar year and a maximum of $50,000 in total in all offerings on the Private Portal in a calendar year; or
ii. there will be no maximum amount that the accredited investor may subscribe for in a particular offering on the Private Portal if a letter from a registered dealer confirms that the KYC Requirements with respect to that particular offering on the Private Portal have been fulfilled and that the offering is a suitable investment for the investor.
The decision only applies in Ontario, and it should be noted that the exemptive relief granted is specific to MaRS VX, and should not necessarily be viewed as a precedent for other potential new entrants to the crowdfunding space in Ontario or other jurisdictions.
The full text of the decision is available on the OSC's website at: www.osc.gov.on.ca/en/SecuritiesLaw_ord_20130620_215_mars-vx.htm.
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