On February 27, 2014, the Canadian Securities Administrators
(CSA) published for a 90-day comment period proposed amendments
(Proposed Amendments) to National Instrument 45-106 Prospectus
and Registration Exemptions (NI 45-106). The Proposed
Amendments are intended to address the following concerns:
some individual investors may not understand the risks of
investing under the accredited investor exemption (AI Exemption) in
NI 45-106 or may not actually qualify as accredited investors;
the $150,000 threshold for the minimum investment amount
exemption (MA Exemption) in NI 45-106 may not be a good gauge of
sophistication or ability to withstand financial loss for
individual investors and may encourage over-concentration in one
investment for individual investors.
The AI Exemption is the most relied on capital raising exemption
for all issuers, and the MA Exemption raises the second highest
amount of capital after the AI Exemption. The AI Exemption and the
MA Exemption are premised on the investor having a certain level of
sophistication, the ability to withstand financial loss, the
financial resources to obtain expert advice and/or the incentive to
carefully evaluate the investment given its size. While the dollar
thresholds for the AI Exemption and MA Exemption have not changed
in many years, the CSA is not proposing to increase the dollar
thresholds based on the conclusion that an increase would not
address the above concerns.
To address the CSA's concerns that some individual investors
may not understand the risks associated with exempt market
investments or may not actually qualify as accredited investors,
the Proposed Amendments contain numerous amendments to the AI
Exemption. Specifically, the Proposed Amendments include:
Individual accredited investors must complete and sign a new
risk acknowledgement form, Form 45-106F9 Risk Acknowledgement
Form for Individual Accredited Investors. Form 45-106F9
describes, in plain language, the categories of individual
accredited investors and the protections an investor is renouncing
by purchasing under the exemption. However, individual accredited
investors who qualify as "permitted clients" would not be
required to complete and sign the Form 45-106F9. To be a permitted
client, an individual must own financial assets in excess of $5
Any salesperson or finder involved with the trade, whether
registered or not, would be required to complete and sign the Form
Issuers would be required to identify the category of
accredited investor of each purchaser in the report of exempt
distribution (Form 45-106F1 and, in BC, Form 45-106F6).
To address the CSA's concerns regarding the MA Exemption,
the Proposed Amendments would amend the MA Exemption so that it is
only available for distributions to non-individuals.
How to Comment
The deadline for submitting comments is May 28, 2014. Comments
must be submitted in writing to the three addresses below:
Senior Legal Counsel, Corporate Finance
British Columbia Securities Commission
P.O. Box 10142, Pacific Centre
701 West Georgia Street
Vancouver, British Columbia, V7Y 1L2
Fax: 604-899-6814 firstname.lastname@example.org
Ontario Securities Commission
20 Queen Street West
Toronto, Ontario, M5H 3S8
Fax: 416-593-2318 email@example.com
Autorité des marchés financiers
800, square Victoria, 22e étage
C.P. 246, tour de la Bourse
Montréal (Québec) H3Z 1G3
Fax: 514-864-6381 firstname.lastname@example.org
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