Securities regulatory authorities in each of British Columbia,
Alberta, Saskatchewan, Manitoba and New Brunswick recently
announced the creation of a new prospectus exemption that will
allow certain issuers to distribute securities to investors who
have obtained advice about the suitability of the investment from a
registered investment dealer (the Exemption).
For the most part, we expect the Exemption will be used in the
context of brokered private placements, as one of the requirements
of the Exemption is to obtain suitability advice from a registered
investment dealer, which will necessitate due diligence on the part
of the investment dealer providing that advice. The expenses
associated with the due diligence hurdle will likely only be
incurred by investment dealers who form part of a selling group and
who are entitled to receive a commission on sales of securities in
connection with the private placement.
Although a number of market participants have expressed
enthusiasm for certain prospectus exemptions that have recently
become available to Canadian issuers (such as the exemption
permitting distributions of securities to existing security holders
and the simplified rights offering exemption), those exemptions
(some of which, admittedly, are very recent) do not appear to have
been widely relied upon since their creation, and the accredited
investor exemption continues to be the preferred exemption for
capital raising purposes. We expect the Exemption will get more
traction with issuers than a number of the recently introduced
prospectus exemptions due to the ease with which it may be used
– on its face, it appears to be a relatively user-friendly
exemption that could, for example, be bolted-on to an accredited
investor offering without a significant increase in transaction
costs and without impairment of the offering timeline. Having
undertaken customary due diligence on the issuer and the offering,
it should be possible for a registered investment dealer engaged by
the issuer (as agent) to cost effectively scale the offering to
include clients who do not qualify as accredited investors.
Additional details, including the conditions to the use of the
Exemption, are included in our recent client update:
New Prospectus Exemption for Investors that Receive Suitability
Advice from a Registered Investment Dealer.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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