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Equity Crowdfunding is on the Horizon in Canada
The Ontario Securities Commission (OSC) has sent out yet another a strong signal that equity crowdfunding is on the horizon in Canada.
On December 4, 2013, the OSC announced that in the first quarter of 2014, they intend to publish the following new capital raising prospectus exemptions for a 90-day public comment period:
- Offering memorandum exemption
- Family, friends and business associates exemption
- Existing security holder exemption
- Crowdfunding exemption, together with a registration framework for online funding portals.
Howard Weston, Q.C., Chair and CEO of the OSC said, “The OSC has a responsibility to consider whether our regulatory framework supports efficient capital formation and contributes to Ontario’s economic growth.” Mr. Weston also stated, “It is important that our continued work in this area promotes an innovative and competitive exempt market that facilitates capital raising while protecting investors.”
To the proponents of equity crowdfunding the OSC proposal cannot come quickly enough. Yet this announcement may sound like additional delays and complexity; however, we need to remember that equity crowdfunding is a paradigm shift for the capital markets and securities regulators. Though the capital markets have seen numerous changes, the essential capital raising model has remained unchanged in over 70 years. Equity crowdfunding quite literally is changing the model in a very short time frame. Importantly, the OSC is recognizing a clear market need by attempting to “facilitate capital raising for start-ups and small and medium-sized enterprises and to modernize Ontario’s exempt market regulatory regime.”
They have gone beyond identifying the market need to recognizing the viability of crowdfunding as a viable solution. In their OSC Notice 45-712 “Progress Report on Review of Prospectus Exemptions to Facilitate Capital Raising”, released on August 28, 2013, the OSC stated:
In a relatively short time, crowdfunding has become a new method of raising capital for a broad range of purposes using the internet. To date, it has mainly been used by people seeking to raise money for a specific project and does not generally involve the issuance of securities. However, in some jurisdictions, crowdfunding is emerging as a way for businesses, particularly start-ups and small and medium-sized enterprises, to raise capital by issuing securities.
We recognize that for crowdfunding to be a viable method of raising capital, the regulatory framework must provide investors with adequate protections, while at the same time not imposing excessive regulatory costs on issuers and funding portals.
What this means in actual timelines for the launch of equity crowdfunding platforms is not yet clear, but there is a change coming to the capital markets in the form of equity crowdfunding, and the above announcement indicates it will be here sooner rather that later.