Canada has long held a fragmented approach to online capital formation where securities crowdfunding is regulated at the provincial level. Obviously, this creates unnecessary friction to an emerging sector of Fintech that facilitates capital formation for early-stage ventures.
Today, the Canadian Securities Administrators (CSA) has announced the adoption of harmonized rules for securities crowdfunding.
According to a note from the CSA, National Instrument 45-110 Start-up Crowdfunding Registration and Prospectus Exemptions introduces a single, uniform set of rules that replaces the requirements currently in effect in Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario, Québec, and Saskatchewan.
Louis Morisset, Chair of the CSA and President and CEO of the Autorité des marchés financiers.
“These rules expand the ability of small businesses and start-ups to use securities crowdfunding to gain access to capital.”
Following a consultation, the CSA made specific amendments designed to improve the effectiveness of crowdfunding as a capital-raising tool, including:
- Increasing the maximum total amount that an issuer can raise under the crowdfunding prospectus exemption in a 12-month period to $1.5 million (from the current $500,000).
- Increasing the maximum investment a purchaser can make in an offering to $2,500 (from the current $1,500), with a higher limit of $10,000 if a registered dealer advises that the investment is suitable for the purchaser.
- Removing barriers preventing federal and provincial co-operatives or associations from using the start-up crowdfunding prospectus exemption.
- Requiring funding portals relying on the registration exemption to certify on a semi-annual basis that they have sufficient financial resources to continue operations for the following six months.
- Requiring issuers to have operations other than the acquisition of an unspecified business before using the start-up crowdfunding prospectus exemption.
National Instrument 45-110 Start-up Crowdfunding Registration and Prospectus Exemptions can be found on the websites of the above noted CSA members.
Canada has been discussing a harmonized ecosystem for crowdfunding for years. It should be noted that the increase to $1.5 million contrasts with the US market that has a $5 million funding cap and the EU that will soon have a pan-European crowdfunding cap of EUR 5 million. Still, there is the OM exemption that may be used for larger issuers.
Since 2015, about 110 distributions of securities have taken place under the existing start-up crowdfunding prospectus exemptions, with an average investment of $576 from each investor, states the CSA.