vanfunding 2016: mechanics of securities crowdfunding regulations

Securities Crowdfunding Regulations

Elliott Mak Senior Legal Counsel, Corporate FinanceBC Securities Commission

October 18, 2016

• Part 1 : Overview of securities regulations

• Part 2 : Using the start-up crowdfunding exemptions

• Part 3 : Regulations in other jurisdictions

Agenda

Overview of Securities Regulations

BCSC Mission

• Protect investors

• Facilitate efficient capital markets

What Exemptions Do We Need?

• Prospectus requirement

• Registration requirement

Current Regulations in BC

• BCI 45-535 Start-up Crowdfunding

• Offering Memorandum

Regulations Outside BC

• MI 45-108 Crowdfunding

• ASC Rule 45-517 Prospectus exemption for start-up business

• SEC Crowdfunding Regulation

What About Debt Crowdfunding?

• “Security” includes evidence of indebtedness

• Distribution triggers prospectus requirement

Using the Start-up Crowdfunding Exemptions

How Start-up Crowdfunding Works

The Instrument

• BC Instrument 45-535 Start-up Crowdfunding Registration and Prospectus Exemptions

• Form 1 - Offering Document

• Form 2 - Risk Acknowledgement

• Form 3 - Funding Portal Information Form

• Form 4 - Funding Portal Individual Information Form

Start-up Crowdfunding Exemption

• Prospectus Exemption

• Dealer Registration Exemption

Start-up Crowdfunding

• Up to $250,000, two times per year

• Investor limit of $1,500

• Through registered portal or portal using registration exemption

Who Can Participate?

• Not available to reporting issuer or investment fund

• Located in participating jurisdiction

• No common principals with portal

Offering Document

• Details: idea, business and distribution

• No financial statement requirements

• Must be true

Raising the Minimum Amount

• 90 days to raise minimum amount

• Funds held in trust until closing

• Concurrent distributions

How to Invest

• Electronically through portal

• Acknowledge risk warning

• Right of withdrawal

Risk Acknowledgement Form

Post-Closing

• Deliver confirmation to purchaser

• Filings

Offering Document

Exempt Distribution Report

• Restricted period

Using the Prospectus Exemption

• Read published guidance including offering document instructions

• File exempt distribution report

Registration Exemption

• Issuers must use a funding portal

• Who can operate funding portals?

Registered in an appropriate category

Exempt – if they meet all conditions

Registration Exemption

• Key conditions of the registration exemption:

Deliver prescribed filings

No investment advice

Holds investors’ assets in trust

Registration Exemption

• Other key conditions:

Not registered under securities legislation

Head office located in Canada

Exempt portal acknowledgement

Registered Firms

• Registered firms must:

Confirm they meet certain conditions

Registered in an appropriate category

File a Form 33-109F5 Change of Registration Information

Setting Up a Funding Portal

• Read funding portal guide

• Make test environment available

Additional Resources

• CSA Notice 45-316

• Capital Raising for Small Business

• Practice guides

Regulations in Other Jurisdictions

MI 45-108

• $1,500,000 raised by issuer group within 12-month period

• Investment limit of $2,500 (many exceptions)

• Financial statements

Point-of-sale

ongoing

MI 45-108 Funding Portals

• Must be restricted dealer, investment dealer or EMD

• Restricted dealer exempt from KYC and suitability

• Limited due diligence required on issuer

BCI 72-505

• BC company can use MI 45-108 to access investor outside BC

• All conditions of MI 45-108 must be met

Start-Up Business Prospectus (AB)

• Prospectus exemption only – no portal required

• $1,000,000 maximum aggregate raise (lifetime) for issuer group

• Tiered investment limits

Crowdfunding Availability

Exemption Available Jurisdictions

MI 45 – 108 only ON

Start-up crowdfunding only BC

AB start-up business only AB

MI 45-108 and start-up crowdfunding SK, MN, QC, NB, NS

No “crowdfunding” exemption NL, PE, YK, NT, NU

SEC Crowdfunding

• $1 million in a 12-month period with tiered investment limits

• Financial statements

Point-of-sale

Ongoing

• “Intermediary” must be registered as a broker dealer or “Funding portal”

Questions

For More Information

www.bcsc.bc.ca

Elliott Mak

Senior Legal Counsel

Corporate Finance

604-899-6501emak@bcsc.bc.ca