Crowdfunding Prospectus Exemption should not change the
status quo unless it is changed for all prospectus exemptions.
(b) We are not concerned whether adding rights of action
increase the length and complexity of an offering document since
it is an important investor protection safeguard.
Provision of Ongoing Disclosure
9) How should the disclosure documents best be made
accessible to investors? To whom should the documents be
Offering documents should be published online and
downloadable. Online disclosure and ongoing communications
should be available to all shareholders and can be password
protected to protect an issuer’s confidential information.
10) (a) Would it be appropriate to require that all non-reporting
issuers provide financial statements that are either audited or
reviewed by an independent public accounting firm? (b) Are
financial statements without this level of assurance adequate
for investors? (c) Would an audit or review be too costly for
(a) The PCMA believes that financial statements are essential
for the purposes of determining the financial health and historical
performance of an issuer. However, the PCMA also believes that
a requirement for all non-reporting issuers to provide financial
statements that are audited or reviewed by an independent public
accounting firm as unwarranted and too costly for many SMEs,
unless they have raised in excess of a certain amount of capital.
The proposed Crowdfunding Prospectus Exemption provides
that an issuer that has raised in excess of $500,000 and expended
more than $150,000 is required to have audited financial
statements. The PCMA submits that a review engagement should
be required if both proposed thresholds are triggered, and that
an audit requirement only be imposed when $1 million, or more
has been raised by an issuer and/or it has expended more than
$250,000 since inception. Simply, the PCMA believes the current
review engagement and audit triggering thresholds are too low.
(b) In a perfect world, audited financial statements would
typically be preferred by investors. However, not all start-ups and
SMEs can afford audited financial statements. PCMA submits
that investor protection and the level of assurance of financial
statements must be balanced against the amount of capital raised
and an issuer’s financial ability to provide financial statements with
a higher level of assurance.
(c) An audit or review would be too costly for many start-ups
and should only apply after an issuer has raised and expended a
certain amount of money. See also our answer in 10(a) above for
our proposed revised thresholds.
11) The proposed financial threshold to determine whether
financial statements are required to be audited is based on
the amount of capital raised by the issuer and the amount it
has expended. Are these appropriate parameters on which
to base the financial reporting requirements? Is the dollar
amount specified for each parameter appropriate?
No, the PCMA believes the threshold amounts in the proposed
Crowdfunding Prospectus Exemption are too low. See above
response under question 10 above.
12) Are there other requirements that should be imposed to
No, the PCMA believes that the proposed mechanisms
relating to investor protection are adequate.
CROWDFUNDING PORTAL REQUIREMENTS
General Registrant Obligations
13) The Crowdfunding Portal Requirements provide that
portals will be subject to a minimum net capital requirement
of $50,000 and a fidelity bond insurance requirement of at
least $50,000. The fidelity bond is intended to protect against
the loss of investor funds if, for example, a portal or any of
its officers or directors breach the prohibitions on holding,
managing, possessing or otherwise handling investor funds
or securities. Are these proposed insurance and minimum net
capital amounts appropriate?
Yes, the PCMA believes that the proposed requirements are
acceptable and consistent with industry standards.
Additional Portal Obligations
14) Do you think an international background check should be
required to be performed by the portal on issuers, directors,
executive officers, promoters and control persons to verify
the qualifications, reputation and track record of the parties
involved in the offering?
Yes, but subject to our comments below. The process involved
in conducting an international background check varies widely
depending on the applicable jurisdiction (as does the legislation
governing privacy law). It could cost thousands of dollars per
search, depending on the jurisdiction. Furthermore, translation
considerations and the time involved in obtaining credible results
may hinder the ability of an issuer to proceed with an offering in
a timely manner. For these reasons, the PCMA believes that the
obligation to conduct international background checks on the
insiders of an issuer would be a complex, burdensome and a
costly requirement for both portals and issuers.
The PCMA believes the Participating Jurisdictions should