provide additional guidance on what work needs to be done for
an international background check. The Participating Jurisdictions
should consult with those service providers that currently provide
such international background checks for potential directors who
seek to be on the board of an issuer listed on a stock exchange.
The Participating Jurisdictions need to balance the costs for these
international background checks with the need to protect investor
from individuals who are bad actors.
15) The Crowdfunding Portal Requirements would allow
portal fees to be paid in securities of the issuer so long as
the portal’s investment in the issuer does not exceed 10%.
(a) Is the investment threshold appropriate? (b) In light of the
potential conflicts of interest from the portal’s ownership of an
issuer, should portals be prohibited from receiving fees in the
form of securities?
(a) The PCMA believes that the 10% ownership limit for a portal
in an issuer is acceptable. PCMA believes any conflicts of interest
in obtaining such an equity interest in an issuer is adequately
addressed under the Crowdfunding Prospectus Exemption since
a portal is prohibited from:
(i) providing specific recommendations or advice to investors
about specific securities;
(ii) soliciting purchases or sales of securities offered on its
platform (other than through posting an offering on its platform);
(iii) compensating employees or agents to solicit the sale of
securities on their platform, the PCMA does not believe that portals
should be prohibited from receiving fees in the form of securities.
Some portals in other parts of the world have raised capital for
themselves on their own portal, such as Crowdcube in the United
Kingdom. We believe a portal should be able to raise capital
on its own portal for itself subject to certain conflicts of interest
disclosure. Many investors may want to invest in a portal and a
portal should not have to go to a dealer and pay a commission in
order to raise capital for itself.
(b) No, a portal should not be prohibited from receiving
securities as compensation for its services. Dealers typically
receive cash and warrants in connection with an offering.
16) The Crowdfunding Portal Requirements restrict portals
from holding, handling or dealing with client funds. Is this
requirement appropriate? How will this impact the portal’s
business operations? Should alternatives be considered?
The PCMA is not clear how a portal cannot hold, manage,
possess or otherwise handle investor funds. For example, if an
escrow account is set up at a financial institution, is this an account
of the portal or that of the issuer? A third party escrow agent
will likely want little to no liability and only take instructions from
a third party. It would make sense that this gate-keeper function
would be handled by the portal and not the issuer. Investors
would also typically expect a portal to be involved in collecting
and disseminating any funds. We respectfully request additional
clarification on this matter.
17) Are there other requirements that should be imposed on
portals to protect the interests of investors?
No, the PCMA believes that the proposed requirements
governing portals are acceptable.
18) Will the regulatory framework applicable to portals permit
a portal to appropriately carry on business?
We have a few concerns about portal ownership matters as
discussed below which we would appreciate if you could clarify.
(a) Existing registered dealers should be able to use the
Crowdfunding Prospectus Exemption
The PCMA is concerned that the proposed regulation of
crowdfunding portals prohibits EMDs and investment dealers from
operating a crowdfunding portal and relying on the Crowdfunding
Prospectus Exemption to raise capital. We believe registered
dealers should be able to raise capital under the Crowdfunding
Prospectus Exemption, or for that matter, any prospectus
exemption, adopted in any CSA jurisdiction. Registered dealers
understand corporate finance and capital raising and have
important exempt market experience new market entrants, such
as a restricted portal dealer, may not have.
(b) A holding company should be able to own and operate a
restricted portal deal and EMD
The PCMA seeks clarity on whether a holding company can
own a restricted dealer, operating as a crowdfunding portal, as
well as an EMD. Some groups would like to raise capital through
a crowdfunding portal under the Crowdfunding Prospectus
Exemption and concurrently under existing prospectus exemptions
through an EMD. Moreover, crowdfunding portals may want to refer
accredited investors to a related EMD instead of a third party EMD.
In such circumstances, these crowdfunding portals would receive
a smaller referral fee as opposed to a full transaction commission.
Moreover, the accredited investor may invest directly with an
issuer without paying any fee to the portal after becoming aware
of the investment opportunity from the portal where it first saw the
investment opportunity. Many crowdfunding portals believe their