since their formation or an aggregate threshold amount. We
believe this amount should not exceed $500,000 (the Threshold
Amount) and include all monies raised by the issuer through any
other prospectus exemption, such as the private issuer exemption
and the family, friends and business associates exemption under
Canadian securities law.
The PCMA believes raising more than the Threshold Amount
would require additional disclosure and investor protection
4. Do the requirements of the Proposed Exemption adequately
No, we do not believe the Proposed Exemption adequately
protects investors for the reasons set out below.
(a) A funding portal does not have to be registered
The Proposed Exemption does not require a funding portal
to be registered with any securities regulator. A funding portal
is an important gate-keeper in the ecosystem of capital raising.
Although the amounts that can be raised by an issuer ($300,000)
or invested by an investor in any offering ($1,500) are relatively
small under the Proposed Exemption, a funding portal must have
some responsibility for fraud on its platform.
We are very concerned that unregulated non-equity or
rewards-based crowdfunding portals will be actively involved in
providing equity crowdfunding under the Proposed Exemption.
We believe there is a significant difference between regulated
and unregulated crowdfunding. We are concerned that the public
will be confused if an unregulated funding portal is involved
in equity crowdfunding. We believe this is no different than the
prohibition against a restricted dealer being dually registered as
an EMD as discussed in proposed Multilateral Instrument 45-108
Crowdfunding (MI 45-108).
Accordingly, we believe a non-equity crowdfunding portal
should be prohibited from selling securities on the internet unless
it is registered with an applicable Canadian securities regulator.
Otherwise, we believe the BCSC would be unintentionally inviting
the potential for fraud and imposing no liability on the funding
portal which we submit is potentially bad for investors and for the
(b) Securities regulators will be seen as having approved an offering
and Prescribed Individuals
The Proposed Exemption requires an issuer to pre-file its
offering document with its principal regulator and for officers,
directors and certain other prescribed individuals of an issuer
(the Prescribed Individuals) to provide its principal regulator
with certain background information in order to allow its principal
regulator to do background checks.
PCMA believes investors will incorrectly assume that a principal
regulator’s review of an issuer’s offering document and related
background checks will be interpreted as the regulator having
‘approved’ an offering and that the Prescribed Individuals are
acceptable to the principal regulator. We believe this should be the
responsibility of the funding portal and not the principal regulator.
Accordingly, the PCMA strongly believes the funding portal
should be registered under the Proposed Exemption. Moreover,
the PCMA does not believe any disclaimer by a principal regulator
will relieve it of any perceived approval or liability in the eyes of the
investing public. If the BCSC adopts the Proposed Exemption, the
PCMA strongly recommends that the BCSC require the registration
of the funding portal.
5. Should we require the portal to do due diligence on issuers
and their principals? If so, what level of due diligence should
Yes, the portals should be required to do due diligence on
issuers and principals in the manner contemplated by MI 45-108.
6. Should we impose any additional conditions on portals that
rely on this exemption?
As discussed in #4 above, the funding portal should be
registered as a form of restricted dealer.
Limits on investing
7. Should we impose an investment limit based on a percentage
of the investor’s net assets or net income, instead of a fixed
dollar amount? Would having this type of investment limit add
complexity to the start-up crowdfunding exemption?
No, the investment limit should be based on a fixed dollar
amount since an investment limit based on a percentage of an
investor’s net assets or net income would add complexity to the
Proposed Exemption. We suggest that the investment limit could
be revised after a period of time following implementation and a
review of the investment limits of the Proposed Exemption.
8. Should we add a requirement that issuers give investors a
“cooling-off” period similar to the two-day right of rescission
under the offering memorandum exemption?
Yes, we believe investors should be given a “cooling-off”
period similar to the two-day right of rescission under the offering
memorandum exemption. This would provide an added layer of
Other comments involving the Proposed Exemption
The Proposed Exemption states, among other things, that (a)
an issuer cannot raise more than $150,000 under each offering; (b)
a distribution cannot remain open for more than 90 days; and (c)
the exemption cannot be used more than twice in a calendar year.
We are not clear why such restrictions exist since no explanation
has been provided.
The PCMA believes that: (a) an issuer should be able to raise
up to the Threshold Amount in any offering; (b) the distribution