OM Exemption and, accordingly, they may be at least, or likely
more proficient in managing the related KYP and client KYC
information than investment dealers. It is not clear why the CSA
has determined that an investment dealer may advise a client as an
eligibility advisor but an EMD cannot. We note that the securities
in question are exempt securities and we believe EMDs have as
much, or likely more expertise and capability to provide eligibility
advice to clients regarding exempt securities than an IIROC dealer
principally trading public securities. If the CSA feels differently we
ask that you please explain why this different treatment is justified.
One of the purposes of implementing NI 31-103 was to provide
a consistent registration regime for dealers across all categories
– in particular in respect of the core obligations of KYC, KYP and
suitability. It does not follow that those dealers registered as EMDs
should be precluded from providing suitability advice or eligibility
advice to clients on the products in which they are registered to
trade. The PCMA believes that EMDs should be included as
qualified eligibility advisors to ensure consistency in the application
of the rules and to give effect to the principle of qualifying as an
eligible investor based on an investor receiving suitability advice
from a registered dealer (EMD or investment dealer).
5) The eligible investor definition includes persons that have
a net income of $75,000 and persons that have net assets of
$400,000. These income and asset thresholds currently apply
equally to individual and non-individual investors, such as
a. Should the $75,000 income threshold only apply to
individuals? If so, please explain.
b. Should the net asset amount exclude the value of the
principal residence for individual investors? If so, should
the $400,000 net asset threshold be lowered as a result?
c. Should pensions be included in the net asset test under
the OM Exemption? Please provide the basis for your
(a) No - the $75,000 income threshold should apply to both
individuals and companies as we have discussed in #1 above.
(b) No - the net asset amount should not exclude the value of
the principal residence for individual investors when considering
the eligible investor test. The commentary within the Proposed
Amendments states that: “if investors are qualifying as “eligible
investors” based on a net asset test, there are very few who could do
so without including their principal residence” (based on Statistics
Canada data). As the commentary further states, “excluding an
investor’s principal residence may treat investors with similar net
worth differently depending upon the types of assets they choose
to hold”. In other words, an investor with the security of significant
equity in their home could be disadvantaged over investors who
may have taken equity out of their principal residence to acquire
an asset or security which would then be eligible for inclusion as
net assets for purposes of the eligible investor test. It would be
concerning to see the CSA enact rules that limit the investment
options and potentially discourage investors who have the security
of equity in their own home.
Many Canadian look to the equity of their homes as part
of their savings and whether in the form of stocks, bonds or
home equity, the PCMA believes it should be included in the net
asset test under the definition on an eligible investor. We believe
situations where investors are encouraged to place the ownership
of their principle residence at risk in order to invest according to
a certain exemption will almost surely fail a suitability assessment
and therefore regulators already have a means to address any
such actions within the industry.
In the absence of any specific evidence, the PCMA believes
the principal residence of an investor should remain included
within the definition of net assets to maximize the harmonization
of the rule across Canada.
(c) To the extent a pension plan has a valuation that is reported,
this is a legitimate asset that should be included in the eligible
investor test. In fact, self-directed pension plans are a common
source of funds that are used by both eligible and non-eligible
investors to participate in private offerings. The presence of a
pension is a relevant criteria in a KYC and suitability assessment
and should contribute to an investors ability to invest other funds
in the exempt market, not detract.
6) The FCAA would appreciate feedback on whether lawyers
and public accountants should continue to be considered
“eligibility advisers” in Saskatchewan for purposes of the OM
Exemption? Please provide the basis for your opinion.
Yes - the PCMA believes that lawyers and accountants should
continue to be considered eligibility advisers in Saskatchewan.
Lawyers and/or accountants are both bound by rules of /
professional responsibility when they provide legal advice. What is
not clear is how often investors seek eligibility advice from lawyers
and/or accountants in Saskatchewan, and if sought, whether it is
in fact provided.
Some lawyers and/or accountants may not have the
knowledge or training to provide eligibility advice.
7) How common is it for an issuer that relies on the OM
Exemption to make annual financial statements available to
a. How is this done? Are they delivered?
b. Are those financial statements typically audited?
c. If the financial statements are not typically audited, is
there an auditor involved and, if so, what standard of
engagement is typically applied?
d. Do issuers that prepared financial statements in
accordance with IFRS for inclusion in their OMs typically
continue to prepare financial statements in accordance
with IFRS or do they transition to generally accepted