Ontario needs more room for good investments to succeed, even
in the face of appropriately disclosed risk.
18. ;e PCMA recommends adjustments to certain limits under
the OM Exemption.
Investment caps work where there is no suitability advice
19. ;e PCMA agrees that investment caps are an appropriate
measure of investor protection where the distribution of securities
is made without involving a registrant.
4 Where an issuer relies on
the OM Exemption to sell directly to investors, there is no bu;er
to protect the interests of the investors. Even though substantial
disclosure is available in the o;ering memorandum, we recognize
that there is no objective standard of investment sophistication like
there is with accredited investors, so there is a heightened risk that
disclosure alone will not prevent poor investment decisions.
20. ;e PCMA recommends that the current investment caps
should be retained where an investment is made in reliance on the
OM Exemption where the investor does not receive suitability
advice from a registrant such as an exempt market dealer.
Positive suitability determination is already part of the OM
21. ;e PCMA agrees with the existing OM Exemption in
relation to higher investment amounts being permitted where
there is advice from a registrant as to the suitability of an investment. However, the PCMA believes that there should be no
arbitrary limits imposed under the OM Exemption in such
Investment caps do not work where there is suitability advice
22. Registrants have fundamental obligations to their investor
clients. Registrants are required to know their clients (KYC) –
requiring them to make a signi;cant e;ort to know their clients’
circumstances, goals and objectives. Registrants are also required
to know the investments they recommend to their clients (KYP) –
requiring them to do a reasonable amount of due diligence into
the investment, including understanding the features and the risks
of the investment. Finally, registrants are required to assess
whether the investment in question is suitable for this particular
client – requiring them to assess whether this particular investment
meets the goals and objectives of the client in the client’s circum-
stances. ;e assessment of suitability includes consideration of the
amount to be invested. Registrants that ful;ll these fundamental
obligations are in the best position to promote good investment
decisions by their clients. ;e PCMA believes that this is the most
fundamental protection a;orded investors in the private capital
23. ;e PCMA believes that registrants should be unfettered in
dealing with their clients under the OM Exemption, even if the
client is not an “eligible investor”.
6 If an investment is suitable,
including the amount to be invested, the investment should not be
impeded by a categorical investment cap. An investor who receives
suitability advice from a registrant should be permitted to invest
under the OM Exemption up to the limit recommended by that
24. ;e PCMA recommends that the investment caps should be
removed for investments under the OM Exemption where the
investor receives suitability advice from a registrant.
No exception for “client-directed trades”
25. ;e PCMA is aware that registrants’ clients from time to time
insist on making investments against the advice of the registrant.
In such circumstances, we understand that the registrant will
record the advice and the direction of the client to make the investment notwithstanding the advice; hence the investment is
commonly referred to as a “client-directed trade”. We believe this
practice is inappropriate in the context of the OM Exemption if
the result of the client-directed trade is that the client’s investment
will exceed the amount deemed suitable by the registrant. Our
position is based on the fact that the OM Exemption operates with
investment caps in the absence of suitability advice, and that the
suitability advice is the basis for exceeding the suitability caps. ;e
investor ought not to be able to exceed both the investment caps
and the amount recommended by the registrant. ;e higher of
the two becomes the de facto investment cap.
26. ;e PCMA recommends that there should be no client-directed trades permitted under the OM Exemption if the result of
the client-directed trade is that the client’s investment will exceed
the amount deemed suitable by the registrant. However, notwithstanding the foregoing, we recommend permitting a client-directed trade if the result is to allow the client to invest up to the
investment cap applicable to that client in the absence of suitability advice.
8 Hence, the higher of the applicable investment cap and
the amount recommended by the registrant becomes the de facto
OFFERING MEMORANDUM EXEMPTION – BROADEN THE EXEMPTION
BRIEFING NOTE FOR THE PCMA’S PRESENTATION AT QUEEN'S PARK ON MARCH 9, 2017