Memorandum exemption and few clients meet the definition of
an accredited investor. Ontario adopting an OM exemption would
allow more investors to diversify their portfolios by adding private
investments in an amount that is suitable for them.
The Notice also addresses concentration in investments as a
suitability factor. In particular, the CSA makes the following statement:
Most CSA staff will consider investments (either
individually or taken together
with prior investments) in
securities of a single issuer or
group of related issuers that
represent more than 10% of the
investor’s net financial assets
as potentially raising suitability
concerns due to concentration.
The CSA does not say how
this standard was determined. The
CSA may feel this is an appropriate
standard but it will be difficult to see
how it will be enforced. For example,
there are investment funds that are
highly concentrated as an investment
strategy. Will regulators take action
against these fund managers and
portfolio managers and force them
to unwind the funds and redeem
investors? It may be reasonable to
assume the CSA standard is merely
related to the use of the minimum
amount investment exemption. We
share the concerns of the CSA with
the use of the minimum investment
amount exemption for individuals.
However, we believe the proposed
amendments to NI 45-106 restricting
the minimum amount investment
exemption to non-individuals and
the possible adoption of the OM
exemption by Ontario will reduce the
occurrence of concentration issues in
the private capital markets.
So the bottom-line is this – the
CSA have now told the industry what
they expect to see, and perhaps even
more importantly what they expect
they should NOT see. It is up to you
to determine whether you accept the risks of continuing any
practices the CSA have described as ‘unacceptable’ – while our
industry is mostly about risk taking, taking risks with KYC, KYP
and Suitability practices may be risks you do not want to take.
For more information contact:
David Gilkes
davidgilkes@northstarcompliance.com | 416.915.4219
MNPcorporatefinance.ca Divestitures | Financing | Transaction Advisors
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John Caggianiello, CPA, CA
SVP & Director,
Transaction Advisory Services
416.513.4177
john.caggianiello@mnp.ca
Victor Kroeger, CA, CIRP, CFE
SVP & Director,
Transaction Advisory Services
403.298.8479
vic.kroeger@mnp.ca
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