with increased investment opportunities, while maintaining the required
investor protections.
If the AI definition is expanded, it will
increase the number of AIs in Alberta
and arguably increase: (a) investing by
Alberta investors; and (b) employment
by Alberta issuers who now have better
access to capital to grow their
businesses, create jobs and stimulate
the economy.
Alberta needs to increase capital
formation for SMEs, especially those
issuers who have raised less than
$10,000,000 since inception. Such
amounts are not necessarily being
raised by Alberta EMDs and other
Alberta registrants.
This is due the cost of a registrant’s
compliance burden under securities
legislation for the relatively small
amount raised in various tranches or
rounds of financing. Regardless of the
size of the capital raise, the compliance
burden does not change significantly.
The ASC’s review of the AI Exemption is
consistent with the current review
underway by the United States Securities and Exchange Commission which
released in June 2019 its paper titled,
“Concept Release on Harmonization of
Securities Offering”
4 (the “US Concept
Paper”). The SEC is also undertaking a
review of the definition of AI in the
United States and the ways to harmonize its exempt market and this could
be a good source of information for the
ASC Consultation Paper.
The AI Exemption is premised on an
investor having:
• a certain level of sophistication,
• the ability to withstand financial loss,
and
• the financial resources to obtain
expert advice
Under the current AI definition for
individuals, the income and asset tests
are based on financial thresholds that
assume an individual or with a spouse
has the financial capacity to withstand a
loss, in whole or in part, of their invest-
ment. Based on such financial thresh-
olds, the AI definition assumes the
individual has the requisite financial
sophistication to carefully consider their
investment or will hire an expert to
provide such advice. The PCMA believes
income and net worth are not the only
proxies for investor sophistication and
believe there are alternative approaches
for determining AI status.
The PCMA believes it is reasonable to
view an investor’s financial sophistication as a viable way to assess an
individual’s qualification as an AI. We
respectfully submit that if an individual
has the financial sophistication and the
ability to obtain and evaluate the
information to make an informed
decision including whether and how to
much invest; it may not be necessary for
the individual to demonstrate the ability
to sustain losses.
The PCMA believes the ASC should
expand the AI definition based on
individual investors having:
• certain business experience and
professional certifications
• certain education and degrees
• completed an examination such as the
> Exempt Market Product Examination
> Accredited Investor Examination
• being a member of an ASC approved
angel group and successfully completed
an Angel Investor Course Exam
• self-certification as a:
> Sophisticated Investors; or
> Restricted Investor
Each of the above concepts is discussed
below.
Business Experience and Professional Certifications
The PCMA believes the AI definition
should consider an individual’s financial
and business sophistication and include
criteria such as having operated a
business, or a certain investment related
professional certification.
An individual who has operated a
business should be considered an AI if
they have satisfied certain criteria that
each act as a proxy for ‘operational
experience’ in a business. Factors to be
considered include: the length of time
an individual has operated the business,
what experience or title an individual
held within the company to determine
their operational experience, consideration of the gross revenues earned by an
issuer and other factors.
The PCMA recognizes a challenge could
be in determining what is requisite
operational business experience but
recommend basic criteria could be
included in a further ASC proposal and
request for industry comment.
Similarly, the PCMA believes certain
professional certifications and designations may also provide demonstrable
evidence of investor sophistication and
such individuals should be included in
the AI definition. There are a number of
examinations that test an individual’s
knowledge and understanding in the
areas of securities and investing, and
individuals must pass examinations to
obtain the necessary professional
certification. The PCMA submits that
individuals having the following professional designations should be included
within the AI definition: certain types of
lawyers (e.g., those with corporate
and/or securities law experience), a
Chartered Professional Accountant, a
Chartered Financial Analyst; a Canadian
Investment Manager; a Certified Financial Planner; and a Life Insurance
Agent.
The PCMA recognizes some individuals
who obtain certifications and designations may not practice in fields related
to the certifications or designations. For
