The Canadian Securities Administrators (CSA) have adopted a set of new, nationally harmonized rules for securities crowdfunding.
The CSA, the council of the securities regulators of Canada’s provinces and territories, co-ordinates and harmonizes regulation for the Canadian capital markets. Through the Start-up Crowdfunding Registration and Prospectus Exemptions, CSA has increased the amount issuers are permitted to raise per year from $500,000 to $1.5 million. These new rules will come into effect on September 21.
“These rules expand the ability of small businesses and start-ups to use securities crowdfunding to gain access to capital.”
-Louis Morisset, CSA chair
The new requirements, which are designed to “improve the effectiveness of startup crowdfunding as a capital-raising tool,” are set to replace or enhance equity crowdfunding rules currently in effect in Ontario, Québec, British Columbia, Alberta, Manitoba, New Brunswick, Nova Scotia, and Saskatchewan.
“These rules expand the ability of small businesses and start-ups to use securities crowdfunding to gain access to capital,” said Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers.
Peter-Paul Van Hoeken, founder and CEO of Toronto-based equity crowdfunding platform FrontFundr, called the move “a watershed moment for Canadian investment crowdfunding.”
“We have seen the immense value and impact that harmonized crowdfunding rules have had in the US and the UK, and so we are really excited to work with Canadian companies and investors to help create the same sort of environment over here,” said Van Hoeken.
According to FrontFundr, although equity crowdfunding has existed in Canada since 2015, “it has, up until now, been largely regulated on a provincial level, and lacked the consistent, continuous approach on a national level that has helped this funding model flourish elsewhere.”
The new rules also increase the maximum investment a purchaser can make from $2,500 from $1,500, and introduce a higher limit of $10,000 if a registered dealer advises a buyer that an investment is suitable. Additionally, the rules remove barriers preventing federal and provincial co-operatives or associations from using the startup crowdfunding prospectus exemption.
The changes require funding portals that rely on the registration exemption to certify, twice a year, they have sufficient financial resources to continue operations for the following six months. It also requires issuers to have operations other than the acquisition of an unspecified business before using the crowdfunding prospectus exemption.
The CSA reported that 110 distributions of securities have taken place under the existing startup crowdfunding prospectus exemptions, since 2015. These distributions have seen an average investment of $576 per investor.
Feature image from Pixabay