The Ontario Securities Commission (OSC) is establishing a provincial “regulatory sandbox” which will allow startups to experiment with novel formats of raising capital while minimizing regulatory burden.
The sandbox will allow the OSC to test new forms of capital formation, including crowdfunding.
The decision to create a sandbox was included in a new charter published last week by the OSC, outlining priorities for its innovation office, which was first announced over the spring. The innovation office is being led by Pat Chaukos and is expected to be fully operational by March 2021.
The OSC told BetaKit the sandbox will allow the agency to test new forms of capital formation, including crowdfunding and angel investment networks. The OSC said the sandbox program is open to any ideas that offer potential solutions that benefit investors, lower access and trading costs, increase transparency and foster capital formation.
The OSC is still offering its Launchpad program, which was formed in 2016 with a goal of helping startups navigate securities regulations. LaunchPad provides support to early-stage FinTech businesses by helping them navigate regulatory frameworks, explore flexibility around current regulatory obligations, and gain informal guidance on potential securities regulation implications.
The OSC told BetaKit the LaunchPad team, which will also be responsible for implementing the Ontario Sandbox, will continue its work within the innovation office’s broader mandate. That broader mandate includes “accelerating innovation, bolstering capital formation, and furthering progress on reducing regulatory burden,” according to Chaukos.
“Through LaunchPad, we developed a framework and processes for providing direct support to new entrants in novel financial technology services and products,” Chaukos said in a statement sent to BetaKit. “We’ve been given the mandate and government support to build on this success through the innovation office.”
Over the summer, the OSC introduced an interim local order that adopted a startup crowdfunding regime currently in place in a number of other Canadian provinces. The goal of the order is to make it easier for startups and small businesses to access capital through crowdfunding sources and platforms.
Such crowdfunding is conducted through funding portals like Vancouver-headquartered startup FrontFundr, which launched in Ontario in January. In order for a funding portal to operate in the province, it must first be registered with a regulatory agency that administers and enforces securities legislation.
The OSC is one of several securities regulators in Canada that have implemented regulatory exemptions for startups. In 2016, the Canadian Securities Administrators (CSA) allowed AngelList to become a dealer with a two-year exemption from certain securities regulations. This was done as part of the CSA’s own sandbox program, which also allowed Wealthsimple to launch its cryptocurrency platform over the summer.
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