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VanFUNDING 2016: Mechanics of Securities Crowdfunding Regulations

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Senior Legal Counsel, Corporate Finance, BCSC, Elliot Mak, along with Graham Stanley, General Manager, Community Futures Stuart Nechako discuss crowdfunding regulations BC from a regulator's perspective and a practical portal operators perspective.

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VanFUNDING 2016: Mechanics of Securities Crowdfunding Regulations

  1. 1. Securities Crowdfunding Regulations Elliott Mak Senior Legal Counsel, Corporate Finance BC Securities Commission October 18, 2016
  2. 2. • Part 1 : Overview of securities regulations • Part 2 : Using the start-up crowdfunding exemptions • Part 3 : Regulations in other jurisdictions Agenda
  3. 3. Overview of Securities Regulations
  4. 4. BCSC Mission • Protect investors • Facilitate efficient capital markets
  5. 5. What Exemptions Do We Need? • Prospectus requirement • Registration requirement
  6. 6. Current Regulations in BC • BCI 45-535 Start-up Crowdfunding • Offering Memorandum
  7. 7. Regulations Outside BC • MI 45-108 Crowdfunding • ASC Rule 45-517 Prospectus exemption for start-up business • SEC Crowdfunding Regulation
  8. 8. What About Debt Crowdfunding? • “Security” includes evidence of indebtedness • Distribution triggers prospectus requirement
  9. 9. Using the Start-up Crowdfunding Exemptions
  10. 10. How Start-up Crowdfunding Works
  11. 11. The Instrument • BC Instrument 45-535 Start-up Crowdfunding Registration and Prospectus Exemptions • Form 1 - Offering Document • Form 2 - Risk Acknowledgement • Form 3 - Funding Portal Information Form • Form 4 - Funding Portal Individual Information Form
  12. 12. Start-up Crowdfunding Exemption • Prospectus Exemption • Dealer Registration Exemption
  13. 13. Start-up Crowdfunding • Up to $250,000, two times per year • Investor limit of $1,500 • Through registered portal or portal using registration exemption
  14. 14. Who Can Participate? • Not available to reporting issuer or investment fund • Located in participating jurisdiction • No common principals with portal
  15. 15. Offering Document • Details: idea, business and distribution • No financial statement requirements • Must be true
  16. 16. Raising the Minimum Amount • 90 days to raise minimum amount • Funds held in trust until closing • Concurrent distributions
  17. 17. How to Invest • Electronically through portal • Acknowledge risk warning • Right of withdrawal
  18. 18. Risk Acknowledgement Form
  19. 19. Post-Closing • Deliver confirmation to purchaser • Filings  Offering Document  Exempt Distribution Report • Restricted period
  20. 20. Using the Prospectus Exemption • Read published guidance including offering document instructions • File exempt distribution report
  21. 21. Registration Exemption • Issuers must use a funding portal • Who can operate funding portals?  Registered in an appropriate category  Exempt – if they meet all conditions
  22. 22. Registration Exemption • Key conditions of the registration exemption:  Deliver prescribed filings  No investment advice  Holds investors’ assets in trust
  23. 23. Registration Exemption • Other key conditions:  Not registered under securities legislation  Head office located in Canada  Exempt portal acknowledgement
  24. 24. Registered Firms • Registered firms must:  Confirm they meet certain conditions  Registered in an appropriate category  File a Form 33-109F5 Change of Registration Information
  25. 25. Setting Up a Funding Portal • Read funding portal guide • Make test environment available
  26. 26. Additional Resources • CSA Notice 45-316 • Capital Raising for Small Business • Practice guides
  27. 27. Regulations in Other Jurisdictions
  28. 28. MI 45-108 • $1,500,000 raised by issuer group within 12-month period • Investment limit of $2,500 (many exceptions) • Financial statements  Point-of-sale  ongoing
  29. 29. MI 45-108 Funding Portals • Must be restricted dealer, investment dealer or EMD • Restricted dealer exempt from KYC and suitability • Limited due diligence required on issuer
  30. 30. BCI 72-505 • BC company can use MI 45-108 to access investor outside BC • All conditions of MI 45-108 must be met
  31. 31. Start-Up Business Prospectus (AB) • Prospectus exemption only – no portal required • $1,000,000 maximum aggregate raise (lifetime) for issuer group • Tiered investment limits
  32. 32. Crowdfunding Availability Exemption Available Jurisdictions MI 45 – 108 only ON Start-up crowdfunding only BC AB start-up business only AB MI 45-108 and start-up crowdfunding SK, MN, QC, NB, NS No “crowdfunding” exemption NL, PE, YK, NT, NU
  33. 33. SEC Crowdfunding • $1 million in a 12-month period with tiered investment limits • Financial statements  Point-of-sale  Ongoing • “Intermediary” must be registered as a broker dealer or “Funding portal”
  34. 34. Questions
  35. 35. For More Information www.bcsc.bc.ca Elliott Mak Senior Legal Counsel Corporate Finance 604-899-6501 emak@bcsc.bc.ca

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