Under a proposed prospectus exemption in Alberta and Saskatchewan, investors would be able to attest that they are sophisticated enough to participate in deals alongside accredited investors.
The Alberta Securities Commission (ASC) and Saskatchewan’s Financial and Consumer Affairs Authority (FCAA) are proposing a prospectus exemption that would allow investors to self-certify that they have the experience and education to participate in exempt market deals, without meeting the traditional definition of an accredited investor and based on income and wealth criteria.
To rely on the proposed exemption, investors would have to attest that they have qualifications. Those include a CFA designation, CPA designation, a finance degree, or that they have practiced law involving financings or M&A transactions.
“One of the goals of the exemption is to allow self-certified investors to invest alongside ‘accredited investors’ in our provinces and to help facilitate the growth of the angel investor ecosystem,” the regulators said in a notice outlining the proposal.
To limit the risk to investors that claim to have the appropriate investing smarts but not the wealth, and who want to engage in exempt investments, the stipulation is that they would be limited to risking $10,000 in a single investment and they would be capped at $30,000 overall, in any 12-month period.
“The conditions of the proposed exemption are intended to ensure that a self-certified investor understands the relevant financial and investing considerations,” the notice said, adding that the investing limits recognize that self-certified investors likely won’t have the resources to withstand losses like traditional accredited investors.
The proposal aims to respond to a growing demand for more ways to raise capital from issuers and the investment industry.
“In the face of the current economic situation in Alberta, market participants have urged us to take prompt action to pursue regulatory initiatives that can facilitate access to capital while adequately protecting investors,” the regulators said in their notice. “Saskatchewan faces similar economic concerns and Saskatchewan capital market participants may also benefit from this exemption.”
“Our goal is to find the right balance, appropriately protecting investors, without unduly burdening the businesses trying to raise capital to build and grow,” the regulators also said in their notice.
The regulators are proposing to introduce the new exemption via a blanket order, rather than with traditional rule making, to expedite the provision.
“Implementing the blanket order on an interim basis reflects the pilot project nature of this exemption, allowing us to test this proposed new form of capital formation and pursue innovation in regulation,” they said.
The proposed new exemption is being published for comment, with a deadline of Dec. 23.
“Efforts are being taken to adapt our existing industries and diversify our economies. By innovating as regulators we can help support the growth of the innovation economy,” said Stan Magidson, chair and CEO of the ASC.