Amid a rise in the popularity of private offerings, Canada’s capital markets are entering a new phase of their evolution, suggests Howard Wetston, chairman of the Ontario Securities Commission (OSC).

Speaking at the annual conference of the newly named Private Capital Markets Association (PCMA) Monday in Toronto, Wetston suggested that a series of proposed new prospectus exemptions — including a new offering memorandum exemption, and crowdfunding — will be “game changers” in Ontario.

Traditionally, regulators have focused on public markets, and on ensuring that investors receive adequate disclosure. But, Wetston noted, “That conventional approach is now giving way to a continuum of methods for issuers to raise funds from a broad range of investors in both the public and the private markets.”

Technology is one key reason for that shift, he noted. “While it is important for securities regulators to mandate effective standards to protect investors and foster efficiency in private markets, we are also seeing the development of innovative mechanisms to address the concerns traditionally dealt with by detailed regulatory requirements,” he said.

For example, online crowdfunding sites have emerged in the past few years to dispense information and connect prospective investors with creators; dealers are offering online access to exempt offering information to qualified investors; and, exchanges, such as the TSX, Nasdaq, and aspiring exchange, Aequitas, are using secure portals to match issuers and investors.

“When you combine new technological capabilities to support capital raising, new private sector initiatives to match buyers and sellers, and our new regulatory proposals, I think we’re on the cusp of a major change in the structure and performance of our capital markets,” he said.

From the regulators’ perspective, the challenge is to ensure that the regulatory framework balances the interests of different sorts of investors, from those that are willing and able to make high risk investments, to those that should be protected from these kinds of investments.

“Obviously, this is a difficult balance to achieve, but one that is essential to ensure that the needs of both companies and investors are met,” he said. “The bottom line is we have to get it right. We cannot afford changes that backfire, and lead to unsuspecting people suffering major losses. People who didn’t understand the risks, and were never advised of them.”

These risks are particularly acute, he noted, given inadequate financial literacy among investors, and deficiencies that the OSC has found with certain dealers’ practices when it comes to ensuring suitability. This heightens the importance of regulatory efforts to police compliance with these new exemptions.

“We are currently working on oversight procedures in anticipation of finalizing our rule proposals,” Wetston said, noting that this will include tactics such as reviewing filings on exempt offers, random samplings of disclosures, and continued inspections of dealers.

The comment period for the OSC’s proposals closes on June 18. Following that, it will consider all of the comments received — including industry criticism of proposed limits on investments made by retail investors using crowdfunding and the OM exemption, along with limits on the amounts raised by issuers — with a view to finalizing the rules, and implementing them, in the first quarter of 2015. (See Investment Executive, Exempt-market rules: Proposals called “game changers”, April 2014.)

“The landscape in this industry will be significantly different next year. I believe that a powerful combination of regulatory reforms, technological tools and market initiatives are about to bring important changes to our markets, especially for small companies, entrepreneurs and investors who are comfortable with the risk involved in participating in new ideas,” he concluded.