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With larger, more complex issuers raising capital under the offering memorandum (OM) exemption than the regulators initially intended, the Canadian Securities Administrators (CSA) are making changes to the rules designed to improve disclosure to investors.

The CSA is adopting amendments to the OM exemption that include specific new disclosure requirements for issuers engaged in “real estate activities” and issuers that are “collective investment vehicles.”

“We anticipate that this enhanced and tailored disclosure will provide investors with better information, enabling them to make more informed investment decisions,” the regulators said in a notice.

According to the regulators, the OM exemption was originally designed to help small early-stage companies raise capital from a large pool of investors. “It was expected to be used by relatively simple issuers for relatively small amounts of capital, prior to becoming reporting issuers,” it said.

However, the regulators have found that larger, more complex issuers are using the exemption — often real estate issuers or mortgage lending vehicles.

As a result, in September 2020 the CSA proposed changes to the exemption’s requirements.

While the regulators have made some changes to that proposal, the changes are not considered material, so the regulators have finalized the rules without seeking further comment.

“The use of the offering memorandum prospectus exemption has changed over time, and larger issuers with complex structures and business models are using it,” said Stan Magidson, chair of the CSA and chair and CEO of the Alberta Securities Commission, in a release.

“These amendments are expected to provide more certainty to issuers as to what they must disclose, better information for investors, and greater ease of use for all stakeholders,” he said.

Assuming that the various provincial governments approve the changes, the new requirements will take effect on March 8, 2023.