Regulators in Alberta and Saskatchewan have adopted a new prospectus exemption that allows investors to self-certify they have the financial smarts to invest alongside the pros.
Under the new exemption adopted by the Alberta Securities Commission (ASC) and the Financial and Consumer Affairs Authority of Saskatchewan (FCAA), investors who attest to having a certain level of financial and investment knowledge are permitted to participate in exempt distributions along with accredited investors.
The new exemption is designed to allow investors who don’t meet the financial criteria to be considered “accredited investors” to qualify based on their education, including people with certain certifications, such as CFA holders, people who’ve passed the Canadian Securities Course, certain lawyers and MBAs with a focus in finance, and holders of undergrad business degrees with a specialization in finance, among other qualifications.
“This new financing tool will allow investors who have financial or investment education, such that they can appreciate the risks of investing, to invest alongside accredited investors,” said Stan Magidson, chair and CEO of the ASC, in a release.
The regulators aim to limit the risk to investors by allowing them to invest a maximum of $30,000 per year, and $10,000 per issuer, under the exemption.
The investment limits don’t apply in the case of listed companies that are in compliance with their disclosure obligations, as long as the investor also receives advice on the suitability of the investment.
“This new exemption should expand the pool of potential investors in early stage businesses but with conditions designed to mitigate the risk,” added Roger Sobotkiewicz, Chair and CEO of the FCAA.
The new exemption, which is being adopted on a three-year pilot basis, follows a proposal of a new small business financing prospectus exemption from the ASC and the FCAA last week.
The ASC has also proposed replacing the so-called Northwestern exemption with a new “finders” exemption for startups seeking capital.