Canadian businesses planning to operate a peer-to-peer lending website would do well to speak with the Ontario Securities Commission (OSC) first about their legal requirements before opening up shop, according to a release the regulator sent out on Friday.
“If you are approaching any Ontario investors to fund peer-to-peer loans or loan portfolios, then you should be talking to the OSC about securities law requirements, including whether you need to be registered or require a prospectus,” said Debra Foubert, director of compliance and registrant regulation with the OSC, in a statement.
Peer-to-peer lending websites typically match borrowers and lenders without the use of a financial services institution. These lending businesses often differ in structure, according to the OSC, and in some cases a loan arrangement on such a website may in fact be a security as defined by the Securities Act (see http://www.ontario.ca/laws/statute/90s05 for full definition).
As such, if the loan does meet the definition of a security, the business or person offering the securities to the Ontario public must file a prospectus or rely on an exemption from the prospectus requirements, the OSC’s statement says.
Furthermore, a business planning to operate a peer-to-peer lending website should seek legal advice and consider the following three points, the OSC suggests:
- What kinds of securities as defined by the Securities Act are being offered through the proposed business model? For example, is there evidence that the product is an investment contract.
- What types of trades and distributions will occur?
- Does the business need to be registered as a dealer or as an advisor?