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 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:

  1. 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.
  2. What types of trades and distributions will occur?
  3. Does the business need to be registered as a dealer or as an advisor?