ASC adopts crowdfunding rule

Equity crowdfunding will become a reality in Ontario this month as the Ontario Securities Commission (OSC) is reporting that it has received governmental approval for its new regulatory regime for crowdfunding.

Specifically, the OSC Bulletin published on Thursday states that the province’s Minister of Finance has approved the OSC’s proposed new prospectus exemption and its registration framework for crowdfunding portals, which will take effect on Jan. 26.

As a result, startups will be able to raise capital from ordinary retail investors online without a prospectus, subject to certain conditions. Companies will have to distribute their securities through a registered portal, which will perform a gatekeeper function by reviewing an issuer’s disclosure, and carrying out background checks on the firm, its executives and directors.

The new regime will also impose limits on the amounts that investors can risk via crowdfunding; it ensures that companies are liable for their disclosure; it sets limits on the types of securities that can be issued; and it prohibits advertising by issuers.

Several other provinces are also adopting similar exemptions in addition to alternative crowdfunding exemptions that were adopted last spring in several provinces.

The forthcoming equity crowdfunding exemption represents the latest effort by regulators to enhance exempt-market fundraising and investing. On Wednesday, the OSC inaugurated a new offering memorandum (OM) exemption and a handful of other regulators also announced new investment dealer exemptions.

See: Exempt market: OM exemption takes effect in Ontario