An investor advocacy group strongly opposes a proposed new rule to allow equity crowdfunding in Saskatchewan.

In a letter to Saskatchewan’s Financial and Consumer Affairs Authority (FCAA), the Canadian Foundation for Advancement of Investor Rights (FAIR Canada) says that it does not support the concept of equity crowdfunding generally, as it “result[s] in too large a degree of informational asymmetry and too great a risk of fraud and potential for investor harm.”

“Equity crowdfunding is a significant departure from modern securities regulation, and is premised upon unsophisticated consumers investing in high-risk, illiquid, opaque securities,” it says.

Moreover, it argues that crowdfunding won’t create the economic benefits that itsproponents promise. “FAIR Canada urges governments and securities regulators to determine other ways to help small and medium size enterprises raise capital which are not detrimental to investor protection,” it says in its letter, adding that the possible damage to market integrity could end up hampering capital raising for small firms.

FAIR Canada stresses that it opposes any proposal to introduce equity crowdfunding exemptions in Canada “absent clear evidence that the benefits outweigh the costs”.

In terms of the FCAA’s specific proposal, the investor advocacy group also notes that it strongly opposes allowing unregulated portals to facilitate equity crowdfunding trades and payments. “Registration and regulation of crowdfunding portals is essential to investor protection,” FAIR Canada says. “We believe that permitting equity crowdfunding transactions through unregulated portals would be a complete abandonment of the FCAA’s consumer protection mission, and will cause irreparable damage to investor and issuer confidence in Saskatchewan’s financial markets.”

Additionally, FAIR Canada says that it does not believe that investment limits are adequate to reduce the risk of abuse and fraud. “Such limits will be difficult if not impossible to police,” it says, adding that investors can still be damaged by losing small amounts, and that this won’t deter scam artists.

“If the FCAA proceeds with crowdfunding, provisions should be in place to protect investors from having their rights and the value of their investments diluted by future capital raising initiatives,” it concludes.