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Canadian Securities Regulatory Monitor

News and Insight

Credit for Cooperation: The Alberta Securities Commission Sets Out Parameters for Cooperation

Posted in Compliance and Supervision, Enforcement
Danielle DouglasRenee Reichelt

The Alberta Securities Commission (the “ASC”) recently released the Credit For Exemplary Cooperation in Enforcement Matters policy (the “ASC Policy”). It joins the provinces of Ontario and British Columbia in encouraging persons and companies to self-report securities related misconduct and breaches of securities laws. The purpose of the ASC Policy is to explain the benefits of cooperating with the securities regulator and the factors the ASC will consider when granting credit for exemplary cooperation. Historically, securities regulators have faced difficulties in detecting securities related misconduct, and as such, regulators have come to see the merits in providing incentives for persons and companies to self-report.

The ASC Policy is intended for persons or companies who may have knowledge of or are involved in Alberta securities misconduct, persons or companies who are being investigated by the ASC, or persons or companies who are the subject of ASC enforcement actions.

What the ASC expects

Credit will only be given for cooperation that goes beyond what is already required under Alberta securities laws. In order to earn credit for exemplary cooperation the ASC expects companies to investigate and self-report possible securities misconduct or breaches of Alberta securities laws, disclose all available documents and records, ensure the companies’ employees and officers are available for interviews, investigate employees and officers’ conduct that may have breached Alberta securities laws, provide adequate compensation to any investors that may have been harmed and take corrective action.

Conduct not considered Exemplary Cooperation

The ASC Policy identifies a list of conduct where no credit will be given. Examples include when persons or companies fail to promptly and fully report misconduct, withhold or knowingly misrepresent information, claim the misconduct was based on prior legal advice, fail to correct inappropriate conduct or delay settlement agreements.

Examples of Credit for Exemplary Cooperation

Where credit is granted the ASC may issue a notice of hearing that acknowledges the exemplary cooperation, narrow the scope of allegations, resolve the matter through alternative means, reduce the costs and in limited circumstances conclude the matter without taking any enforcement action.

Comparisons with BC and Ontario’s Securities Regulators

British Columbia Securities Commission’s Credit for Assistance in Investigations (BCSC Policy) was released in 2002. It provides a general overview of circumstances where credit may be given, but unlike the ASC Policy it does not provide examples of non-exemplary conduct, nor does it provide a procedure for self-reporting and cooperation. Additionally, the BCSC Policy is more narrow in scope as it only applies to persons and companies before and during an investigation.

The Ontario Securities Commission (OSC) released its Credit for Cooperation Program (OSC Policy) in 2004 and a revised version in 2014. Similar to the ASC Policy, the OSC Policy provides examples of non-exemplary conduct, examples where credit will be rewarded, a detailed procedure for self-reporting and cooperation and disclosure policies. However, compared to the OSC Policy, the ASC Policy places a higher burden on those seeking credit for cooperation. As an example, the ASC expects that parties make best efforts to locate and obtain relevant documents, records and information held in foreign jurisdictions. The OSC Policy does not set out a similar expectation. Further, the OSC may recommend to have a matter not proceed by way of a quasi-criminal prosecution, whereas the ASC Policy specifically states that credit will not be offered when it is in the public interest to proceed with quasi-criminal or criminal investigation. Finally, the OSC Policy runs alongside the OSC’s whistleblower program which offers financial incentive to those who report information on serious securities related misconduct. The ASC does not currently have a similar program.

The ASC Policy affords some assurance to persons or companies who wish to self-report securities misconduct, where previously Alberta lacked such guidance.

Canadian securities regulators seek comment on director and audit committee member independence

Posted in CSA, Industry News, Uncategorized
Mark AdkinsHeidi GordonDean Xiao

On October 26, 2017, the Canadian Securities Administrators published for comment CSA Consultation Paper 52-404 – Approach to Director and Audit Committee Member Independence. The paper is intended to facilitate a broad discussion and solicit views on the current approach to determining director and audit committee member independence.

On October 26, 2017, the Canadian Securities Administrators (“CSA”) published CSA Consultation Paper 52-404 Approach to Director and Audit Committee Member Independence (the “Paper”). The Paper is intended to solicit views on the appropriateness of the CSA’s current approach to determining director and audit committee member independence. Interested parties have until January 25, 2018 to submit their views. The CSA will consider these views in assessing whether or not any changes should be made in determining who is and who is not independent under Canadian securities rules.

The Paper represents the first time since 2008/2009 that the CSA has opened up a discussion on director and audit committee member independence.

The CSA’s current approach is set out in National Instrument 52-110 Audit Committees (“NI 52-110”) and includes:

  1. A definition of independence that is subjective – a person is independent if he or she has no direct or indirect material relationship with the issuer, with a material relationship being one which could, in the view of the issuer’s board of directors, be reasonably expected to interfere with the exercise of that person’s independent judgement.
  2. Bright line tests that preclude certain directors or audit committee members from being considered independent.
  3. Additional bright line tests that relate specifically to the independence of an audit committee member.

The approach must also be considered in light of applicable stock exchange requirements.

Determining independence is central to the Canadian corporate governance regime in a number of respects, including under the “comply or explain” disclosure model prescribed by National Policy 58-201 Corporate Governance Guidelines and National Instrument 58-201 Disclosure of Corporate Governance Practices. These require issuers to have a board comprised of a majority of independent directors or, if they do not, disclose what the board does to facilitate the exercise of independent judgment in carrying out is responsibilities. Similarly, NI 52-110 generally requires that audit committees be comprised solely of independent members.

Critics of the current Canadian regime argue that the approach to determining independence is inflexible because it does not permit a board to exercise judgment in the event one of the bright-line tests has been triggered and may result in a determination of independence that does not accord with the more nuanced views of the board. This may in turn limit the pool of qualified candidates available to serve as independent directors or audit committee members.

The decisions of the CSA following closure of the comment period on January 25, 2018 should be of interest to all stakeholders.

If you have questions about the existing independence standards or requirements, or want to submit a comment letter to the CSA on these issues, please feel free to reach out to any of us.





TSX Releases Guidance With Respect to the Information Required by Issuers When Completing TSX Form 11 — Notice of Private Placement

Posted in Industry News
Nicole Rumble

On November 2, 2017, the Toronto Stock Exchange (TSX) released brief guidance (the Guidance) with respect to the information required by issuers when completing TSX Form 11 — Notice of Private Placement (Form 11) of the TSX Company Manual (the Manual).

Pursuant to Section 607 of the Manual, a company that wants to complete a private placement of securities that are listed on the TSX or convertible into or exchangeable for securities of a class listed on the TSX is required to provide the TSX with notice of such proposed private placement by completing and submitting a Form 11. The purpose of the Form 11 is to provide the TSX with information with respect to the proposed private placement.

The Guidance addresses two pieces of key information that are required to be provided pursuant to the form.

Item 12 – Significant Information Not Otherwise Disclosed In The Form

Item 12 of Form 11 requires an issuer to disclose any significant information regarding the proposed private placement not otherwise disclosed in the form. The Guidance states that when responding to this question, the TSX expects companies to include any relevant significant matters including, but not limited to, any upcoming security holders meeting for which a record date has been or is shortly expected to be determined, any pending mergers, acquisitions, take-over bids, changes to capital structure or other significant transactions, and any details regarding potential dissident security holders and/or anticipated proxy contests.

Item 15 – Certification by a Director or Officer

Item 15 of Form 11 requires a director or officer of the issuer to certify that the form is complete and accurate, and that it contains no untrue statement of a material fact and does not omit to state a material fact that is required to be stated or that is necessary to make a statement not misleading in the light of the circumstances in which it is made. The Guidance notes that the TSX expects issuers to carefully and thoroughly review and complete the form, in order to ensure that the TSX is provided with all relevant material information.

TSX Adopts New Disclosure Requirements for Websites and Security-based Compensation Arrangements

Posted in Continuous and Timely Disclosure, Industry News, Marketplaces
Andrea Schneider

On October 19, 2017, the Toronto Stock Exchange (“TSX”) announced amendments to the TSX Company Manual which introduce new website and security-based compensation arrangement disclosure requirements for most TSX-listed issuers.

The website disclosure amendments are intended to improve the accessibility of information to investors by centralizing the location of certain publicly-available documents and will be effective as of April 1, 2018.

The amendments to the security-based compensation arrangement disclosure requirements were introduced to enhance and clarify the disclosure of security-based compensation arrangements and better align the TSX disclosure requirements with the executive compensation disclosure requirements under Canadian securities laws. These amendments will be effective for the financial years ending on or after October 31, 2017.

Website Disclosure Requirements

The amendments will require listed issuers to post on their websites certain documents ordinarily filed on SEDAR, together with additional policies and governance documents. Specifically, current versions of the following documents (or their equivalent) will need to be posted on a listed issuer’s website:

  • its articles of incorporation, or any other constating or establishing documents and its by-laws; and
  •  if adopted, copies of its:
    • majority voting policy
    • advance notice policy
    • position descriptions for the chairman of the board, and the lead director
    • board mandate
    • board committee charters

Eligible Interlisted Issuers, Eligible International Interlisted Issuers and Non-Corporate Issuers (as those terms are defined in the TSX Company Manual) are exempt from the new website disclosure requirements. The TSX declined to also exempt SEC foreign issuers or designated foreign issuers (as those terms are defined in Canadian securities laws) but has indicated that it may consider providing an exemption for those foreign issuers in the future.

In response to comments received during the comment process, the TSX has noted the following:

  • the new website disclosure requirements do not require an issuer to create new policies, but rather to disclose those already adopted;
  •  the TSX will consider excluding policies that contain sensitive or confidential information on a case-by-case basis; and
  •  issuers will not be required to translate documents into another language.

Enhanced Security-based Compensation Arrangement Disclosure Requirements

Section 613 of the TSX Company Manual sets out the disclosure required for meeting materials provided to security holders for meetings to approve security-based compensation arrangements, as well as required annual disclosure. The amendments include:

  • a new annual disclosure requirement to disclose, in a prescribed manner, the annual burn rate of each security-based compensation arrangement maintained by the issuer for the three most recently completed fiscal years. If an arrangement has not existed for three fiscal years (including similar predecessor arrangements) or was approved within the last three fiscal years, issuers should disclose the annual burn rate for each of the fiscal years completed since adoption. The annual burn rate disclosure may be omitted for the first fiscal year of newly adopted arrangements, but it must be included for new arrangements adopted in replace of similar arrangements;
  • clarifications of the existing disclosure for securities awarded or to be awarded under a security-based compensation arrangement in relation to the maximum securities issuable under the arrangement, outstanding securities awarded and remaining securities available for grant; and
  •  changes to the time period covering the disclosure. For an annual meeting, the required information (other than the annual burn rate disclosure) must now be disclosed as of the end of the listed issuer’s most recently completed fiscal year (previously, this disclosure was required to be made as of the date of the meeting materials). For a meeting where security holder approval is being sought for security-based compensation arrangements, which is not also an annual meeting, the information should be prepared as at the date of the meeting materials (other than the annual burn rate disclosure), which would remain unchanged from the current requirements.

The TSX also announced that it has removed the previously proposed use of Form 15 (Disclosure of Security Based Compensation Arrangements).


The Canadian Securities Administrators Call For Clear and Meaningful Gender Diversity Disclosure

Posted in Continuous and Timely Disclosure, CSA
Wendi LockeNicole RumbleSuzie Cusson

The Canadian Securities Administrators recently released the results of their third review of compliance with the new gender diversity disclosure rules.

In 2015, new rules were implemented pursuant to National Instrument 58-101 – Disclosure of Corporate Governance Practices which require Canadian public companies to disclose, on an annual basis, certain information regarding women in executive positions and on boards (the Gender Disclosure Rules). The Canadian Securities Administrators (CSA) have closely monitored compliance with the Gender Disclosure Rules since their coming into effect. On September 28, 2015, the CSA published a summary of the findings of their review of compliance with the Gender Disclosure Rules by companies that had released their annual proxy circulars or annual information forms by July 31, 2015 (Year 1), and on September 28, 2016, the CSA published an updated set of findings, this time focusing on compliance by companies that had released their annual disclosure by July 31, 2016 (Year 2) (see a previous article summarizing the results of the Year 2 findings here).

Building on their two previous annual reviews, the CSA published a summary of the findings of their review of compliance with the Gender Disclosure Rules by companies that had year-ends between December 31, 2016 and March 31, 2017 (Year 3) on October 5, 2017. The Year 3 findings are based on a sample size of 660 issuers.

Overall, the Year 3 findings reveal positive, although somewhat modest, improvement since Year 2 and cumulatively since Year 1 with respect to women’s representation on boards and in executive officer positions.

While the Year 3 findings indicate that most issuers comply with the Gender Disclosure Rules by reporting annually on gender diversity, common deficiencies in the quality of the disclosure provided were noted by the CSA. The Year 3 findings underscore the importance of clear and meaningful disclosure that goes beyond vague or boilerplate statements.

As reiterated by the CSA, the Gender Disclosure Rules require TSX-listed (and other non-venture) companies to provide disclosure with respect to their gender diversity practices at senior leadership levels with a view to increased transparency for investors and stakeholders making investment and voting decisions. To achieve this objective, the Gender Disclosure Rules go beyond simply requiring issuers to disclose the number and percentage of women on their board of directors and in executive officer positions. They also compel them to adequately describe:

  1. any term limits for directors or other mechanisms of board renewal;
  2. their written policies relating to the identification and nomination of women directors;
  3. how they consider the level of representation of women when identifying and selecting directors and executive officers; and
  4. their gender diversity targets with respect to their boards and executive officer positions, and their annual and cumulative progress in achieving these targets.

Issuers who have not adopted these practices are required to explain why not.

Results of the CSA Year 3 Review

The CSA’s Year 3 findings reveal the following (with meaningful differences as compared to Year 1 and Year 2 noted):


  • Number of Women. 61% disclosed having at least one female director (up 6% over Year 2 and up 12% over Year 1). While 26% of board vacancies in Year 3 were filled by women, the overall percentage of board seats occupied by female directors remained relatively consistent at 14% (up 2% over Year 2 and up 3% over Year 1).
  • Policies Regarding the Representation of Women. 35% disclosed having adopted a written policy relating to the identification and nomination of women directors, representing a significant increase over previous years (up 14% over Year 2 and up 20% over Year 1). Only 1% failed to provide disclosure with respect to policy adoption (down 1% over Year 2 and down 7% over Year 1).
  • Targets Regarding the Representation of Women. 11% set targets for the representation of women on their boards (up 2% over Year 2 and up 4% over Year 1), with larger issuers, as measured by market capitalization, being more likely to adopt such goals. Of issuers with targets for the representation of women on their boards, 90% aimed to fill 25% or more of their board seats with women and 57% declared having already achieved their stated targets. Similar to Year 2 and Year 1, the reason most often cited by issuers for not adopting gender diversity targets with respect to their boards is that candidates are selected based on merit.
  • Consideration of the Representation of Women. 65% of issuers disclosed that they consider the representation of women as part of their director identification and nominating process (down 1% over Year 2 and up 5% over Year 1). 37% of issuers that disclosed that they consider the representation of women on their board provided disclosure as to how it was considered.
  • Term Limits. 21% adopted director term limits (up 1% over Year 2 and up 2% over Year 1), most often in the form of age limits (50%) or a combination of age and tenure limits (27%). Of issuers who did not set director term limits and who disclosed their reasons for not doing so, the vast majority stated that they did not adopt such measures because they felt that doing so may negatively impact the continuity and experience on their board.


  • Number of Women. 62% disclosed having at least one female executive officer (up 3% over Year 2 and up 2% over Year 1).
  • Targets Regarding the Representation of Women. 3% set formal targets for the representation of women in executive officer positions in Year 3 (up 1% over Year 2 and Year 1, respectively).
  • Consideration of the Representation of Women. 58% disclosed that they consider the representation of women when making executive officer appointments (no change in relation to Year 2 and up 5% over Year 1). 34% of issuers that disclosed that they consider the representation of women in executive officer positions provided disclosure as to how it was considered.

In keeping with its previous annual reviews, the CSA’s Year 3 findings reiterate that companies that have policies or targets in place achieve better representation of women in senior leadership positions. As the CSA continues to monitor gender diversity, issuers should be mindful of providing clear and meaningful disclosure. The CSA’s Year 1 findings, which set out disclosure examples, remain a useful tool for issuers.

Wondering what you can do to support the trend towards greater gender diversity on corporate boards? See the following article: Getting Women on Corporate Boards: How Can Women Capitalize off of the Trend Toward Gender Diversity?

UK Financial Conduct Authority Releases Guidance on Initial Coin Offerings

Posted in CSA, Fintech
Heidi GordonShauvik Shah

On September 12, 2017 the UK Financial Conduct Authority (“FCA”) released brief guidance (“FCA Guidance”) on initial coin offerings (“ICOs”). This follows earlier guidance from the Canadian Securities Administrators (the “CSA”) in August on ICOs, a summary of which can be read here.

The FCA Guidance defines an ICO as a digital method of raising funds from the public using a virtual currency (cryptocurrency). An ICO can also be known as a “token sale” or a “coin sale”.

ICO Risk Factors

The FCA Guidance notes that ICOs are high-risk, speculative investments with the following risk factors:

  • Unregulated space: most ICOs are not regulated by the FCA and many are based overseas.
  • No investor protection: investors are extremely unlikely to have access to UK regulatory protections like the Financial Services Compensation Scheme or the Financial Ombudsman Service.
  • Price volatility: like cryptocurrencies in general, the value of a token may be extremely volatile and vulnerable to dramatic price fluctuations.
  • Potential for fraud: some issuers might not have the intention to use the funds raised in the manner set out when the project was marketed.
  • Inadequate documentation: instead of a regulated prospectus, ICOs usually only provide a “white paper”. An ICO white paper might be unbalanced, incomplete or misleading. A sophisticated technical understanding is needed to fully understand the tokens’ characteristics and risks.
  • Early stage projects: ICO projects are typically in very early stages of development and their business models are experimental. There is a good chance an investor could lose their entire stake.

The FCA states that whether or not an ICO falls within the FCA’s regulatory purview is something that can only be decided on a case by case basis. While many ICOs will fall outside the regulated space, depending on their structure, some ICOs may involve regulated investments and firms which may be conducting regulated activities.

Businesses involved in an ICO are advised to consider if their activities could mean they are arranging, dealing or advising on regulated financial investments. Both promoters and exchanges are advised to consider if they need to be authorised by the FCA to deliver their services.

The FCA Guidance notes that some ICOs may share similarities with initial public offerings, private placements of securities, crowdfunding or collective investment schemes and may therefore fall within the prospectus regime.

International ICO Guidance

Other national regulators have also issued guidance or advisories on ICOs, including the CSA, U.S. Securities and Exchange Commission, the Monetary Authority of Singapore, the People’s Bank of China and the Securities and Futures Commission of Hong Kong.

Any Fintech businesses seeking to enter the cryptocurrency space in Canada should consult with counsel and be prepared to engage in detailed interaction with securities regulatory authorities.

For more information about our firm’s Fintech expertise, please see our Fintech group‘s page.


Getting Women on Corporate Boards: How Can Women Capitalize off of the Trend Toward Gender Diversity?

Posted in CSA, Industry News
Nicole RumbleAdriana Forest

In 2015, new rules were implemented which require Canadian public companies to disclose, on an annual basis, certain information regarding women in executive positions and on boards (the Gender Disclosure Rules). On September 28, 2016, the Canadian Securities Administrators published the results (the Results) of its second annual review of compliance with the Gender Disclosure Rules, which indicated, among other things, an increase in the representation of women on boards (see a previous article summarizing these results here).

Both the Results and the establishment of the Gender Disclosure Rules indicate a clear push towards improvement of gender diversity on corporate boards. But what can women do to ensure that they are able to capitalize off of this trend?


Women should endeavour to expand their network. Most of the time, the way “in” to a corporate board is through a personal connection. Women can expand their networks by joining organizations and professional associations, or using their current network to meet CEOs and executives within their field.

Speaking at Governance-Related Events

Women can further increase their network by speaking at governance-related events such as the Annual Corporate Governance Conference. This will not only provide for a resume-boost, but may lead to contacts who have similar interests.

Expressing Interest to the CEO

Women should let the CEO of their organization know that they are seeking a position on a corporate board. This will not only elicit helpful feedback on how to enhance eligibility for a position, but may lead to the CEO providing a recommendation or creating a useful connection.

Seeking Out Relevant Not-for-Profit Experience

Women should start to “maneuver” towards their end-goal of being on a corporate board by serving on the board of a large non-profit organization (e.g., a university, a national non-profit in the health sector or a prestigious arts organization). This will provide excellent experience and may also lead to important connections for the future given that the boards of such organizations often include individuals who also sit on the boards of public companies.

Starting Early

Women should start taking the above-mentioned steps and seeking out marketable experiences early in their careers. Additionally, they should strive to establish relationships with older colleagues who may be able to provide valuable assistance to them in achieving their goal of getting on a corporate board.

Canadian Securities Administrators Weigh-in on the Applicability of Canadian Securities Laws to Cryptocurrencies, including Coins and Tokens

Posted in CSA, Fintech
Heidi GordonSean SadlerAna BadourShane C. D'SouzaShauvik ShahEtienne Ravilet GuzmanPatrick Boucher

On August 24, 2017, Staff of the Canadian Security Administrators (the “CSA”) released CSA Staff Notice 46-307 Cryptocurrency Offerings (the “CSA Notice”), published in all Canadian jurisdictions except Saskatchewan.[1]

The CSA Notice addresses a number of considerations of relevance to Fintechs, investors and their advisors, including the potential applicability of Canadian securities laws to initial coin offerings (“ICOs”) and initial token offerings (“ITOs”), cryptocurrency exchanges and cryptocurrency investment funds. It follows a press release issued by the Ontario Securities Commission earlier this year confirming that Ontario securities laws may apply to any use of distributed ledger technologies (“DLTs”), such as blockchain, as part of financial products or service offerings. Our commentary on that press release is here.

The effect of the CSA Notice is to confirm the potential applicability of Canadian securities laws to cryptocurrencies and related trading and marketplace operations and to provide market participants with guidance on analyzing these requirements.

Status as a “Security” and Prospectus Requirement

The CSA Notice clarifies that regardless of whether the instrument distributed is referred to as a coin/token instead of a share, stock or equity, that instrument may still be a “security” under Canadian securities laws. The key takeaways from this clarification are:

  • The existing definitions to establish whether an instrument is a “security” also apply to coins/tokens generated from an ICO/ITO. A security includes an “investment contract”. In determining whether a coin/token is an investment contract, a four-prong test should be applied, being does the coin/token involve: (i) an investment of money (ii) in a common enterprise (iii) with the expectation of profit (iv) to come significantly from the efforts of others. Advertisement of a coin or token as a software product is not relevant in determining whether a coin or token constitutes a “security”.
  • The “investment contract” test looks at the economic realities of the circumstances and provides a very broad and flexible means of capturing new and innovative arrangements — such as ICOs/ITOs — that do not fit within other definitions of a “security”.
  • Generally, “securities” offered to the public in Canada must be offered with a prospectus, which provides details of the venture and the securities being offered and is filed with the relevant securities commissions. However, there are prospectus exemptions that allow an issuer to offer securities on a private placement basis without a prospectus. “Securities” that are coins/tokens are no different. An ICO/ITO of a coin/token that constitutes a “security” requires either the filing of a prospectus, or the use of an applicable prospectus exemption. For example, coins/tokens that meet the definition of securities could be distributed to accredited investors in reliance upon the accredited investor exemption, or could be distributed to retail investors in reliance upon the offering memorandum exemption, without the need to file a prospectus. Whitepapers are not prospectuses and do not fulfill the disclosure requirements applicable under Canadian securities laws. To date, no business has used a prospectus to complete an ICO/ITO in Canada; however, coins/tokens have been distributed in Canada on a prospectus exempt basis.

Cryptocurrency Exchanges

As mentioned in the CSA Notice, a number of jurisdictions have also been developing regulation applicable to cryptocurrency marketplaces or exchanges in other areas, particularly with respect to anti-money laundering, recordkeeping, counter-terrorist financing and identity verification requirements. Canada is no exception in this regard, having amended the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) in 2014 to include within the scope of money services businesses “dealers in virtual currencies” (these changes are not yet in force pending the publication of related regulations).  In addition, in Quebec, the Autorité des marchés financiers requires such exchanges and virtual currency ATMs to be licensed as money services businesses.

While no cryptocurrency marketplaces or exchanges have registered with securities regulators in Canada to date, CSA Staff emphasizes the need for cryptocurrency exchanges to determine whether the cryptocurrencies that they offer are “securities” and, if so, to register as a marketplace or get an exemption from registration.

Dealer Registration Requirement

The CSA Notice also addresses the following with respect to dealer registration or registration exemption and marketplace requirements:

  • Businesses that undertake an ICO/TO for a business purpose may be required to register as a dealer or get an exemption from registration. Factors to consider include whether a security is involved, a broad base of investors is being solicited, whether a considerable amount of capital is being raised from a large number of investors, the use of public forums (i.e., the internet) and participation in public events to market the sale of coins/tokens. Any businesses that meet the business purpose must fulfill know-your-client and suitability requirements and other on-going registrant obligations.
  • Platforms used for trading coins/tokens that are securities may constitute a marketplace and therefore must comply with marketplace requirements or otherwise seek an exemption from such requirements.
  • Any platform used for offering coins/tokens that constitute securities must have policies and procedures, including in respect of cybersecurity matters, in place.

Cryptocurrency Investment Funds

The CSA Notice also outlines several factors relevant to the operation of cryptocurrency investment funds. As with other funds, a cryptocurrency investment fund should register in the category applicable to it as an investment fund manager and/or adviser, or dealer. The fund should consider how the valuation method of the cryptocurrencies and securities included in the fund’s portfolio will take place, whether this method will be assessed in an independent audit and how the exchange of cryptocurrency will take place. Any exchange used to purchase or sell cryptocurrencies will have to be subject to due diligence by the fund. Moreover, where retail investors invest in the fund, some jurisdictions in Canada will not accept an offering on an exempt basis in reliance upon the offering memorandum prospectus exemption, and instead will require compliance with the prospectus requirement, investment suitability and investment fund regulations. Finally, any custodian that holds the portfolio assets of a cryptocurrency investment fund must have cryptocurrency-related expertise.

Beyond Canada

Canada is not the only jurisdiction grappling with this issue. Recently, both the Securities Exchange Commission (“SEC”) in the United States and the Monetary Authority of Singapore (“MAS”) have issued guidance addressing the applicability of securities laws to cryptocurrencies.

On July 25, 2017, the SEC issued an investigative report reminding stakeholders considering using decentralized autonomous organizations or other DLTs to raise capital to take appropriate steps to ensure compliance with U.S. federal securities laws. Like Canada, in the United States, all securities offered and sold must be registered with the SEC or must qualify for a registration exemption. To drive this point home, the SEC analyzed the distribution of tokens in 2016 by “The DAO”, an unincorporated virtual organization on the Ethereum blockchain, and concluded that: (a) DAO tokens were unregistered securities; (b) The DAO was an unregistered issuer; and (c) platforms allowing DAO tokens to trade “appear” to be unregistered exchanges. Along the way, the SEC noted that:

  • The automation of certain functions through DLT, “smart contracts,” or computer code, does not remove conduct from the purview of U.S. federal securities laws.
  • Cash is not the only form of contribution or investment that will create an investment contract. Any contribution of value, such as goods and services, may be considered an investment.
  • The marketing efforts of those involved in designing, promoting, distributing and managing the ICOs/ITOs and resulting enterprise will be considered, including their involvement in control and decision-making after the ICO/ITO.
  • To prove that investors do not rely on the managerial efforts of others, voting rights given to token holders must allow them to meaningfully control the enterprise.
  • Pseudo-anonymity and the wide dispersion of tokenholders may make it difficult for them to argue that they can meaningfully control the enterprise and do not rely on the managerial efforts of others.

The SEC elected to not pursue an enforcement action against The DAO, its co-founders and intermediaries involved in the distributed of DAO tokens.

The CSA Notice is reflective of the increasing scrutiny paid by CSA Staff to the regulation of Fintechs, and can be expected to inform the approach taken by Canadian securities regulators when considering requests for exemptive relief from Canadian securities law requirements and other issues, whether as part of the CSA Regulatory Sandbox initiative or otherwise.

Any Fintech businesses seeking to enter the cryptocurrency space in Canada should consult with counsel and be prepared to engage in detailed interaction with securities regulatory authorities.

For more information about our firm’s Fintech expertise, please see our Fintech group‘s page.


[1]      The Financial and Consumer Affairs Authority of Saskatchewan will advise of its approach in this matter after the provincial by-election in Saskatchewan on September 7, 2017.

















The State of Private Placements in Canada: OSC Publishes Update on Exempt Financings Market

Posted in Capital Markets, Exempt Market Dealers, OSC, SEC
Mark AdkinsHeidi Gordon

The Ontario Securities Commission recently published a report summarizing capital raising activity by issuers in Ontario’s exempt market. Findings from the report include:

  • increased activity in 2016
  • significant participation from foreign issuers, including the U.S.
  • no reported use of Ontario’s new crowdfunding rule

In June 2017, the Ontario Securities Commission (the “OSC”) published OSC Staff Notice 45-715 2017 Ontario Exempt Market Report (the “Report”), which summarizes capital raising activity in Ontario’s exempt market (i.e. financings made other than by way of a prospectus).

The Report is a useful resource for businesses looking to raise capital from Canadian investors, including businesses located outside of Canada, particularly in the United States.


Generally, securities offered to the public in Ontario must be offered under a “prospectus”, similar to a U.S. registration statement, which provides details of the company and securities being offered and is filed with the relevant securities commissions. However, there are some exceptions to this rule that allow securities to be offered without a prospectus, called prospectus exemptions.​ These prospectus exemptions can help an issuer raise money from investors without the time and expense of preparing a prospectus.

The “exempt market” refers to the subset of Canada’s capital markets where securities can be sold without a prospectus (private placements). One of the most commonly relied upon exemptions for private placements is the “accreditor investor” exemption, which allows issuers to distribute securities to individuals and organizations that meet certain asset or income thresholds or other prescribed characteristics.  Investors who buy securities in the exempt market are then limited in their ability to resell the securities.

Unlike the federal SEC in the U.S., each province and territory in Canada has its own securities laws and regulator, although the laws are largely harmonized. The Report focuses primarily on activity in Ontario.

More information on Ontario’s exempt market can be found here.

A summary of the key capital raising prospectus exemptions in Ontario can be found here.


The Report includes the following statistics regarding capital raising activity in Ontario over the last two years:

  • Market size. The money raised from Ontario investors grew by 40% in 2015 to reach $67 billion, and an additional 9% in 2016 to a total of $72 billion.
  • Issuer location. Two-thirds of the issuers were headquartered in Canada, with U.S.-based issuers representing the second largest group. However, foreign issuers raised the most money, with U.S.-based issuers accounting for the largest share.
  • Reporting issuers. Even though most Canadian public companies are listed on a stock exchange and, as “reporting issuers” (the equivalent of a U.S. registrant), can access capital through prospectus offerings, Canadian public companies accounted for 60% of exempt market activity by domestic issuers.
  • Prospectus exemption relied on. In 2016, 30% of Canadian issuers relied on multiple prospectus exemptions. Among these issuers, the accredited investor exemption was predominately used and also accounted for most of the capital raised under multiple prospectus exemptions. Accredited investors, mainly institutional investors, contributed over 90% of the total capital invested in the Ontario exempt market, with most of this capital being invested in large issuers, primarily foreign-based and consisting of financial entities such as private equity funds.
  • Type of securities offered. Debt offerings raised more capital than equity offerings, which was true for both Canadian and foreign issuers.
  • Financing size. Foreign issuers in the exempt market raised more capital than Canadian issuers, with 65% of foreign issuers raising an annual average of at least $5 million. Only 22% of Canadian issuers raised aggregate funds over this threshold.
  • Comparisons with broader Canadian capital market. In 2016, Canadian corporations issued $309 billion in securities through both private and public market offerings, with Canadian investors accounting for less than half of that amount. The balance was raised from foreign investors.
  • Small Canadian issuers. Approximately 57% of Canadian issuers in Ontario’s exempt market were small issuers (i.e. issuers that raised less than $1 million annually). Small issuers, however, represented less than 1% of gross proceeds raised in Ontario’s exempt market by Canadian issuers annually. In 2016, there was a notable increase in both the number of small Canadian issuers (30%) and the gross proceeds raised by these issuers (40%).


In recent years, the OSC introduced four new prospectus exemptions in Ontario (the “New Exemptions”) aimed at facilitating greater access to capital for small to medium sized businesses:

  1. existing security holder exemption, introduced on February 11, 2015;
  2. family, friends and business associates exemption, introduced on May 5, 2015;
  3. offering memorandum exemption, introduced on January 13, 2016; and
  4. crowdfunding exemption, introduced on January 25, 2016.

The Report indicates that the New Exemptions have gained traction among 25% of all Canadian issuers, with 400 such issuers making use of the New Exemptions in 2016, raising $133 million in aggregate. The Report includes the following additional statistics broken down by exemption type:

  • Family, friends and business associates exemption. This was used by 302 issuers to raise gross proceeds of $63 million. Most issuers relying on this exemption also raised capital under others, particularly the accredited investor exemption. About 70% of issuers that relied on it raised average gross proceeds of under $1 million, and most were smaller issuers.
  • Offering memorandum exemption. This was used by 103 issuers to raise gross proceeds of $68 million. Most issuers relying on this exemption also raised capital under the accredited investor exemption. About 60% of issuers that relied on it raised average gross proceeds of $1 million or higher, and most were larger issuers.
  • Existing security holder exemption. This was used by 24 issuers to raise gross proceeds of $2 million in 2016.
  • Crowdfunding exemption. Notably, the Report confirms that there has been no reported use of the crowdfunding exemption. However, “crowdfunding” in the broader sense has occurred with issuers using online funding portals to raise proceeds under the accredited investor or offering memorandum exemption.

CSA Proposals Aim to Simplify Reports of Exempt Distribution

Posted in Amendments, CSA, Proposals
Heidi GordonAndrew ParkerCristian Blidariu

On June 8, 2017, the Canadian Securities Administrators (“CSA”) published for a 90-day comment period (ending on September 6, 2017), proposed amendments (the “Proposed Amendments”) to National Instrument 45-106 Prospectus Exemptions (“NI 45-106”) that would amend the report of exempt distribution (the “Report”) set out on Form 45-106F1 Report of Exemption Distribution that must be filed following a distribution of securities in reliance on certain prospectus exemptions under NI 45-106. The current version of the Report came into effect on June 30, 2016 and requires filers to provide substantially more information than previous versions. As a result, since its introduction, the current Report has prompted some filers to express concerns and to ask for clarification regarding certain unintended effects of the form.

Last year, the CSA issued a notice (the “2016 Notice”) intended to assist issuers, underwriters and their advisors in preparing and filing reports of exempt distribution using the Report. For more information on the 2016 Notice, see our post: Revised CSA Staff Notice gives further guidance on preparing and filing reports of exempt distribution.

The Proposed Amendments now pick up on a number of matters discussed in the 2016 Notice and are intended to be responsive to concerns expressed by dealers conducting private placement offerings into Canada, and Canadian institutional investors, about the unintended effects of the certification requirement and other information requirements in the Report. The Proposed Amendments aim to: (1) provide greater clarity and flexibility regarding the certification requirement of the Report; and (2) streamline certain information requirements to assist filers in completing the Report.

Summary of Key Proposed Amendments

Certification of the Report

Currently, the Report must be certified by the issuer or the underwriter, but may not be certified “on their behalf” or by an agent. This feature of the Report raised concerns that the individual certifying the report was executing in their personal capacity instead of on behalf of the issuer or the underwriter. The Proposed Amendments would amend the Report certification requirement as follows:

  • Clarifying that the individual certifying the Report is doing so on behalf of the issuer or underwriter.
  • The information provided in the Report must be certified to be “true and, to the extent required, complete” rather than “true” as is the case under the current Report. This change is intended to address concerns with certifying completeness when not all parts of the Report are applicable, or when filers can only select one form option when multiple options might apply and there is limited ability to include additional notes in the Report.
  • Including a knowledge qualifier in respect of the certification statement, which is consistent with other CSA forms and with the due diligence defence available under securities legislation.
  • Permitting authorized agents to sign the Report certification on behalf of the issuer or underwriter, thereby permitting law firms and other filing agents who often prepare and file the Report to sign it on their client’s behalf.

Information Requirements

The Report requires filers to provide a substantial amount of information. The Proposed Amendments would reduce the burden on filers by amending the Report as follows:

  • Filers will be required to provide only the name of the exchange on which the issuer’s securities primarily trade, rather than the names of all exchanges on which the issuer’s securities are listed. This is intended to reduce the burden on filers completing the Report for issuers with securities listed on multiple exchanges globally.
  • Filers will be required to select only one applicable exemption category instead of all applicable categories when indicating how they qualify for an exemption from providing certain director, officer and promoter information. This is intended to reduce the time and analysis currently necessary to complete this part of the Report.
  • Issuers distributing securities to non-individual permitted clients will no longer be required to specify which paragraph number in the definition of “accredited investor” in section 1.1 of NI 45-106 applied to the purchaser. This is intended to reduce the burden on filers completing Schedule 1 of the Report, particularly in circumstances where an issuer is distributing eligible foreign securities only to permitted clients.

If you have questions regarding the Proposed Amendments or wish to submit a comment letter to the CSA, we invite you to contact Andrew Parker (416-601-7939).