New OSC office to focus on innovative financing tools for start-ups

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Ontario’s securities regulator is increasing its focus on novel ways for startups to raise capital, such as crowdfunding and angel investing, after a push from the provincial government to use financial regulation to foster economic growth.

The Ontario Securities Commission announced the launch of an Office of Economic Growth and Innovation earlier this year. On Thursday, the OSC published a charter outlining priorities for the new office. These include launching a provincial “regulatory sandbox” – in which companies can test out new capital-raising ideas with fewer restrictions – and overseeing the regulator’s plans for reducing regulatory costs.

The office will be fully operational by March, 2021, the OSC said.

The initiative is part of a broader attempt by the Progressive Conservative government to overhaul Ontario’s capital markets. Other moves have also included asking the OSC to write a “burden-reduction” report as well as launching a third-party task force to recommend ways of improving financial regulation.

At the same time, the office is building on a program called OSC Launchpad, which was formed in 2016 to help startups and financial-technology companies navigate securities law. OSC Launchpad has worked with more than 300 “new and innovative firms” over the past four years, the securities regulator said.

The Innovation Office, which is being led by Pat Chaukos, who previously developed Launchpad, will “deepen engagement with venture-capital firms, law firms, advisers and angel investors to create a community for novel businesses and determine at what stage companies should receive the benefit of the LaunchPad process,” the OSC said.

It will also be responsible for overseeing the implementation of recommendations from the OSC’s Burden Reduction Report as well as final recommendations from the Capital Markets Modernization Taskforce, which are expected to be published shortly.

“The OSC has a role to play in creating conditions that attract capital, talent and new ideas to Ontario’s capital markets. This role takes on added importance in Ontario’s pandemic recovery,” OSC acting chair and chief executive Grant Vingoe said in a statement.

Over the summer, the OSC loosened the rules around crowdfunding for startups in response to “COVID-19 and the challenges it presents to small businesses seeking to raise capital.”

The Canadian Securities Administrators, the umbrella organization for provincial securities regulators, is also looking to introduce new Canada-wide crowdfunding rules, and has proposed increasing the amount companies can raise each year to $1-million from $500,000.

Regulators across the country are increasingly looking to promote financial innovation by carving out regulatory exemptions for startups and fintech companies. In 2016, the CSA allowed AngelList LLC, which connects accredited investors with startups, to become a restricted dealer with a two-year exemption from certain securities regulations. This was done as part of the CSA’s “regulatory-sandbox” program.

The CSA sandbox has also been used by cryptocurrency companies, looking for ways to distribute digital assets in a regulated environment. In August, for example, the CSA gave Wealthsimple Inc. a two-year exemption from certain rules in order to launch a cryptocurrency trading platform.

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