Regulators in Alberta and Saskatchewan are aiming to make it easier for individuals knowledgeable about financial markets to invest alongside accredited investors even if they don’t meet the minimum wealth threshold that is usually required.
The proposal, published Friday, aims to encourage investment in small and mid-sized businesses at a time when the pandemic has hurt access to capital for startups and smaller companies. It is also part of a longer-standing trend of provincial securities regulators trying to loosen rules around startup financing, while balancing the need to protect unsophisticated investors.
The Alberta Securities Commission (ASC) and the Financial and Consumer Affairs Authority of Saskatchewan (FCAA) have suggested a new Self-Certified Investor exemption. People who qualify would be allowed to buy securities that are sold without the usual offering documents, such as prospectuses. Currently, only accredited investors – people who make over $200,000 a year or have $1-million in financial assets – can buy securities that are sold without a prospectus.
Rather than a wealth threshold, the ASC and FCAA are proposing education and professional experience criteria: To qualify for the exemption, the investor needs to be a chartered accountant, financial analyst, lawyer with experience in financial markets, or the holder of a masters of business administration or finance degree.
People using this exemption would be limited to investing $10,000 in one issuer or $30,000 across several issuers in a single year. This is in recognition “that a self-certified investor will not have the income or assets of an accredited investor,” and may not be able to absorb the same level of losses, the regulators said in a notice.
The ASC suggested expanding the accredited investor definition before the pandemic, but the economic crisis appears to have sped up the implementation. Both the ASC and FCAA have suggested fast-tracking the change by using a “blanket order” rather than going through the usual rule-making process. The order would last for three years.
“In the face of the current economic situation in Alberta, market participants have urged us to take prompt action to pursue regulatory initiatives that can facilitate access to capital while adequately protecting investors,” the notice states. “Saskatchewan faces similar economic concerns and Saskatchewan capital market participants may also benefit from this exemption.”
Over the past few years, regulators across the country have been looking at ways to improve access to capital for startups and smaller companies. The Canadian Securities Administrators (CSA), the umbrella organization for provincial securities regulators, is looking to introduce new Canadawide crowdfunding rules, and has proposed increasing the amount companies can raise each year to $1-million from $500,000.
The CSA also has a “regulatory sandbox” where eligible issuers can experiment with novel ways of raising capital with fewer restrictions.
In Ontario, the provincial securities commission has established an innovation office to look at improving early-stage financing opportunities. The government-appointed task force reviewing Ontario’s securities regime has also suggested expanding the definition of accredited investor to take education into account.
The ASC and FCAA are seeking public feedback on the proposal until Dec. 23.
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Mark Rendell