New Prospectus Exemption Pilot for “Self-Certified Investors”Monday, October 31, 2022
On October 25, 2022, the Ontario Securities Commission (the “OSC”) adopted Ontario Instrument 45-507 Self-Certified Investor Prospectus Exemption (Interim Class Order) (the “Order”) which provides for a new exemption from the requirement for an issuer to file a prospectus in respect of a distribution of securities to a “self-certified investor” (the “Self-Certified Exemption”). The Self-Certified Exemption is expected to be used for investments by Ontario residents who may not meet certain financial thresholds to participate under other prospectus exemptions (for example, the “accredited investor” exemption), but who possess the necessary business knowledge, obtained either through education or experience, to make an informed investment decision.
Application of the Exemption
The Order provides that an issuer, who is a non-investment fund issuer and has a head office in Ontario, may rely on the Self-Certified Exemption in respect of a distribution of securities to a “Self-Certified Investor” as defined in section 1 of the Order.
A Self-Certified Investor must certify that they meet at least one qualifying criteria as set out in annex 1 of the Order (the “Qualifying Criteria”) and review and complete a risk acknowledgment form confirming that they understand the risks of investing.
The Qualifying Criteria include an individual meeting certain educational or professional designation requirements, including, but not limited to:
(i) holding an undergraduate degree in finance, or an undergraduate degree in business or commerce with a major or specialization in finance or investment;
(ii) holding an MBA focused on finance;
(iii) being admitted to practice law in Canada and spending at least one-third of their practice on financing or merger transactions; or
(iv) holding a CFA, CIM, CBV, CFP or CPA designation.
A Self-Certified Investor will also be subject to an annual investment limit of $30,000 on all purchases under the Self-Certified Exemption, which may be allocated to one issuer or distributed amongst multiple issuers.
Issuers who rely on the Self-Certified Exemption will be required to file a Form 45-106F1 Report of Exempt Distribution on or before the tenth (10th) day after the closing of the distribution, together with the Confirmation of the Qualifying Criteria form and the applicable fee. The OSC will use this data to monitor the use of the Self-Certified Exemption, which will in turn inform future policymaking.
The launch of the Self-Certified Exemption marks a welcomed stride towards achieving the OSC’s legislative mandate to foster competitive capital markets and capital formation. Ontario will join the provinces of Alberta and Saskatchewan, whose security regulatory authorities have adopted a similar exemption.
The Order came into effect on October 25, 2022 and will cease to be effective on the earlier of (i) April 25, 2024, unless extended by the OSC; or (ii) the effective date of an amendment to National Instrument 45-106 Prospectus Exemptions that addresses substantially the same subject matter as the Order.
If you have any questions with respect to the Self-Certified Exemption discussed above, please contact Sanjeev Patel (email@example.com), Peter Hill (firstname.lastname@example.org) or any other member of Wildeboer Dellelce LLP. The authors gratefully acknowledge the assistance of articling student Ana Savic in the preparation of this update.
This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.
If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.