The Expansion of the Accredited Investor Exemption: an OSC Pilot Project

Authors: Maria Susana Bastidas, Moushmi Mehta

On October 25, 2022, the Ontario Securities Commission (“OSC”) introduced a new exemption from the prospectus requirement on a pilot basis (the “Exemption”). The Exemption opens an avenue for investors who may not meet the financial criteria and thresholds to qualify as an accredited investor but possess the financial proficiency to understand the risks involved in an investment. As a result, financially savvy investors, accountants, corporate and security lawyers, and other investors, who previously did not meet the financial thresholds but have been hoping to participate in private offerings, can now expand their access to investments.

The Exemption permits non-investment fund issuers with a head office in Ontario in respect of the distribution of securities to financially literate “Self-Certified Investors” (“SCIs”) or to their permitted designates (such as their Registered Retirement Savings Plan), up to an aggregate limit of $30,000 per year and subject to additional conditions. To utilize this Exemption, investors have to confirm that they are compliant with at least one or more of the following qualifications or experiences:

• Chartered Financial Analyst designation;
• Chartered Investment Manager designation;
• Chartered Business Valuator designation;
• Chartered Professional Accountant designation;
• Certified International Wealth Manager Designation;
• Canadian license to practice law where at least one third of the individual’s practice involves advice regarding financings or mergers and acquisitions;
• Master of Business Administration with a focus on finance;
• undergraduate degree in Finance or Business or Commerce with Finance major or specialization;
• certificate from the Canadian Securities Course Exam;
• certificate from the Exempt Market Products Exam;
• certificate from the Canadian Investment Funds Course Exam;
• certificate from the Investment Funds in Canada Course Exam;
• certificate in both the Series 7 Exam by the US Financial Industry Regulatory Authority and the New Entrants Course Exam by the Canadian Securities Institute;
• Certified Financial Planner designation;
• Financial Planner or Financial Advisor credential from a body approved to credential by the Ontario Financial Services Regulatory Authority; or
• has management, policy-making, engineering, product or other relevant operational experience at a business that operates in the same industry or sector as the issuer and who, as a result of this experience, is able to adequately assess and understand the risk of investment in the issuer.

In order to track the progress of the intended purpose, issuers relying on the Exemption will have to report the use of such exemption by filing reports of exempt distribution together with a completed confirmation of qualifying criteria statement from each SCI. Based on these reports during the term of the pilot project, the OSC will determine if the definition of “accredited investors” should be expanded and thereafter, introduce amendments accordingly.

It is important to note that this OSC pilot-project came into effect following similar exemptions being adopted by Alberta and Saskatchewan in 2021 and considering that the majority of the capital gained under prospectus exemptions in Ontario is raised by individuals utilizing the accredited investor prospectus exemption. Recognizing the importance of capital formation for businesses, this Exemption was introduced based on a recommendation from the Capital Markets Modernization Taskforce – to expand the scope of the “accredited investor” definition by mitigating the strict financial thresholds applicable for such accredited investors. The Exemption is set to expire on April 25, 2024, subject to any extensions or amendments enforced by the OSC.

If you have any questions about this article or wish to learn more, please contact Maria Susana Bastidas or Dunny Medina. Oziel Law communications and legal articles are intended for informational purposes only and do not constitute legal advice or an opinion on any issue. To obtain additional details or advice about a specific matter, please contact our lawyers.

For permission to republish this content, please contact us at info@oziellaw.ca.