Category Archives: Legal Issues and Regulation

Sep 22, 2019: NCFA Response to ASC Consultation Paper 11-701: Energizing Alberta’s Capital Market

NCFA Canada | Sep 22, 2019

ASC  - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market

NCFA is pleased that the Alberta government is undertaking this important initiative to the  benefit of all Albertans.  We acknowledge the substantial background information provided by 11-701.  This submission responds to the brainstorming headings pp. 24 – 31 and seeks to fill knowledge gaps with recent consultation data (mainly obtained in Edmonton) and pays specific attention to equity (investment) crowdfunding and peer lending in Alberta.

Download the Submission in PDF format --> Now

Key Takeaways

The NCFA recommends that the ASC undertake the following:

  • Review and publish a report that evaluates the effectiveness of Alberta’s investment crowdfunding and peer lending requirements compared to other jurisdictions in Canada and international competitors such as the UK, US and Australia, including a comparison of the relative cost of capital to other available financing options;
  • ASC to take a more active role as a resource for both early stage companies and investors including data collection, market analysis, and information sharing to ensure more fair and efficient capital market formation in Alberta;
  • Engage Innovate Edmonton and Platform Calgary following the detailed third-party study by Startup Genome to obtain detailed ecosystem benchmarking data for follow-on analysis of Alberta’s funding gaps;
  • Support the development of a tax relief program for investors to increase the volume of start-up risk capital allocated to non-traditional sectors (eg. financial technology) similar to the effective programs in the UK: SEIS[1] and EIS[2];
  • Work with other jurisdictions to harmonize the crowdfunding regime across Canada (CSA Staff Notice 45-324) with the goal of eliminating unjustified regulatory burden at the same time. We favour BC’s regime;
  • Modify existing requirements so that they are principles based and outcomes focused to enable businesses to comply in the way that best suits their operations – detailed or prescriptive controls should only be imposed when clearly justified;
  • Implement burden reduction amendments for crowdfunding (45-108):
    • Increase the 12 month issuer cap to $5 million or higher;
    • Increase the 12 month investor caps to $10k and allow accredited investors to fully participate;
  • Allow advertising and general solicitation on social media for all crowdfunding;
  • Allow fintech solutions to streamline KYC and suitability tests;
  • Startup crowdfunding business exemption (45-109) – remove lifetime cap of $1 million; or increase lifetime cap to minimum $5 million.

See:  [Survey Deadline Sep 20, 2019]: ASC consults on Energizing Alberta’s Capital Market

Benefits to Alberta will include:

  • Increased capital investment in the province and increased economic growth;
  • Increased investment options for investors that support small businesses across Alberta;
  • Reduced pressure on Albertan startups to raise capital from outside Alberta and Canada;
  • Crowdfunding sources remain in Canada;
  • More capital and improved access to capital specifically for small businesses, rural businesses, economically challenged sectors, and under-served groups (eg. women and Indigenous business owners);
  • More liquidity and transparency in the markets;
  • Improved probability of retaining high growth companies in Alberta; and
  • Accelerated commercialization of new products and services.

Crowdfunding helps to drive innovation, economic activity and job growth. It fills a critical early stage funding gap (‘valley of death’), enables more productive investment in venture markets, and strengthens early stage capital markets. Crowdlending also provides support to more mature companies looking to access capital that may fall outside the parameters of bank lending. And last, but not least, it helps to democratize investment by giving smaller investors direct access to the capital markets.

“Regulation may be the largest constraint to capital markets Fintech development in Canada, as we have not set out many of the same principles as in the U.S. and U.K.”[3]

This is not the time for Alberta to hold back.

Thank you for the opportunity to contribute comments.  NCFA would be happy to expand on any of the points raised in this submission.  We look forward to future developments.

See:  ‘We don’t have enough money’: Tech leaders debate constraints at Vancouver Startup Week

1.    Background and Context

Contrary to the intent of the crowdfunding exemption, Alberta’s crowdfunding requirements hinder access to capital for SMEs across many sectors. These requirements have restricted innovative opportunities for retail investors and our members feel the impact of this directly. The potential of opening up regulation is to significantly increase job creation and economic development, as experience in other jurisdictions shows. Alberta’s 417,000 small businesses would also benefit from the increased access to capital that crowdlending offers.  Canada has fallen behind international competitors like the UK and the US. Crowdfunding now provides the largest investment at the seed stage in the UK and peer-to-peer platforms now provide 15% of all new bank lending to small businesses.

2. Fintech and Crowdfunding are Being Held Back in Canada

Canada’s crowdfunding and fintech “ecosystem” should be competitive, be in line with global trends, and enable early stage entrepreneurs to access smaller amounts of capital at a reasonable cost. Unfortunately, it is not and does not. There is a ‘funding gap’ as smaller companies find it very challenging to raise debt or equity financing in Canada.

There is a 'valley of death' for start-ups at around the $250,000 level. Venture capital funding has increased, but VC dollars are mostly going to expanding firms. Angels are a lot less active than in the US and their investment amounts are lower. Banks generally steer clear of start-ups. This means fewer innovative start-ups, fewer opportunities for investors, lower economic growth and productivity and fewer jobs.

“Regulation may be the largest constraint to Fintech development in Canada, as we have not set out many of the same principles as in the U.S. and U.K.”[5]  The NCFA has conducted numerous stakeholder consultations which overwhelmingly tell us that regulatory requirements are overly prescriptive, complex and burdensome, disproportionately raising the costs of doing business for start-ups. Entrepreneurs are reluctant to start up in Canada due to high costs (relative to a small financing), along with concerns about ongoing regulatory burdens such as over-reaching and complex reporting requirements and compliance reviews.

Investors are inhibited by restrictions like caps on investment. Many talented entrepreneurs and investors move to (or invest in) overseas jurisdictions that better understand (and support) innovation and the economic potential of start-ups and SMEs.  If the NCFA recommendations were to be implemented, the experience of other jurisdictions makes clear that more capital would be raised, especially for under-serviced sectors (e.g. women and minority groups, including First Nations, and rural communities). Investors would have increased confidence and more freedom to invest as they choose – any increase in investor downside risks are anticipated to be low.

3. Alberta

The call for comments by the ASC is a leap towards positive change in the Albertan capital markets and crowdfunding landscape. While the in-depth background material supplied by the ASC in 11-701 clearly lays out the challenges for Albertan companies, there are updated consultative engagements with the entrepreneur communities in Edmonton and Calgary. These updated reports will be a useful addition to the ASC’s decision-making processes. They also provide excellent contacts for ASC’s engagement with Alberta’s major centers.

See:  ASC advances new capital-raising initiatives for start-up businesses

(a) Startup Genome Reports

In Edmonton, starting in May 2018, community meetings under the banner of the “Edmonton Innovation Ecosystem Community” engaged members of the innovation community.[6] To date, there have been 11 community consultations with key innovators on a near-monthly basis. The impetus for the first gatherings followed consultation with 50 entrepreneurs in Edmonton to gather their feedback on ecosystem performance. The EEDC engaged Startup Genome to begin measurement of the ecosystem performance. The Edmonton Report brought two key measurement instruments to the ecosystem, Global Market Reach (GMR) and Global Connectedness (GC).

startup genome edmonton report - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market

Startup Genome Edmonton Ecosystem Assessment, May 2018

We ask that the ASC review the results of EEDC’s more detailed analysis of the ecosystem as part of their assessment of 11-701 responses. Notably, Edmonton lags behind its Canadian peers in attracting resources from within the country.  In addition, Edmonton ranked below what the report calls the Globalization Phase Average in Early Stage Funding per Startup, based on data from Crunchbase and Deal Room. The key actionable insights from this early analysis are that Edmonton should focus on increasing early stage funding by (1) widening the funnel and increasing startups with seed funding; (2) supporting the formation of more sources of capital (ie. Angel groups); and increasing access to Series A capital.  Calgary has also engaged Startup Genome for ecosystem benchmarking[7].

(b) Innovation Compass

Another work product from the EIEC meetings in Edmonton was the Innovation Compass report[8]. Due to perceived low numbers of early entrepreneur engagement, EEDC engaged ZGM Marketing to complete a third-party interview process with Edmonton Entrepreneurs to make recommendations that reflect the voice of Edmonton entrepreneurs. Engagement began in December 2018 and the final report was published June 20, 2019. The report provided community validated recommendations and directions for supporting the city’s tech innovation ecosystem. Among 14 recommendations and directions, the top recommendation was:

“Encourage pools of private investors from all sectors to move off the sidelines and start investing in local tech entrepreneurs.”

innovation compass edmonto recommendations - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market

Highest priority recommendation from Edmonton innovation ecosystem community members in the YEG Innovation Compass Report.

(c) Edmonton Advisory Council on Startups (EACOS)

During the early meetings of the EIEC, it was recognized that a body completely separate from EEDC that reflected the voice of Edmonton entrepreneurs was needed. The Edmonton Advisory Council on Startups was formed with members representing all stages of entrepreneurship to ensure diversity. EACOS is comprised of 13 individuals representing students, seed, startups and scale-up stage companies, and investors. EACOS has published three position papers[9] aimed at increasing the size, throughput, energy, and success of the Edmonton startup community.   EACOS has identified a number of community priorities and access to capital is top of mind. EACOS has recommended:

“Intensified efforts to engage local investors into investing into local technology companies. Investors who have built capital through traditional means, like real estate and energy, need to be effectively engaged, educated, and presented with the portfolio opportunities of technology investments.”

4. Comparison: British Columbia

BC and some other jurisdictions have less burdensome crowdfunding requirements[10] that allow small firms to raise up to $250,000 per offering (twice a year), with participation from other provinces. While still not ideal, these less burdensome exemptions have proven to be much more effective than MI 45-108 in Ontario.

For background on exemptions in Canada see: https://www.bcsc.bc.ca/Securities_Law/Policies/PolicyBCN/PDF/BCN_2018-01__February_14__2018/. (This BCSC Notice expresses well many of the points we raise in this submission)

5. Canada’s Uncompetitive Position

Canada has fallen behind international comparators such as the UK. In the UK,  crowdfunding platforms were involved in 24% of all equity deals in 2017, but with 30% of seed stage deals in 2017.[11]

To see the advantages of a uniform, cross-border, and flexible crowdfunding regime, one need look no further than Regulation D in the US. The following are quotes from the recent Crowdfunding Capital Advisers Report.[12]

“2018 saw triple digit growth in unique offerings, proceeds and investors. More importantly, start-ups are successfully using Regulation Crowdfunding to raise meaningful capital in a relatively short period of time and at costs that are less than a typical Regulation D offering.

“Unlike venture capital, where less than 6.5 percent of start-ups successfully raise funds, the success rate in Regulation Crowdfunding hovers around an impressive 60 percent. A key data point for industry followers is that the average raise ($270,996) helps start-ups hurdle the “valley of death” they often face after expending their internal or personal capital.

“Regulation Crowdfunding is proving to be a jobs engine (creating on average 2.9 jobs per issuer), economic generator (pumping over $289 million of revenues into local economies)... There is still a lot of room for growth with Regulation Crowdfunding offerings as they equate to only 1.2 percent of all Regulation D offerings and only 4 percent of all capital raised under Reg D.

“The fact that the velocity of capital into funded offerings continues to be steady without signs of abnormal activity or irrational investor behaviour is a healthy indicator. Meanwhile, the rapid increase in the number of offerings and investors proves there is continued appetite for Regulation Crowdfunding from both issuers seeking capital as well as investors looking to diversify. This is true across the [US].

“Regulation Crowdfunding is also proving efficient. If we compare the average days to close (113) in 2018 and average raise ($250,635) of a successful Regulation Crowdfunding campaign to a traditional Regulation D offering, Regulation Crowdfunding most likely represents the most efficient, cost effective way to raise capital for start-ups and SMEs.”

The type of (published) data collection and analysis provided by the above report is rare in Canada, which is another serious impediment to decision making in this area. To back its recommendations, NCFA (and others) must rely largely on anecdotal evidence from its members.

6. Canada’s Competition Bureau

As the Competition Bureau has pointed out[13], a more flexible approach to regulation and better government support would provide significant economic benefits by freeing entrepreneurship. It would also help to keep our entrepreneurs in Canada (along with the related jobs), boost GDP (especially by improving productivity), and encourage the commercialization of new products and services generally.  It is well-documented that overly complex, prescriptive regulation is a much higher burden for smaller firms and so is inherently anti-competitive.  For a disappointing progress report on the Bureau’s recommendations of Dec 2017.  See: http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04392.html

7. ASC Brainstorming Ideas and Comments

(a) Information resource for Alberta start-ups and early stage businesses on capital raising options

  • Raising capital shouldn’t be a ‘black box’. Companies and investors would benefit if the ASC could:
    • provide a roadmap to the various financing options including use of exemptions, what typical companies (and investors) that qualify look like, average time to market, related costs and effort, and capital flows;
    • publish sample templates of the expected quality of good offering documents;
    • work with industry to develop a transparent resource database that is widely available.
  • Dovetailing with EACOS recommendations on entrepreneur preparedness, more information on successive financings would benefit the Alberta tech ecosystem. The ASC could consider hosting this data in an anonymized format so that Alberta startups could learn about their local comparables.

(b) Information resource for investors in Alberta

Some market participants have suggested there might be a role for the ASC in increasing investor understanding respecting the exempt market and considerations when investing in start-up and early stage businesses

  • The ASC assuming an educational role could only be beneficial to Albertan investors, especially those that are seeking to diversify outside of real estate or oil and gas. An equity crowdfunding or peer lending platform operating in Alberta could then easily point to this resource as a third party unbiased educational resource for investors.
  • In addition to local investors, ASC could work with economic development agencies to provide education on exempt market trends and developments to international investors and funds with a new focus on emerging technology as a means to diversify the Alberta economy.
  • Highlighting a range of companies by sector and capital raised in private markets would help investors understand high growth SME opportunities.

(c) Expanding the accredited investor exemption to include educated, experienced investors

What are the right combinations of education and experience? For the educational component, should we consider courses such as those offered through the CVCA Canadian Private Capital Investment School or the NACO Academy for those investing in private markets?

  • The accredited investor exemption if expanded to include educated and experienced investors would unlock latent capital in Alberta while increasing opportunities for qualifying investors and allow for greater portfolio diversification.
  • Any expansion of the accredited investor definition should aim to ensure that investors understand the risks involved with investing in private market securities such as reduced disclosure and lack of liquidity and provide education on the evolving trends of online financing such as peer lending, investment crowdfunding, and digital assets.
  • Education should be tendered and open to all private capital market training bodies, associations, licensed exempt market dealers, and investor-orientated groups and structured to be flexible and allow a wide range of participation to enable:
    • the right balance of training expertise and collaboration;
    • wide program accessibility;
    • current and relevant training content updated on an annual or periodic basis;
    • range of “textbook” and experiential training delivery;
    • certification and listing for public verification on an ASC database; and
    • capture of investor risk acknowledgement such as ability to withstand loss
  • The certificate of training could then be used by equity crowdfunding and lending exempt market dealers and portals to validate investor training in a streamlined manner (rather than have investors go through the same process with various dealers and portals time and time again).

Given that the policy rationale for the accredited investor exemption is ‘ability to withstand loss’, would it be appropriate to impose some limit on the amount that can be invested by an educated/experienced investor that is not otherwise an accredited investor e.g., the greater of $30,000 and 5% of their investment portfolio?

  • Accredited investor and qualifying experienced-educated investors should be allowed to fully participate without caps in investment crowdfunding and peer lending offerings.
  • Accredited investors should be encouraged to invest in or along-side a Start-up Business Exemption campaign. The participation of accredited investors at higher levels will provide non-accredited investors with added value as the investment group will perform greater due diligence than investors only investing the minimum threshold amount in a Start-Up Business Exemption offering.

(d) Addressing the compliance challenges associated with confirming accredited investor status

The central party could then confirm, through a unique investor identifier, to any business or dealer to whom the investor provided the unique identifier, that based on the information provided, the investor qualifies as an accredited investor, without the need for the investor to reveal all of their personal information.

  • This is a logical and reasonable solution that mirrors recreational licensing and even academic author identification systems (see Orcid ID).
  • Unique IDs could be used as part of a background check which will help reduce the number of days required to verify ID prior to being permitted to participate on equity crowdfunding or peer lending platforms.
  • There are numerous ‘regtech’ solutions now in the market that can be assessed by the ASC for potential use and deployment.
  • Any investor verification system should be neutral to avoid a single group monopolizing a provincial (or national)system.

(e) Registration exemption for finders

We are interested in feedback on a dealer registration exemption for sales to investors that are accredited investors who also meet certain education and/or experience criteria. We are interested in how such an exemption could be tailored to adequately protect investors but help address the issues associated with smaller financings that are not being serviced by registered dealers.

  • We agree that a registration exemption for qualified ‘finders’ would help expand the pool of investors and supply more capital to early stage companies.
  • Finders should be required to notify the ASC of their identity or could be required to associate with registered dealers or engaged by investment platforms.
  • Finders not associated with registered dealers could be required to report periodically on their investor prospecting activity using technology to streamline communications. This would not only provide employment opportunities for finders but also minimize unreported finder type activity that occurs anyway while increasing the transparency in the exempt market for smaller financings.

(f) Reducing compliance costs for registered dealers when dealing with accredited investors

This applies across the piece in the crowdfunding sector. Each requirement should be cost justified by regulators.

(g) Addressing other registered dealer compliance burdens

For crowdfunding related burden reduction examples we encourage the ASC to review NCFAs submission to the Ontario Securities Commission of March 1, 2019 – burden reduction.[14]

(h) Facilitating angel investment funds

Should we consider adviser registration exemptions where accredited investors have a limited amount of capital at risk?

  • Yes, especially if accredited investor status is expanded to include well educated and experienced investors. In this scenario, with small amounts of capital deployed and a demonstrated ability to withstand a specified loss, barriers to obtaining capital from multiple crowd sources would be reduced.

(i) Facilitating the development of a retail, publicly-traded fund focused on innovative businesses

  • We feel this is best answered by VCs and institutions.

(k) Facilitating a semi-public market that allows secondary retail trading by non-public companies

  • The illiquid nature of exempt market securities is often cited as a major concern of prospective investors so anything that assists secondary trading is welcomed.
  • A secondary market for exempt securities would also benefit early employees of start-up companies by allowing them to liquidate holdings pre-IPO and thus help early stage companies to offer creative compensation packages and attract a wider range of employees to help them grow.[15]
  • A semi-public market should be open to all types of exempt securities from crowdfunding to security tokens to allow fair and efficient markets to form.

(m) Fostering crowdlending and peer-to-peer lending

  • Peer-to-peer (P2P) lending is providing SMEs with financing in many jurisdictions, including the US, the UK, New Zealand and Australia, at rates which are considerably lower than those offered by competitors.
  • The popularity of P2P lending in the UK has increased exponentially in recent years, with nearly £10 billion being transferred through such platforms in the past ten years and approximately £1.2bn having been transferred through P2P platforms in the second quarter of 2019 alone.
  • The current securities regulatory regime in Canada imposes costs and burdens that create significant impediments to the success of any P2P platform and by extension the availability of financing to Canadian SMEs.
  • The current regime in Canada is not suited to allowing companies to raise debt financing as it treats them as issuers. The regulatory requirements for becoming an issuer are simply too burdensome for small loan sizes (for example a $50,000 loan).
  • The sheer magnitude of P2P lending and its positive impact on the economies of  advanced jurisdictions elsewhere suggests that it would be beneficial for Canadian SMEs if the regulators in Canada were to adopt a regime specific to P2P lending. A regime modeled on those successfully implemented in jurisdictions, like the UK, where P2P lending has been proven to provide much needed funding to SMEs while ensuring an appropriate level of protection for investors.

About the NCFA

The National Crowdfunding and Fintech Association of Canada (the Association) represents over 2,000 fintech SMEs and individual members that support financial and capital market innovation, small businesses and technology. We are pleased that the Alberta government is undertaking this important initiative to the benefit of all Albertans.  Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

 

Download the Submission in PDF format --> Now


NCFA Jan 2018 resize - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market

Latest news - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital MarketFF Logo 400 v3 - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Marketcommunity social impact - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market
NCFA Fintech Confidential Issue 2 FINAL COVER - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market

 

Majority of London FinTechs not prepared for no-deal Brexit

Business Cloud | Alistair Hardaker | Sep 13, 2019

london tower bridge - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital MarketOnly a few firms said they are now prepared for a potential crash out of the EU next month

Most London FinTech firms are not prepared for the fallout of a no deal Brexit, says a new report.

More than three quarters, (78 per cent) of firms surveyed by Innovate Finance said they were not prepared for Britain to leave the EU without a deal, and 45 per cent said they don’t feel prepared even if there is a transition period.

The main concerns of a no-deal scenario shared by the FinTech firms were ‘passporting’, by which firms can apply for a ‘passport’ to do business throughout the EU, cross-border transactions, servicing EU clients and retaining and attracting new talent.

The survey also reports that 38 per cent of FinTech say they have not taken any steps to prepare for Brexit, but the majoirty have begun tasks such as reviewing data processing, preserving talent and undertaking risk management procedures.

See: 

Charlotte Crosswell, CEO of Innovate Finance, said: “At this time of rapid growth in the UK’s FinTech sector, which is at the heart of the future prosperity of the UK economy and innovation, we would prefer our members to be focussing on their businesses, scaling up to conquer new markets, at home and internationally.

“Hearing directly from the industry and amplifying its message to Government is a vital step to ensuring ongoing growth for fintech. Businesses must take the lead to make sure our FinTech sector remains strong. Now is the time to avoid complacency, further strengthen our position and support the sector’s growth.”

Continue to the full article --> here


NCFA Jan 2018 resize - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

Latest news - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital MarketFF Logo 400 v3 - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Marketcommunity social impact - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market
NCFA Fintech Confidential Issue 2 FINAL COVER - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market

 

Competition Bureau’s call for intel on anti-competitive conduct in digital economy raises eyebrows

Financial Post | Julius Melnitzer | Sep 17, 2019

big tech and competition bureau - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital MarketIn a general sense, what the Bureau wants to know is whether the characteristics of certain digital markets favour concentration — a process called 'tipping'

The Competition Bureau’s recent call to Canadians to flag anti-competitive conduct in the digital economy is raising eyebrows among industry professionals.

Certainly, the Bureau’s consultation seems far more concrete than what is evident from the regulator’s statement that it “is examining concerns that certain digital markets have become increasingly concentrated.”

“The Bureau is looking to collect information and understand facts to determine whether increased concentration is truly occurring,” says Anita Banicevic, a competition partner in Davies Ward Phillips & Vineberg LLP’s Toronto office. “But it’s also looking to see whether it should take enforcement actions and beyond that, a fairly open call for complaints on which to base such actions.”

Although Banicevic acknowledges that the Bureau has “always been driven by complaints to a significant degree” and “does have the ability and resources to weed out the genuine complaints from those that are meritorious,” she still finds the call-out disquieting.

“I remain concerned that the call for complaints is essentially a matter of looking for issues,” she says.

See:  Bureau Speech: Advancing Competition in a Changing Marketplace

James Musgrove, a competition partner in McMillan LLP’s Toronto office, is of similar mind.

“This (call-out) was a little surprising, because presumably if there are actual problems, people already know how to contact the Bureau,” he says.

But Matthew Boswell, Canada’s Commissioner of Competition, says the Bureau is bound to approach the issues with an open mind.

“We don’t have the luxury of making assumptions and going in with a fixed view of things,” he says. “We work on a prosecutorial model in which any evidence we have will be tested because we have to take everything we do to a court and establish that there are anti-competitive effects. We can’t just go off on a jag of our own.”

In this regard, the Bureau is encouraging market participants to schedule meetings with the Bureau to discuss the issues.

“We’re willing to hear from all quarters, including people who believe there is no cause for concern,” he says.

In a general sense, what the Bureau wants to know is whether the characteristics of certain digital markets favour concentration — a process called “tipping,” which emerges from a combination of the network effects of a widely used product (such as Facebook), economies of scale and access to huge databases.

The Bureau also wants to define the extent to which anti-competitive strategies may have contributed to the success of leading players. The Bureau’s list of such strategies includes protecting core markets, capturing adjacent markets, refusals to deal, self-preferencing, margin squeezing and creeping acquisitions.

See: 

At stake is nothing less than the long-term viability of current practices in core digital markets, including online search engines, social media, display advertising, app stores and services such as ride-hailing. Still, both the Information Technology Association of Canada and Facebook have made public their willingness to co-operate with and be accountable to Canadian and other regulators.

“ITAC welcomes the Canadian Competition Bureau’s focus on targeting anti-competitive conduct in the digital economy,” said Angela Mondou, the organization’s president and CEO, in an email response to questions from the Financial Post. “It’s important to note that the tech industry is always ready to co-operate with government.”

Mondou went on, however, to add a note of caution.

“It’s important that government of all levels find a clear balance between being too prescriptive and setting clear rules for the tech of the future,” she said. “Industry should adhere to policies; and government must establish clear guidelines.”

While many other stakeholders — particularly traditional media — have welcomed the call-out, critics have suggested that Canada is late to the game.

In the U.S., enforcement actions against big tech are already a reality: 50 states attorneys general have recently announced antitrust investigations involving Google and Facebook. In July, the European Commission launched an antitrust investigation of Amazon.

Continue to the full article --> here

 


NCFA Jan 2018 resize - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

Latest news - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital MarketFF Logo 400 v3 - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Marketcommunity social impact - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market
NCFA Fintech Confidential Issue 2 FINAL COVER - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market

 

Regulating financial innovation – going behind the scenes

FCA | Sep 11, 2019

Christopher Woolard2 - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital MarketSpeech by Christopher Woolard, Executive Director of Strategy and Competition at the FCA, delivered at the Cambridge Centre for Alternative Finance annual conference, Judge Business School.

Highlights:

  • The UK has led the rest of the world with developments like the regulatory Sandbox, we are very proud of what has been achieved through it.
  • Early engagement is incredibly valuable for monitoring, supervisory and policy purposes. Working with innovative firms helps us achieve a better bird’s-eye view, enhancing our understanding when the overall landscape is blurry and ­changing quickly.
  • 'Stablecoin' is a term that has been widely adopted by industry, but we do not take it to be a distinct category of cryptoassets. Something labelled as a 'stablecoin' could sit within or outside of our regulatory perimeter.

Note: this is the speech as drafted and may differ from the delivered version.

See:  FCA confirms new rules for P2P platforms


Last month, Facebook announced its plans for Libra, the stablecoin it is planning to launch in conjunction with a number of payment and tech firms.

As has been widely reported, along with other regulators and central banks, we have been discussing their plans with Facebook.

If this comes to fruition, Libra could be very significant indeed.  It will pose questions for us as a regulator. It will pose questions for our colleagues at the Bank of England. It will pose questions for us working with our international partners. Moreover, its size and scale will pose questions for society and government more generally about what is acceptable and desirable in this space.

Historically, this may have been a sector that has lived by the mantra of ‘move fast and break things’, but the issues raised here require deep thought and detail.

In the UK, we’ve tried to manage some of those tensions through initiatives such as our regulatory Sandbox. We believe that has worked well, but we are facing now issues that could have a fundamental effect on the financial services system.

As a result, we need to ensure that innovation works in the interests of consumers. To do that, we need to thoroughly understand the business models firms are suggesting and how they benefit consumers.

We need to consider whether consumers understand and actively consent to the trade-offs inherent in those business models.  And we need to consider the wider impact on market integrity and stability.

So, I thought it would be helpful to peel back the curtain a little on how we look to critically analyse different cryptoassets and why, ultimately, we don’t think labels such as ’stablecoin’ are very helpful.

See:  FCA: Regulating innovation: a global enterprise

Now, I have to stress, what I’m about to say applies to all cryptoassets. I’m not talking specifically about Facebook or any one firm, but the rest of my comments should be taken as illustrative of the kinds of challenges we are facing up to as regulators.

What are ‘stablecoins’?

Market participants use ’stablecoin‘ as a broad term, which encompasses a variety of different types of cryptoassets. In essence, stablecoins hope to be less volatile than other cryptoassets and, so the argument goes, be more appropriate for a variety of use cases.

Back in October 2018, the FCA published a joint report alongside the Bank of England and HM Treasury as part of a domestic Cryptoassets Taskforce. In brief, we categorised cryptoassets into 3 broad types:

  1. Exchange tokens. Often referred to as ’cryptocurrencies‘, cryptoassets, such as Bitcoin, Litecoin and equivalents, utilise a distributed ledger technology (DLT) platform and are not issued or backed by a central bank or other central authority. They do not provide the types of rights or access provided by security or utility tokens, but are used as a means of exchange or for investment purposes.
  2. Security tokens are tokens, which amount to a ‘specified investment’. These may provide rights such as ownership, repayment of a specific sum of money, or entitlement to a share in future profits. They may also be transferable securities or another type of financial instrument under the EU’s Markets in Financial Instruments Directive II (MiFID II).
  3. Utility tokens are tokens, which can be redeemed for access to a specific product or service that is typically provided using a DLT platform. I mention this framework as it is important context. Just as the term ’cryptoasset‘ can mean different types of token, so can the term ’stablecoin‘.

Let’s take an example. ’Stablecoin‘ could refer to a cryptoasset backed by fiat currency. In certain cases, a fiat-collateralised cryptoasset could constitute e-money if it meets the definition provided in the Electronic Money (e-money) Regulations.

a 'stablecoin' could fall within or between any of the regulatory categories I’ve described previously. This makes us question how useful this one term – 'stablecoin' – is when it comes to labelling all these different tokens.

See:  Regular investors are cut out of a major financial market and the SEC chief wants to change that

If a cryptoasset is e-money then the issuer needs to be authorised as an e-money issuer and needs to comply with all relevant requirements under the E-Money and Payment Services Regulations.

It could be illegal to do otherwise.  We have already authorised e-money firms that use DLT, including graduates of the regulatory Sandbox.

But the term ’stablecoin‘ could equally apply to algorithmically controlled tokens. Or those backed by ’real world‘ assets such as securities or, indeed, other cryptoassets.

Such ’stablecoins‘ would need to be evaluated on their characteristics, but could amount to regulated products, including, for example, collective investment schemes.

However, to keep things short and simple, a ’stablecoin‘ could fall within or between any of the regulatory categories I’ve described previously. This makes us question how useful this one term – ’stablecoin‘ – is when it comes to labelling all these different tokens.

’Non-stable non-coins‘?

This issue isn’t specific to stablecoins. We tend to avoid the term ’cryptocurrency‘, as they generally don’t meet(link is external) the core economic criteria of money – as a unit of account, store of value and efficient means of exchange. We prefer to say ’cryptoasset‘, as it is more neutral and captures the broader range of tokens that are not just designed to act as a means of exchange.

So, whilst ’stablecoin‘ is a term that has been widely adopted by industry, we do not take it to be a distinct category of cryptoassets.

See:  Stablecoins: Experience the Stability

Something labelled as a ’stablecoin‘ could sit within or outside of our regulatory perimeter. Depending on its structure it could be many things – for instance, a derivative, a unit in a collective investment scheme, another kind of security or e-money.

We also question whether tokens governed by algorithms or underpinned by other cryptoassets are necessarily ’stable‘.

Volatility and stability are important concepts, but they are relative in nature. Whilst a wobbly tripod is seldom a good thing in the world of wildlife photography, ’volatility‘ in financial services is completely context-dependent.

The FCA does not have criteria, nor a legal basis, for endorsing such claims for cryptoassets.

Asking the right questions

Instead, when faced with novelty, we try to gain a crisper view. We ask:

  • What is this thing, why is there a new term and what problem is it trying to address?
  • Who is it for – wholesale banks or retail consumers? Is it within our regulatory scope or outside?
  • Is this really an innovation or just something old in a new, flashy wrapper?
  • Is this potentially to the benefit of consumers and competitive markets or is it likely causing harm by increasing complexity and other risks?

In short, we seek to consider any cryptoasset, including those labelled ’stablecoin‘, on a case-by-case basis and we encourage both consumers and firms to do likewise.

See:  UK and World Economic Forum to lead regulation revolution to foster industries of the future

This analysis is particularly important when identifying whether a specific cryptoasset sits within our regulatory perimeter or outside of it. Our recent perimeter guidance consultation on cryptoassets provides more detailed clarity for firms – we’ll be publishing a feedback statement on this shortly.

Something labelled as a 'stablecoin' could sit within or outside of our regulatory perimeter. Depending on its structure it could be many things – for instance, a derivative, a unit in a collective investment scheme, another kind of security or e-money.

As we seek answers to those questions, we expect any would-be cryptoasset issuer to be asking a few of their own before launching a product:

  • Is my product a beneficial innovation for consumers and markets? Or does it include hidden bugs and unmitigated risks?
  • Am I prepared to be open and cooperative with domestic and international regulatory agencies? How do I approach issues like anti-money laundering?
  • Will the target market I have in mind for this cryptoasset be able to make an informed and balanced judgement of the risks and benefits of investing in or using such an asset?
  • Finally, and most importantly, have I completed the regulatory, legal and technical due diligence in advance of launching a new product or service?

In financial services it is vital that innovators get it right the first time round.

See:  Canada’s Regulatory System for Fintech is Complex, Costly and Chaotic. It is Stifling Fintech Innovation

When it comes to other people’s money, or safeguarding against terrorist financing, corner cutting is simply not an option.

For those who think the model is to try it in beta for a few million people and see what happens, there may be activities here that are illegal without authorisation in many countries, not just the UK.

The UK has led the rest of the world with developments like the regulatory Sandbox, we are very proud of what has been achieved through it.

One thing that unites those who have been through the Sandbox is the professionalism and preparation shown by the firms involved, who all recognise there is a finite amount of learning through failing fast that can be tolerated when consumers are at risk of harm.

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NCFA Jan 2018 resize - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Libra: France opposes the development of Facebook’s currency “on European soil”

Le Monde with AFP | Sep 12, 2019

Bruno Le Maire Minister Finance of France vows to block facebooks libra - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market

Bruno Le Maire expressed his hostility towards this cryptocurrency project, saying that "the monetary sovereignty of states is at stake"

Finance Minister Bruno Le Maire announced on Thursday (September 12th) that France was refusing to authorize the development "on European soil" of libra, the cryptocurrency that Facebook wants to launch in 2020.

"Considerable financial disorder"

"The monetary sovereignty of states is at stake," said the minister at the opening of a conference of the Organization for Economic Co-operation and Development (OECD) dedicated to the challenges of cryptocurrencies - without specifying, however, what concrete measures he wanted engage to prevent the spread of libra in Europe.

See:  Facebook’s Libra Cryptocurrency: Everything We Know

In his speech, Bruno Lemaire described as "systemic" the risks that could result from this "possible privatization of a currency (...) held by a single actor that has more than 2 billion users on the planet" . "Any failure in the functioning of this currency, in the management of its reserves, could create considerable financial disorders , " justified the Mayor, also fearing that the libra is replacing the national currency in the States where the currency is weak or has a strong devaluation.

Moreover, the minister added, "I do not see why we have been paying so much attention for years to avoiding the use of money for money laundering and the fight against the financing of terrorism, and that a currency digital as libra would escape these obligations . " "I want to say it with great clarity: in these circumstances, we can not allow the development of libra on European soil," he concluded.

Concerns of States

Facebook announced in June its intention to launch the cryptocurrency libra in 2020 - which must be managed by a foundation bringing together multiple actors and companies from Switzerland. The company has not yet unveiled all the details of the project, but has already explained that the libras could be purchased online with any type of currency, but also in cash in physical outlets - there will be no need bank account to own one.

Facebook wants to facilitate the transfer of money between two people through this currency, which will also be used to buy goods and services. The company promises instant, low-cost transactions and ensures that the currency will not be volatile, as it will be backed by a reserve of relatively stable currencies and values, such as dollars and euros.

See: 

The project has sparked a number of questions and concerns, with the power of Facebook being unparalleled - the social network has more than 2 billion active users, but the company also has the ultra-popular WhatsApp and Instagram apps. The G7 finance ministers announced in July their intention to "act quickly" . "We can not accept that an instrument of exchange is put in place while it respects none of the prudential rules that we impose on all sovereign currencies , " said the Mayor.

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NCFA Jan 2018 resize - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Regular investors are cut out of a major financial market and the SEC chief wants to change that

CNBC | Bob Pisani | Sep 10, 2019

SEC jay clayton - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital MarketKey Points

  • The head of the SEC says more needs to be done to make it easier for companies to go public.
  • Jay Clayton says his office is taking a “fresh look” at allowing Main Street investors access to the private capital markets.

The head of the SEC says more needs to be done to make it easier for companies to go public and that his office is taking a “fresh look” at allowing Main Street investors access to the private capital markets.

In a speech to the Economic Club of New York on Monday, SEC Chairman Jay Clayton said the lack of more IPOs and the inability of most of the Main Street investing public to access private markets was a “growing concern.”

Clayton addressed what he called the “two segments” in capital markets: the public markets, and private ones, including private equity and venture capital investments.

See:  The Solution To The Fintech IPO Shortage

“Twenty-five years ago, the public markets dominated the private markets in virtually every measure,” he said. “Today, in many measures, the private markets outpace the public markets, including in aggregate size.”

Clayton wants to make the public capital markets (IPOs) more attractive for companies, and expand opportunities for Main Street investors to participate in the private markets. The SEC, Clayton says, is making efforts to modernize financial disclosure rules and to recognize that one size does not fit all, permitting what he calls “scaled disclosures.”

He expressed concern that the Main Street investor for the most part does not have access to private markets, noting that the cost of including individual investors in private offerings is “high.”

Clayton said he wants to take a “fresh look” at initiatives to expand access to the private markets while at the same time providing “appropriate investor protections.”

Clayton addressed several other issues in his speech, in the follow-up Q & A, and in a separate interview on CNBC:

See: 

Bitcoin ETF

Clayton said that “progress has been made” on one of the SEC’s core concerns: how custody is handled. On another core concern — that most pricing of bitcoin occurs on foreign exchanges that are subject to manipulation, Clayton noted that those exchanges “do not provide the same level of protection as our U.S. equity market,” implying that manipulation of prices was still a major concern.

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NCFA Jan 2018 resize - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Open banking has a big branding problem, government’s public opinion research suggests

Financial Post | Geoff Zochodne | Sep 3, 2019

open baning infrastructure - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital MarketNone of the respondents had heard of or knew anything about open banking. And, they didn't like the terminology of it

The data-driven concept of “open banking” is being hailed by some as a way to enhance competition in the financial-services industry, but public opinion research conducted for the federal government earlier this year suggests the idea may have a long way to go before it catches on with the population at large.

“None of the respondents have heard of or know anything about Open Banking,” said a report prepared by Pollara Strategic Insights for the Department of Finance, and recently released on a government website.

The report added that along with the lack of awareness, the term was “not met positively” by respondents.

“In fact, a majority do not like the phrase, with some actually having a visceral reaction to it,” the report said. “To these participants, Open Banking means it would be out in the open; their information, their data would be out for all to see and therefore access. Some specifically say they wanted their banking to be ‘closed’ (meaning private and protected).”

In reality, open banking is a framework that could allow consumers to share their financial data with third parties, which advocates say would allow for greater competition in the financial-services sector.

The research was conducted between Feb. 16 and Mar. 4, 2019, meaning it preceded some media coverage and a June report from a Senate of Canada committee that called on Ottawa to move ahead with adopting a framework.

There has also been low consumer awareness of open banking in the United Kingdom, a leader in the field.

While the Canadian study says its “qualitative nature” means results cannot be extended to a “broader audience,” the audience surveyed did not sound as if it were clamouring for open banking.

That lack of enthusiasm likely means the issue will not feature prominently in this fall’s election, something that could push back any potential implementation.

See:  Open Banking: What’s Really at Stake

A Finance department official had already told a Senate committee in May that any necessary changes to legislation or regulations would likely fall to a new government.

The goal of the research, another finance official said Tuesday, was to give the government and its advisory committee a better understanding of the public’s expectations. More than 100 submissions were also received earlier this year for an open-banking consultation, “which were overwhelmingly in favour of open banking,” the official said in an email.

“The public opinion research and stakeholder submissions are now being examined in the context of the Advisory Committee’s study into the merits of open banking,” they added.

Pollara recruited 114 volunteers from across the country and income levels for 14 focus-group discussions that were either conducted online or in-person. According to the report, which was published on the Library and Archives Canada website, the value of the contract was $78,095.60.

Open banking was defined as something that generally “empowers consumers (including small businesses) to share their financial data with a broader range of financial service providers through secure online channels, in order to access new, innovative, consumer-centric financial services.”

See:  Canada’s financial upstarts are lining up behind open banking, but bigger players may need convincing

When given a definition of open banking before being provided any potential scenarios for its use, participants were confused.

“They cannot, from this definition, understand either why this system would be warranted or how it would be different from what is already available,” the report states.

Terms such as “Data Right” or “Financial Data Right” tested more positively, the study found, but two scenarios of how open banking could be used got mixed responses.

The reaction to the government adopting an open-banking system generally ranged from positive to neutral, with younger people tending to be more excited.

Other findings in the report included that many participants were dealing with multiple financial institutions, although most had one, or one they considered a “primary bank.” Few participants felt “unwavering loyalty to their bank,” and many said they shop around.

There were concerns about privacy and security of “non-financial” websites, the report noted, and about third-party providers. The research also found many participants unsure about who actually owned their financial information.

“While their bank holds this information, most assume if they asked for their information, it would be given to them, although it may take time and cost money in terms of fees.”

The results were to help with the decision of whether to adopt open banking in Canada, the report said. Ottawa announced in 2018 it would begin a review into the merits of the concept, which has moved to a second, implementation-focused phase that’s supposed to wrap up this year.

But whether anything is actually implemented remains to be seen.

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NCFA Jan 2018 resize - Sep 22, 2019:  NCFA Response to ASC Consultation Paper 11-701:  Energizing Alberta’s Capital Market The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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