September 26th, 2018
OSC approves impact investing portal application MaRs VX
IE | By James Langton |
Regulator grants exemption to MARS VX, an online portal that will connect accredited investors with impact investing issuers
The Ontario Securities Commission (OSC) has granted an exemption to allow an online portal to operate in order to facilitate so-called "impact investing" ventures.
While cautioning that its decision should not be considered a precedent, the OSC has granted an exemption to MARS VX, a non-profit, which is owned by the charity, MaRS Discovery District, to allow it to operate a sort of online funding portal for impact issuers.
The exemption gives the firm relief from certain know-your-client (KYC) and suitability requirements in order to allow it to operate an online portal that will bring together accredited investors with issuers that aim to solve social or environmental problems in Ontario.
According to the decision, the firm will be registered as restricted dealer, and will have to comply with gatekeeper KYC requirements, such as establishing clients' identity and confirming that they are an accredited investor, as well as anti-money laundering requirements. Additionally, transactions won't be executed, settled or cleared through the portal, and it will not issue securities.
Instead, the portal will connect accredited investors with impact investing issuers, which are defined as small or medium-sized ventures, or funds, with less than $25 million in revenues, a social or environmental mission, earned revenues and proven impact, including both for-profit and non-profit corporations and cooperatives.
Only Ontario-based impact issuers and accredited investors will able to use the private portal, which will provide certain disclosure about issuers. To get more detailed information, investors will have to request access to an issuer's "deal room", which would also enable contact with the issuer directly through a discussion board.
The decision notes that, at a later date, it may propose to allow accredited investors in other Canadian jurisdictions to use the portal to make investments; subject to regulatory approval in those jurisdictions.
Under the terms of the exemption, the portal will not assess suitability, provide any recommendations, engage in trading activities, or act as a portfolio manager or investment fund manager, among other things. However, it will comply with the registration requirements for exempt market dealers, apart from the KYC and suitability requirements; along with various restrictions on its marketing and advertising.
To fund its operations, the portal will be permitted to charge access fees to issuers, but not investors. Accredited investors will be limited to investing a maximum of $25,000 in a single offering in a calendar year, and a maximum of $50,000 in all offerings through the portal per year, unless a registered dealer certifies that it has fulfilled the typical KYC and suitability requirements; also, no maximums apply to permitted clients.
The decision, which is slated to expire in two years, comes as the OSC is considering whether to introduce a new crowdfunding exemption that would allow issuers to raise equity through an online portal. Recently, the commission held a roundtable to consider that issue, among other possible new exemptions. At this point, no decision has been made on whether to allow equity crowdfunding.
NCFA note: While cautioned that this decision should not be considered a precedent for the industry (at least in Ontario), granting an exemption for the accredited investor MaRs VX Crowdfunding portal as a 'registered dealer' is the first step (pilot program) towards democratizing the financial industry in Canada. This decision sends a validating message to both provincial and international jurisdictions that Canada is making firm progress towards making Crowdfunding a reality in support of closing the funding gap for SMEs and enabling broad-based participation for investors.
Resources and Links: