CSA Seeks Input on Proposed National Instrument 45-110

In an attempt to spur innovation in the security token offering (STO) sector, the Canadian Securities Administrators (CSA) released a public request for comment regarding proposed changes to the country's securities laws – Proposed National Instrument 45-110. The changes would provide companies access to more capital and, raise the maximum investor amount under the exemption. This news showcases the desire of Canadian regulators to embrace crowdfunding moving forward.

Officially, the Proposed National Instrument 45-110 Start-up Crowdfunding changes enhance the Canadian market's capabilities. These upgrades are designed to bring the market in line with emerging technology. Specifically, blockchain tech such as tokenized securities are more cost-effective and easier for companies to issue. As such, regulators want to upgrade the current legislation to allow more activity and liquidity in the market. Importantly, the changes would have far-reaching effects. The CSA is responsible for regulations in securities markets in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, and Nova Scotia.

Proposed National Instrument 45-110 Upgrades

Under the new Registration and Prospectus Exemptions, start-ups and early-stage issuers can raise up to $1 million each year via crowdfunding campaigns. This is an increase of double over the previous legislation. Additionally, the maximum investment a purchaser can make went up to $2,500. This change represented a $1000 increase over the current regulations. Interestingly, an investor can double that amount to $5000 if they get the approval of a registered dealer.

Intro to Proposed National Instrument 45-110

Importantly, investors would gain a two-day grace period to consider their investment decision. The statement calls this a “two-day contractual right to withdraw from your agreement to purchase the security.” This proposed change is a consumer protection mechanism the CSA would like to see instated to combat investor confusion.  Of course, it's hard to say how issuers will feel about this add-on. Lastly, the proposed changes require funding portals to annually certify that they have the working capital to continue operations for the next year.

Discussing the proposed changes, Louis Morisset, Chair of the CSA and President and CEO of the Autorité des marchés financiers spoke on the need to “harmonize” the securities crowdfunding sector. He explained how universal standards provide companies with more access to capital. In this way, the thresholds for capital-raising and investing can increase safely.

Proposed National Instrument 45-110 Start-up Crowdfunding Public Input Request

The official input request continues for 90-days in total. Consequently, the comment period expires on May 27, 2020. Importantly, the CSA welcomes the public to comment and ask questions.  Regulators are ready to direct you regarding the proposed changes and how they may affect your business moving forward.

The CSA Seeks to Spur Innovation

You have to hand it to the CSA on their approach to the market. This strategy allows regulators to get a feel for the market and what its participants require to continue the growth of their businesses. This decision falls in line with a recent push by Canadian regulators to remain at the forefront of the digitization of the economy. You can expect to see some adjustments made to the propositions after the CSA examines all the feedback. For now, Canada continues to play a dominant role in the tokenized securities sector.