Securities regulators issued a notice on Thursday to answer some of the frequently asked questions (FAQ) on the investment dealer prospectus adopted by British Columbia, Alberta, Saskatchewan, Manitoba and New Brunswick in January.
The exemption allows publicly listed issuers to raise money from investors in the exempt market provided that an investment dealer has weighed in on the suitability of the investment.
Thursday’s FAQ covers various issues raised by market participants so far. For example, it sets out how investment dealers can provide “suitability advice” by complying with their know-your-client (KYC) and know-your-product (KYP) obligations.
The FAQ also confirms that investors can participate in a distribution even if their dealer advises against it.
“There is no requirement that the dealer give a positive recommendation that the investment is suitable for the client,” the regulators say in their notice. “The requirement is simply that the investment dealer provide the investor with advice about whether the investment is suitable.”
In cases where the dealer determines that a deal is not suitable, the regulators say that the dealer must, at a minimum, advise the client against proceeding with the investment. “Appropriate measures may include providing the investor with cautionary advice and documenting the details of the cautionary advice, or recommending changes to other investments within the account,” the regulators’ notice says.
The FAQ also: indicates that only registered investment dealers can provide suitability advice, and that discount brokers do not qualify; sets out how issuers can confirm that an investor has received the required advice; and spells out the details of the disclosure that must be made in connection with distributions made under the new exemption.
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