In the wake of ongoing concerns about the adequacy of investor protection, Canadian securities regulators are launching a review of the exempt market.
The Canadian Securities Administrators announced that they are reviewing the $150,000 minimum exemption and the accredited investor exemption. In a consultation note, published Thursday, the CSA says it’s engaging in this consultation “to identify any issues that stakeholders may have about the use of the exemptions and to obtain information that will assist in deciding whether changes are necessary or appropriate.”
In recent years, regulators have uncovered numerous compliance problems in the exempt market, and there are concerns that investor protection needs to be improved. In its notice, the CSA says that the global financial crisis, and recent international regulatory developments, have also raised questions about the use of these exemptions.
Flying under the radar — October 2011
The CSA indicates that potential options regarding the minimum amount exemption, include: leaving it unchanged; adjusting the $150,000 threshold; limiting the exemption to certain investors, such as institutional investors and not individuals; using alternative qualification criteria; imposing other investment limitations; or repealing the exemption.
Similarly, in terms of the accredited investor exemption, the CSA notes that some argue the current thresholds for income and assets are too low; and that income and asset thresholds are not adequate proxies for investor sophistication. It says potential options for changes to this exemption include: adjusting the income and asset thresholds; using alternative qualification criteria; limiting the exemption; or imposing other investment limitations. Or, it could decide to leave it as is.
“The CSA is undertaking this consultation with a view to ensuring that both of these exemptions continue to meet the needs of market participants by striking the appropriate balance between investor protection and efficient capital-raising in Canadian capital markets,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission.
Earlier this year, the CSA proposed to create a new regulatory regime for the distribution of securitized products in the exempt market that would narrow the class of investors who can buy securitized products on an exempt basis. The CSA says it will consider comments received in response to that initiative as part of this new review of the minimum amount exemption and the accredited investor exemption.
Comments are due by February 29, 2012.