NAVIGATING SECURITIES REGULATION
Many investors today want services that are fast, convenient and mobile – and the fintech industry is keen to provide this. However, some fintechs may be unaware that they need to comply with securities regulatory requirements. By understanding early if securities regulations apply to you, you can potentially avoid costly delays and oversights.
DOES SECURITIES REGULATION APPLY TO YOUR BUSINESS?
You may need to comply with securities regulatory requirements if your innovation involves:
- Digital platforms (including websites and apps) that connect investors with companies seeking to raise capital.
- Preparing offering documents, marketing materials or other similar documents for companies looking to raise capital.
- Initial token offerings (ITOs), initial coin offerings (ICOs), crypto-asset trading platforms, exchanges or marketplaces, or crypto-asset funds and fund management.
- Investor networks and organizations, and the platforms that support them.
- Lending platforms that allow investors to fund loans (or portions of loans).
- Technology and/or data-driven investment activities or advice, including online advice and AI.
COMMON SECURITIES REGULATION REQUIREMENTS
Many businesses that deal with securities, including fintechs, have certain obligations they must fulfil. These can include:
- Registering (sometimes referred to as "licensing"). Firms or individuals that are in the business of trading or advising in securities are subject to specific requirements under securities law (for example, proficiency requirements for individuals).
- Preparing a prospectus or having a prospectus exemption. Companies that offer securities for sale to the public are subject to specific requirements under securities law.
- Specific resale and transfer restrictions.
- Meeting other requirements, such as those that apply to operating as an exchange or marketplace.
HOW WE HELP FINTECHS
We have provided time-limited relief from requirements like registration and prospectus filing, permitted both accredited and retail investors to invest in businesses under certain conditions and provided guidance on investor protections such as Know Your Client (KYC) and suitability requirements.
Coin and token offerings
Cryptocurrency investment funds
Online venture capital raising platforms
- NEXT Canada
- Creative Destruction Lab
- York Entrepreneurship Development Institute’s Incubator Track
- Ontario Centres of Excellence’s Market Readiness Program
- NEXT Canada
HOW WE HELP INVESTORS
While innovation can offer great investment opportunities, it also comes with unknowns and risks. The OSC’s Investor Office provides information that can assist Canadians in making informed investment decisions. Fintech-related resources, including from the OSC’s Investor Office, include:
- Equity crowdfunding: A primer for Ontario investors
- Get Smarter About Money: Cryptocurrency basics
- Get Smarter About Money: Cryptocurrency offerings
- Canadian securities administrators remind investors of inherent risks associated with cryptocurrency futures contracts
- CSA Investor Alert: Caution urged for Canadians investing with crypto-asset trading platforms
- Get Smarter About Money: Digital tokens: a reality check
Many ideas go beyond borders. We work with other regulators to improve access to opportunities for both fintechs and investors on a national and international level.
CSA Regulatory Sandbox
Similar to OSC LaunchPad, the CSA Regulatory Sandbox provides fintechs with an opportunity to test their products, services and applications on a time-limited basis – but throughout the Canadian market. The OSC is an active and key partner in this sandbox.
Global Financial Innovation Network
The Global Financial Innovation Network (GFIN) was formally launched in January 2019 by an international group of financial regulators and related organisations, including the OSC [OSC Release].
The GFIN seeks to provide a more efficient way for innovative firms to interact with regulators, helping them navigate between countries as they look to scale new ideas. This includes a pilot for firms wishing to test innovative products, services or business models across more than one jurisdiction. It also aims to create a new framework for co-operation between financial services regulators on innovation related topics, sharing different experiences and approaches.
Following a consultation in August 2018 on the role the GFIN should play in delivering its objectives, including the tools it will use [Consultation paper], the GFIN has finalised terms of reference for governance and membership of the group [Terms of Reference] and confirmed 3 primary functions:
- To act as a network of regulators to collaborate and share experience of innovation in respective markets, including emerging technologies and business models, and to provide accessible regulatory contact information for firms.
- To provide a forum for joint RegTech work and collaborative knowledge sharing/lessons learned.
- To provide firms with an environment in which to trial cross-border solutions.
Updates on the GFIN initiatives can be found in the news section [OSC LaunchPad News].
International cooperation agreements
We have agreements with financial regulators in other countries to make it easier for Ontario-based innovators to attract and do business with investors around the globe.
PUBLICATIONS AND PRESENTATIONS
Publications, research and presentations
- Joint Canadian Securities Administrators/Investment Industry Regulatory Organization of Canada Consultation Paper 21-402 Proposed Framework for Crypto-Asset Trading Platforms
- Ontarians and Cryptocurrencies: A First Look
- Form 5 (Form 33-109F5) requirement for registered firms that establish, manage, advise and/or trade in securities of cryptocurrency investment funds
- CSA Staff Notice 46-307 Cryptocurrency Offerings
- Video: OSC Hackathon (RegHackTO)
- Insights from Canada’s first regulatory hackathon
- CSA Staff Notice 31-342 Guidance for Portfolio Managers Regarding Online Advice
- CSA Staff Notice 46-308 Securities Law Implications for Offerings of Tokens
- Taking Caution: Financial Consumers and the Crypto-asset Sector
Deputy Director of OSC LaunchPad