Navigating Securities Regulation
OSC LaunchPad is committed to encouraging fintech innovation that benefits investors and to helping early stage businesses navigate securities laws.
Technological innovation happens at a rapid pace and has an impact across all sectors. Investors today want services that are fast, convenient and mobile – and the fintech industry is keen to provide this. However, some early stage businesses may not be aware that they need to comply with securities laws.
Securities laws apply to any issuer of securities and any person or company in the business of trading securities. For example, private companies issuing securities to the company founders.
By understanding the securities laws that apply to you early, you can potentially avoid costly and timely delays and oversights. The OSC has issued guidance in several areas to help early stage technology companies understand the requirements that may apply to them.
Below you can learn about core securities law requirements and find additional resources related to capital raising exemptions for early stage businesses and registration requirements under Ontario securities law.
Core Requirements of Securities Law
There are two core requirements underlying Ontario securities laws:
- Prospectus Requirement: Every person or company that distributes previously unissued securities must file and obtain a receipt for a prospectus with the Commission. The Prospectus Requirement is meant to protect investors by providing them with a comprehensive disclosure document containing the information necessary to make an informed investment decision. There are certain prospectus exemptions that allow companies to raise capital without preparing a prospectus. See below for Capital Raising Exemptions.
- Registration Requirement: Every person, company or online portal that is in the business of selling or advising in securities must be registered (or licensed). The Registration Requirement is meant to ensure that those who are in the business of selling securities have the required proficiency, integrity and suitability to advise their clients.
Who needs to register?
In general, firms must register with the OSC if they conduct any of the following activities in Ontario:
- are in the business of trading in, or advising on, securities (also referred to as the “business trigger” for registration)
- act as an underwriter or an investment fund manager
- conduct trading activities involving commodity futures contracts or commodity futures options.
Individuals must register if they:
- trade, advise or underwrite on behalf of a registered dealer or adviser, or
- act as the ultimate designated person or chief compliance officer of a registered firm.
Please see the following resources for additional information related to dealer, adviser and investment fund manager registration:
Do securities laws apply to your business?
You may need to comply with securities law requirements if your innovation involves:
- Online 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
Still not sure if securities laws apply to you? Contact the OSC LaunchPad team.
Capital Raising Exemptions
The OSC recognizes that a prospectus offering can be costly and that early stage companies need flexibility to raise capital efficiently. There are exemptions from the prospectus requirement that may be used by early stage businesses to issue securities and raise capital. The prospectus exemptions available to companies are primarily set out in the following instruments:
- National Instrument 45-106 Prospectus Exemptions (NI 45-106)
- OSC Rule 45-501 Ontario Prospectus and Registration Exemptions
- Multilateral Instrument 45-108 Crowdfunding
The prospectus exemptions that are used most frequently by start-ups to raise capital include:
- Private issuer (section 2.4 of NI 45-106)
- Friends, family and business associates (section 2.6.1 of NI 45-106)
- Accredited investor (section 2.3 of NI 45-106)
- Offering memorandum (section 2.9 of NI 45-106)
Use the following resources to compare the different capital raising exemptions that are available in Ontario:
- Summary of Key Capital Raising Prospectus Exemptions in Ontario
- Raising Capital: A primer for small and medium sized enterprises
In many cases, a security sold under a prospectus exemption can only be resold if certain conditions are met. These resale conditions are designed to ensure that there is sufficient disclosure available in the marketplace to allow a subsequent purchaser to make an informed investment decision. For more information on resale restrictions see National Instrument 45-102 Resale of Securities.
How OSC LaunchPad helps Fintech businesses
Below are some examples of flexible approaches to fulfilling regulatory requirements that OSC LaunchPad has provided to businesses.
Coin and token offerings
Initial coin and token offerings can provide businesses with new opportunities to raise capital, however they may also raise investor protection concerns. OSC LaunchPad and the CSA Regulatory Sandbox have provided firms with exemptive relief to allow them to conduct coin and token offerings while ensuring that investor protection concerns are adequately addressed.
- ZED Network Inc. – Time limited registration and prospectus relief granted to allow the distribution, from time to time, of ZED Tokens and the operation of the ZED Network, a token-based foreign exchange remittance network intended to be used by appropriately registered money transfer operators.
- Impak Finance Inc. – Time limited registration and prospectus relief granted to allow the initial token offering and transfer of MPK Tokens and the operation of impak.eco, an online social network dedicated to the impact economy.
- Token Funder Inc. – Time limited registration relief granted to allow Token Funder to complete an initial token offering of FNDR Tokens to fund completion of its smart token asset management platform, intended to facilitate third-party issuers raising capital through issuances of security tokens.
Crypto-asset investment funds
Investment funds that invest in crypto assets are novel businesses in Canada. Time-limited terms and conditions have been imposed on the registration of the following firms to allow them to operate while providing the CSA an opportunity to monitor developments in this new area.
- 3iQ Corp.
- First Block Capital Inc.
- Majestic Asset Management
- Rivemont Investments Inc.
- Ross Smith Asset Management ULC
Internet-based peer-to-peer lending platforms are novel businesses in Canada. Terms and conditions have been imposed on the registration of the following firms to allow them to operate, with certain restrictions, while providing the CSA an opportunity to monitor developments in this area.
- Wealthsimple Inc. – Terms and conditions imposed on the adviser registration of Wealthsimple to allow them to offer managed account portfolios consisting of securities other than exchange-traded funds to clients with investment restrictions.
Online venture capital raising platforms
- AngelList – Time-limited relief from the prospectus requirement and certain registrant obligations granted to permit AngelList to operate an online platform that offers services to start-up businesses in the technology sector, including services to facilitate venture capital and angel investing in start-ups that meet certain criteria and have completed one of the approved incubator programs noted below.
- NEXT Canada
- Creative Destruction Lab
- York Entrepreneurship Development Institute’s Incubator Track
- Ontario Centres of Excellence’s Market Readiness Program
- FinMatch/Disintermediate Technologies Inc. – FinMatch is an online platform which uses an algorithm to match institutional permitted clients with reporting issuers whose securities are listed on recognized exchanges on an anonymous basis. The FinMatch platform has novel elements. Terms and conditions were imposed on FinMatch’s registration to allow them to operate, with additional reporting requirements to allow the CSA to monitor developments.
- TokenGX Inc. – TokenGX Inc. operates an online platform that facilitates the execution and delivery of an initial token offerings of security tokens. The firm also uses technology to facilitate the suitability determination for a client before accepting instruction from that client to buy a security token on the platform. Elements of the TokenGX platform are novel. Time-limited terms and conditions have been imposed on TokenGX’s registration to allow them to operate while providing the CSA the opportunity to monitor developments.
RegTech compliance solutions
RegTech is the management of regulatory processes within the financial services industry through technology and it consists of companies that help firms comply with regulations efficiently and less costly. The main functions of RegTech include regulatory monitoring, reporting and compliance. While the OSC does not directly regulate RegTech companies, we do regulate the registrants and firms that they provide services to. We encourage innovation that assists market participants and have provided guidance to RegTech firms as they develop their services.
Are you developing a RegTech solution and would like to have a discussion with us? Contact the OSC LaunchPad team.
How we help investors
While innovation can offer great investment opportunities, it also comes with unknowns and risks. The OSC’s Investor Office provides resources that can assist Canadians in making informed investment decisions on its investor website, GetSmarterAboutMoney.ca. Fintech-related resources include:
- Equity crowdfunding: A primer for Ontario investors
- 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
Technological innovation transcends borders; therefore we work with other regulators to improve access to opportunities for both Fintech firms and investors on a national and international level.
CSA Regulatory Sandbox
The CSA Regulatory Sandbox provides fintech firms with an opportunity to test their products, services and applications on a time-limited throughout the Canadian market.
The OSC, through OSC LaunchPad is an active and key partner in the CSA Regulatory Sandbox. An Ontario business seeking to test its business across Canada will first engage with OSC LaunchPad, as its principal regulator, to present its business model. OSC LaunchPad staff will analyze the business model, ask questions and discuss potential flexible approaches that may be available (i.e. time-limited exemptive relief). The business will then submit an application to OSC Launchpad. OSC LaunchPad staff will provide assistance in preparing the application and will coordinate with CSA staff on the review of the application on an expedited basis. If the CSA agrees that the exemptive relief/approval should be granted the business will be permitted operate across Canada for a given period in the CSA Regulatory Sandbox, subject to appropriate limits and conditions.
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.
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 cross-border testing program 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, the GFIN has finalised terms of reference for governance and membership of the group 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.
International cooperation agreements
We have agreements with international financial regulators to make it easier for Ontario-based innovators to attract and do business with investors around the globe.
- Abu Dhabi Global Market Financial Services Regulatory Authority
- Australian Securities and Investments Commission (ASIC)
- Financial Supervisory Commission of Taiwan (FSC)
- France Autorité des Marchés Financiers (AMF France)
- U.K. Financial Conduct Authority (FCA)
Have questions about testing your product or service in another jurisdiction? Contact the OSC LaunchPad team.
Publications, research and presentations
- CSA Staff Notice 21-327 Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets
- 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