The Canadian Securities Administrator’s announced certain changes to the accredited investor exemption on February 19, 2015 (effective May 5, 2015). The changes require, among other things, that issuers selling under the accredited investor exemption include a new risk acknowledgement form (45-106F9) for most individual accredited investors. The form explains the categories of accredited investors and highlights, in plain language, the risk associated with the investment. Individuals with financial assets over $5 million need not sign the form. Issuers are required to retain the form for 8 years after the distribution.
The February 19, 2015 amendments also require that issuers take certain steps to verify the availability of the accredited investor exemption for investors. These steps include obtaining and retaining “necessary documents” to demonstrate that the investor is accredited, that is, that the investor has the requisite income and assets to meet the terms of the exemption and asking the investor questions about their net income, financial or net assets and other details of their financial circumstances.
It will no longer be sufficient to rely on standard representations in a subscription agreement or an initial beside a category of accredited investor on a certificate unless the issuer also takes reasonable steps to “verify” the representations made by the investor.
The new rules impose the additional obligation on the issuer to ensure that the investor and all parties acting on behalf of the issuer understand the terms and conditions of the exemption. The revised CP 45-106 states that the expectation is that the issuer will have policies and procedures in place to confirm that parties acting on behalf of the issuer understand the exemption being relied upon, are able to describe the exemption to the investor, and know what information and documentation must be obtained from the investor to confirm that the conditions of the exemption have been satisfied.
Issuers are required to retain all documentation obtained to verify the availability of the exemption for a period of time deemed “suitable” considering, among other things, local legislation concerning limitation periods.