Introduction
On January 22, 2021, the Capital Markets Modernization Taskforce (Taskforce) released its final report (Report). The Taskforce was established by the Ontario Provincial Government to help transform the regulatory landscape for the capital markets sector, and advise the Minister of Finance on how to improve the innovation and competitiveness of the Province’s capital markets and best help build Ontario’s economy.
The Report includes 74 policy recommendations designed to amend securities laws in the following areas:
- improving regulatory structure to enhance governance
- improving competitiveness through regulatory measures
- ensuring a level playing field between large and small market players
- improving the proxy system, corporate governance and the process of mergers and acquisitions
- fostering innovation
- modernizing enforcement and enhancing investor protection
Because of the far reaching nature of the numerous recommendations, BAX will do a series of articles over the next few weeks on recommendations of interest to small and midcap issuers and the registrants that service them.
Recommendation #18 – New “Finder” Category of Registration
The Report refers to the practice of issuers using “finders” to conduct non-brokered private placements. According to the Report, acting as a professional finder is generally considered to be a registerable activity since it involves trading in securities with regularity for a business purpose (i.e., the business trigger for registration). The Report also suggests that the definition of a “promoter” in the Ontario Securities Act is outdated and does not recognize that a person’s status, in terms of whether they are a promoter, may change over time.
The Report suggested amendments to NI 31-103 to provide for a new finder registration category that would:
- Impose fewer obligations compared to those imposed on exempt market dealers (EMD) (such as lower capital requirements), while maintaining the integrity and proficiency standards that are the cornerstones of investor protection;
- Permit finders to engage in solicitation and client-facing conduct and receive transaction-based compensation, while ensuring that sales of securities would be executed through a registered dealer; and
- Eliminate the need for a finder to have an ultimate designated person or chief compliance officer since finders would, in substance, perform these functions themselves.
Finders would have to comply with conflict of interest and compensation disclosure requirements to maintain fair and efficient capital markets. However, other EMD requirements would be modified such as:
- Reduced minimum capital;
- Reduced insurance since the finder should be precluded from having access to or custody of client assets; and
- Reduced client relationship disclosure.
The Report also recommended updating the definition of “promoter “ in the Ontario Securities Act to enable the Ontario Securities Commission to designate and make rules regarding promoter status, including:
- Defining whether a person or class of persons is or is not a promoter;
- Prescribing circumstances in which status as a promoter ends; and
- Varying the definition of promoter in specified circumstances to address different organizational structures.
For a full copy of the Report: https://files.ontario.ca/books/mof-capital-markets-modernization-taskforce-final-report-en-2021-01-22-v2.pdf
For more information, please call Barbara Hendrickson at BAX Securities Law (647) 403-4606.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.
