Securities crowdfunding is regarded with a fair amount of skepticism in Canada, including on the part of the securities regulators. This is reflected in the very stringent restrictions limiting individual investment in securities vis a vis crowdfunding portals. The failures and fraudsters make the news. As the successes grow in number, crowdfunding may become more viable as a commercial capital raising alternative.
In its 2016 report the NCAC indicated that there is a need in Canada for investors, government financial institutions and Canadians to ‘back’ this industry. They also indicate that there is a resource and funding gap that limits the system. Canadian provincial securities commissions have worked to make regulatory changes with crowdfunding registration and prospectus exemptions relatively quickly to ensure Canadian capital markets can hold their own with respect to this financing source.
Recently the Ontario Securities Commission created a product, OSC Launchpad to work with fintechs to provide guidance and flexibility in navigating the securities regulatory requirements in Ontario.
In terms of distributing securities, a new regime has been introduced for operating crowdfunding platforms or portals. The regime involves a complex and very restrictive prospectus exemption and requires the portal to be a registered dealer or operated by a registered dealer.
At this early stage, costs to set up and get registered are high as there has not yet been the volume of applications to allow costs to drop due to common experience. Same cost variables as mentioned in Canada/asset and portfolio management/legal affairs above.
Crowdfunding volumes in Canada reached $133 million in 2015. While this is significant, it is growing much more slowly than its international comparators. The National Crowdfunding Association of Canada’s (“NCAC”) Directory tracks 100 online funding platforms within Canada with the majority being donation/reward-based (62), followed by equity portals (18) and then lending (8). Some of the big crowdfunding platforms in Canada include:
Nora F. Osbaldeston
William L Northcote