New Canadian exempt market reporting requirements to be effective June 30

Dealers and issuers, including foreign issuers and international dealers, involved in private placement transactions that access the Canadian exempt market should be aware that on June 30, 2016, new rules will come into force regarding the reporting of certain private placements. Currently the Canadian reporting requirements require Form 45-106F1 to be filed in all Canadian jurisdictions except British Columbia, where Form 45-106F6 must be filed.


June 30 changes

Effective June 30, 2016, there will be one harmonized form (Form 45-106F1) to be filed with all Canadian securities regulatory authorities in any province or territory of Canada where the distribution of securities occurs in the exempt market in reliance on certain prospectus exemptions. While it is a welcome change that two separate forms will no longer be required, the harmonized form will solicit more information regarding both the investor and the issuer.

In all Canadian jurisdictions other than British Columbia and Ontario, issuers, except certain foreign issuers, will have to file the report on SEDAR.

The purpose of the amended form is stated to be two-fold: first to reduce the compliance burden on issuers and dealers and secondly to provide Canadian regulators with additional information to assist them in regulating the Canadian exempt market. Dealers and issuers should consider what procedures should be introduced to collect and verify such information, recognizing that such information will be required to be certified by an officer or director of the issuer or dealer.

The additional information to be collected includes:
 

  • the specific category of the definition of accredited investor the purchaser falls within. There are currently 24 paragraphs in the definition of accredited investor, which range from Canadian financial institutions to companies meeting certain asset criteria, to high-net-worth individuals. While this information is often acquired at the initiation of a relationship between a dealer and its accredited investor client and at periodic instances thereafter, the relevant date regarding the status of the accredited investor will be during the period of discussions regarding the trade and at the date of purchase. Dealers will need to ensure they have safeguards in place to reaffirm at that time accredited investor status and the category of accredited investor within which an investor falls;
  • the form must disclose whether the purchaser is an “insider” of the issuer. Insiders include directors, officers and 10% voting shareholders of the issuer. Such information may be obtained from the Canadian public database SEDI, but there is a slight delay due to the deadlines for insider reporting. Dealers may also wish to request such information directly from the investor;
  • if the purchaser is a “registrant” under Canadian securities laws, this fact and a firm’s NRD number in Canada; and
  • the following additional information regarding the issuer now needs to be included:
    • its date of incorporation or formation;
    • the number of its employees (in range categories);
    • the dollar value of its assets;
    • its North American Industry Classification code (industry category);
    • if the issuer is in the mining business, which stage its operations are in (exploration, development or production);
    • the names of its directors, officers and promoters. Residential addresses of directors, officers and promoters must be filed but will not be made public; and
    • on a confidential basis, the names of any control person of the issuer.

The last two requirements do not apply to Canadian reporting issuers (and their wholly owned subsidiaries, generally issuers listed on a Canadian stock exchange), investment funds, foreign public issuers and their wholly owned subsidiaries (SEC registrants and other issuers who publicly file disclosure in a designated foreign jurisdiction such as the United Kingdom) and issuers distributing eligible foreign securities to permitted clients (i.e., international dealers selling to permitted clients, which are a limited subcategory of accredited investors).

Certification


A significant new requirement is the certification of the filing by a director or officer of the issuer or dealer. This requirement may result in an individual certifying a filing containing information of which he or she does not have personal knowledge. Procedures will need to be in place to provide the necessary comfort to such certifying individuals.

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