CSA Staff Consultation Note 45–401

January 27, 2012 | Rhea Solis

Review of Minimum Amount and Accredited Investor Exemptions

On November 10, 2011, staff of the Canadian Securities Administrators (“CSA”) published CSA Staff Consultation Note 45-401 (“45-401”).  45-401 advises that the CSA is conducting a review of the minimum amount prospectus exemption and the accredited investor prospectus exemption contained in National Instrument 45-106 Prospectus and Registration Exemptions (“NI 45-106”).  As part of the review, the CSA is consulting with stakeholders, including investors, issuers, dealers and legal and other advisors and is asking stakeholders to provide them with their written comments.

As background to 45-401, on April 1, 2011, the CSA published for comment a proposed new regulatory regime for certain securitized products in a Notice of Proposed National Instrument 41-103 Supplementary Prospectus Disclosure Requirements for Securitized Products (“41-103”).  Among other things, the new regulatory regime would narrow the class of investors who can buy securitized products on a prospectus-exempt basis, and require issuers of securitized products to provide disclosure at the time of distribution, as well as on an ongoing basis.  While NI 41-103 is focused on the distribution of securitized products in the exempt market, the CSA will consider the comments received in response to that Notice as part of their general review under 45-401.

In regards to the minimum amount exemption, the CSA is seeking comment on the following options regarding the exemption: a) maintaining the status quo; b) adjusting the $150,000 threshold including periodically indexing it to inflation as the threshold for the minimum amount was set in 1987 and has not been changed or adjusted since; c) limiting the use of the exemption to certain investors such as institutional investors; d) using alternative qualification criteria; e) imposing other investment limitations; or f) repealing the exemption.

In regards to the accredited investor exemption, the CSA notes that the thresholds for individuals to qualify as an accredited investor were originally set by the Securities and Exchange Commission in 1982 and adopted by the CSA in the early 2000s. The thresholds have not been changed or adjusted for inflation since. The CSA is seeking comment on the following options: a) retaining the exemption in its current form; b) adjusting the income and asset thresholds; c) using alternative qualification criteria for individuals; d) limiting the exemption to certain investors, such as institutional investors; e) imposing other investment limitations; or (f) ensuring compliance with qualification criteria, including independent third party certification.

The consultation period is open until February 29, 2012.  In early February 2012, Miller Thomson LLP will be submitting our comments to the CSA.  Therefore, we encourage you to discuss 45-401 and its impact on capital raising with a member of our team so we are able to capture your comments in our submission.


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