Recently, the Alberta Securities Commission (the "ASC") adopted Multilateral Instrument 45-108 Crowdfunding. MI 45-108 provides a prospectus exemption designed to accommodate moderate financing requirements being raised through an online funding portal registered as an investment dealer, an exempt market dealer, or alternatively as a "restricted dealer funding portal". The new rule is actionable immediately and introduces a crowdfunding prospectus exemption for issuers as well as a registration framework for funding portals.
The adoption of MI 45-108 follows the recent adoption of the ASC's Prospectus Exemption for Start-up Businesses (ASC Rule 45-517, adopted July 19, 2016). ASC Rule 45-517 was designed to streamline small, local investment rounds for startups and high-growth companies, while still providing appropriate investor protection.
MI 45-108 is viewed to be complementary with ASC Rule 45-517 and is designed to accommodate moderate financings being raised strictly through an online funding portal across multiple jurisdictions in Canada. The new rules provide a prospectus exempt avenue for Alberta-based businesses to raise capital, while also opening the door to non-accredited investors to purchase eligible securities of such businesses.
While the ASC and the securities regulators in other participating jurisdictions have incorporated significant investor protection mechanisms, even the most vigilant and active regulatory authorities may have difficulty in monitoring distributions and ensuring compliance. Further, with the adoption of the new crowdfunding regime we anticipate an increased risk of future litigation, including potential class action litigation, regarding allegations of fraud or misrepresentation by companies seeking funding through crowdsourcing.