Securities regulators continue their review of the "accredited investor" and other prospectus exemptions

June 7, 2012

The Canadian Securities Administrators today published an update on the status of their review of the “$150,000 minimum amount” and “accredited investor” exemptions. As we discussed in a blog post last year, CSA staff published a consultation paper in November, 2011 on the subject and requested feedback from market participants.

Today's update provides a short overview of some of the comments received in response to the consultation paper, including with respect to the impact that any changes to the exemptions would have on capital raising and investment opportunities. As expected, the CSA received mixed feedback. With respect to the accredited investor exemption, some respondents urged the CSA to keep the status quo, while others suggested a broader exemption to provide better access to capital for business and investment opportunities for the exempt market. Some of the suggestions included lowering the prescribed income and asset thresholds or adding new categories based on an investor’s education, work experience or investment experience.

Respondents also gave mixed feedback on the $150,000 minimum investment amount exemption, ranging from criticism of it being a flawed basis on which to measure investor sophistication to support on the basis of its simplicity and usefulness when no other exemption is available. As we discussed back in January of this year, the SEC undertook a similar review of exemptions available under the Securities Act of 1933, adopting an amended “accredited investor” net worth standard.

Moving forward, the CSA also intend to analyze information from exempt distribution reports before making any further recommendations and expect to publish their conclusions later this year. Of particular note, the notice suggests that some CSA jurisdictions are also considering expanding their review to include other capital raising exemptions, including the “offering memorandum” exemption, which we note is not universally available throughout Canada. The OSC also announced today that it is broadening the scope of its exempt market review to consider the introduction of new prospectus exemptions, and intends to publish a second consultation notice seeking additional public feedback.

While it is unclear whether any specific exemptions will be formally considered, as we noted in a post last month, a "crowdsourcing" exemption in the U.S. has recently garnered much publicity. Whether any additional exemptions are ultimately adopted, however, remains to be seen.

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