The Canadian Securities Administrators (CSA) has announced the adoption of two sets of amendments to National Instrument 45-106 Prospectus and Registration Exemptions (NI 45-106).

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The first set of amendments relate to the accredited investor prospectus exemption (AI exemption) and the minimum amount investment prospectus exemption (MA exemption). These amendments are intended to address investor protection concerns. Among other things, the amendments:

  1. introduce a new risk acknowledgement form for individual accredited investors that describes, in plain language, the categories of individual accredited investor and identifies the key risks associated with purchasing securities in the exempt market;
  2. provide expanded guidance on the steps a seller should take to verify the status of purchasers acquiring securities under prospectus exemptions, including the AI exemption; and
  3. restrict the MA exemption to distributions to non-individual investors.

In Ontario, the definition of accredited investor is also being amended to allow fully managed accounts to purchase investment fund securities using the managed account category of the AI exemption, as is permitted in other Canadian jurisdictions. This change will harmonize this category of the AI exemption in Canada.

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The second set of amendments relates to the short-term debt prospectus exemption (short-term debt exemption) in NI 45-106. These amendments are intended to address investor protection and systemic risk concerns. Among other things, the amendments:

  1. modify the credit ratings required to distribute short-term debt, primarily corporate commercial paper (CP), under the short-term debt exemption; and
  2. make the short-term debt prospectus exemption unavailable for short-term securitized products, which are primarily asset-backed commercial paper (ABCP), and create a new prospectus exemption for the distribution of short-term securitized products (the short-term securitized products exemption).

The amendments to the AI and MA exemptions are the result of a comprehensive review by the CSA that involved stakeholder consultation across Canada, a review of enforcement cases, and a thorough examination of data from exempt distribution reports filed over a 12-month period. The short-term debt exemption amendments and the new short-term securitized products exemption are the result of the CSA’s review and analysis of investor protection and systemic risk concerns in the Canadian short-term credit market.

Provided all necessary ministerial approvals are obtained, the amendments will come into force on May 5, 2015. In Ontario, the amendments to the AI and MA exemptions will come into force on the later of May 5, 2015 and the date on which subsection 12(2) of Schedule 26 of the Budget Measures Act, 2009 is proclaimed in force.

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