In recent months, it has been reported that a number of businesses that operate peer-to-peer lending websites have either begun or plan to begin to conduct business in Ontario. The Ontario Securities Commission (OSC) has received several inquiries about whether these businesses are subject to requirements under the Ontario Securities Act.
Peer-to-peer lending websites generally facilitate the matching of borrowers and lenders. The OSC notes that these lending businesses may differ in structure, and depending on the underlying facts and circumstances, a loan arrangement entered into on a peer-to-peer lending website may constitute a “security” as defined under the Securities Act.
“If you are approaching any Ontario investors to fund peer-to-peer loans or loan portfolios, then you should be talking to the OSC about securities law requirements, including whether you need to be registered or require a prospectus,” said Debra Foubert, director of Compliance and Registrant Regulation at the OSC.
If a person or company is offering securities to the public in Ontario, they must file a prospectus or rely on an exemption from the prospectus requirement.
Any business that plans to operate a peer-to-peer lending website in Ontario should obtain legal advice and consider:
- The type of securities within the meaning of the Securities Act that are being offered under the proposed business model (e.g. evidence of indebtedness and/or a product that is an investment contract)
- The type of trades and distributions that will occur
- Whether the business needs to be registered as a dealer or adviser
Businesses with questions about securities law requirements that may apply to peer-to-peer lending websites in Ontario are encouraged to contact the OSC’s Contact Centre at 416-593-8314 or 1-877-785-1555.