Technology is an industry where evolution happens quickly and regularly. Innovations can significantly impact how businesses operate. As businesses evolve, we encourage management to actively seek out guidance on how the operational and fundraising activities of the business fit within existing regulations, including the securities regulatory framework.
The BCSC has issued guidance and produced resources to help technology companies that are operating, or planning to operate in British Columbia. On this page, you can learn more about how securities regulation intersects with the technology industry. We will update this page regularly as additional guidance becomes available.
The BCSC has historically been flexible and innovative in its approach to securities regulation. We look forward to continuing to work with industry to ensure that our approach to securities regulation continues to evolve alongside a changing industry.
BCSC 2017 Tech Survey
As part of our consultation work, we are surveying businesses, entrepreneurs, and stakeholders that are actively involved in the BC Tech industry. Please take a few minutes to give us your thoughts and ideas on to help us develop a deeper understanding of how technological innovation is affecting the financial services sector and capital raising in the province. The survey will be available until February 21, 2017.
In the coming months, we will consider our findings from the survey and our industry outreach work in order to determine how to address the specific needs of BC technology stakeholders.
In Canada, all trading of securities is subject to legal obligations. There are two basic requirements underlying our securities laws:
- Prospectus Requirement: Every person who distributes previously unissued securities (such as bonds or shares) must file and obtain a receipt for a prospectus with the Commission. A prospectus is a comprehensive document that discloses all material information about the issuer and the securities being sold.
- Registration Requirement: Every person who is in the business of trading (selling) securities, or in the business of advising another person on the purchase or sale of securities, must be registered with the Commission. If a person is registered then they must comply with certain obligations. For example, registered firms are subject to requirements relating to handling conflicts of interest and assessing the suitability of investments for their clients.
These requirements are subject to certain exemptions.
Private & Early Stage Businesses
There is a common misconception that securities laws only apply to incorporated companies listed on stock exchanges. The misconception that securities laws only apply to public companies results in many start-up and early-stage issuers unintentionally breaking the law. Actually, securities laws apply to all forms of business from the moment of their incorporation or formation. Forming an organization usually involves issuing securities to the owner(s) or founder(s).
If you are a director, officer or owner of any issuer at its early stage of development, our Private & Early Stage Businesses page will help you learn more about securities regulation in British Columbia and how they apply to your business.
Capital Raising for Start-Ups
A business seeking to raise capital by issuing securities must file a prospectus with the securities regulator of their province or territory. These obligations, however, can be costly for start-ups and early stage businesses. As a result, there are a number of exemptions from the prospectus requirement that a business may use to issue securities, including:
- private issuer exemption
- family, friends and business associates exemption
- employee, director, officer and consultant exemption
- accredited investor exemption
- $150,000 exemption
- start-up crowdfunding exemption
- offering memorandum exemption
You do not have to apply to the Commission to use any of these prospectus exemptions. You do have to take reasonable steps to ensure that you meet all of the conditions of the exemption. Companion Policy 45-106CP Prospectus Exemptions provides guidance on the reasonable steps you should take in order to confirm that the purchaser meets the conditions for a particular exemption.
The resources below provide information on the securities laws that facilitate financings for private companies:
The business models listed below are examples of the types of technology businesses that we regulate. We recognize the evolving nature of the technology business in British Columbia, and the BCSC has a long-standing tradition of consulting with industry and working to develop regulatory solutions that support entrepreneurs and companies in launching new ways of conducting business.
If you have further questions on how your business fits within the current regulatory regime, please contact our Tech Team using the details below or through our Inquiries Group.
The term “robo-advising” (also known as "online advising") describes firms that provide online discretionary portfolio management. These firms are in the business of advising clients on the purchase and sale of investments. As a result, we require these firms to be registered as advisors.
The majority of robo-advisors are currently registered as portfolio managers. However, some robo-advisors are registered as investment dealers with IIROC. Robo-advisors can select either mode of registration when operating their business.
There are several characteristics that are common among robo-advisors. They are:
(1) an online know-your-client questionnaire to collect client information;
(2) client communications by phone, text message, email or video chat; and
(3) using low-cost passive exchange traded funds or index mutual funds in client portfolios.
Types of Robo-Advisors
- Always Call: In the “always-call” model, the robo-advisors will call the prospective client during the account opening process to ensure that the information provided by clients is accurate, and to double-check that the portfolio recommendations made by the robo-advisor’s algorithm is in fact suitable for the client.
- No Call: In the “no-call” model, the firm will only call the client if there is an issue or inconsistency in the information that the client provided in the online questionnaire.
In either model, the clients are always free to contact the online advisor if they want.
This Canadian Securities Administrators Staff Notice 31-342 discusses how securities laws apply to online advisors.
Online lenders primarily use internet-based platforms to assess the creditworthiness of potential borrowers, approve and advance loans, and administer those loans.
Online lenders have two main streams to their business:
- Loan-Funding: This stream relates to how online lenders obtain the funds that they lend to borrowers.
- Lending: This stream relates to how online lenders lend money to borrowers.
Depending on how an online lender structures its loan-funding operations, that online lender may be in the business of trading, and may be required to register as a dealer or find an exemption from the dealer registration requirement that it can rely on.
To get a better sense of whether you may be in the business of trading, please review Companion Policy 31-103CP Registration Requirements, Exemptions and Ongoing Registrant Obligations to national registration regime (in particular, see section 1.3 – Fundamental concepts).
Crowdfunding is a process through which an individual or a business can raise small amounts of money from a large number of people, typically through the internet. The objective is to raise sufficient funds in order to carry out a specific project. There are different types of crowdfunding, such as by donation, pre-selling of products, and securities crowdfunding.
Securities crowdfunding offerings are facilitated through a funding portal. A funding portal lists investment opportunities and facilitates the payment of the purchase price from the investor to the issuer. A securities crowdfunding portal operating in BC needs to be registered with the Commission because we view these types of activity as being in the business of trading. However, in certain circumstances, a person seeking to operate a securities crowdfunding portal in BC may rely on an exemption from the dealer registration requirement.
For more information on:
- the registration requirements and registration exemptions specifically related to start-up crowdfunding, take a look at our Guide for Funding Portals.
- operating a crowdfunding portal using prospectus exemptions other than start-up crowdfunding, please contact us using the information in the Specific Questions? section.
We have a dedicated Tech Team that can answer questions regarding regulatory issues related to your business. The team actively engages in outreach to the BC Tech community, and is interested in hearing from businesses, stakeholders, and entrepreneurs.
You can email the team at TechTeam@bcsc.bc.ca or contact us through BCSC Inquiries at 604-899-6854 or 1-800-373-6393 (toll free).
To discuss how securities regulations applies to your business, please contact:
Elliott Mak, Senior Legal Counsel, Corporate Finance 604-899-6501
Zach Masum, Manager, Legal Services, Capital Markets Regulation 604-899-6869