Canada’s Venture Capital Markets Association (VCMA) has come out in strong support of the proposed national securities regulator, while simultaneously unleashing a broadside at the current regulatory structure and industry associations such as the Investment Industry Regulatory Organization of Canada (IIROC).
Explaining the support, VCMA president Don Mosher told Wealth Professional that said he hoped the participation of the British Colombia Securities Commission (BCSE) would give the new regulator a more favorable view of the venture offerings. “The BCSC, unlike the OSC [Ontario Securities Commission], actually understands the fact that a lot of job creation comes out of the venture markets.”
In a statement, the VCMA said it fully supports the recent announcement by the finance ministers of Canada, Ontario and British Columbia with respect to forming a national security regulator, while unleashing a broadside against regulators and industry alike.
“Venture capital in Canada has been seriously harmed by regulations imposed by several provincial securities commissions, by the TSX and TSX-V through its owners, the banks, and other governing bodies including the Investment Industry Regulatory Organization of Canada,” the statement said.
In an interview, Mosher expanded on why the VCMA has viewed moves by regulators and industry groups as harmful to the venture market.
“One thing [regulators] have done 20 years ago was to put the accredited investor definition in place, that definition allows only 2.1% of Canadian adults to participate in private placements,” VCMA president Don Mosher told Wealth Professional. “So the pool of capital accessible by Canadian venture companies is down to that level, I believe in Ontario there are 12,000 people who can participate in venture financing.”
On top of regulatory restrictions, Mosher said industry associations have further restricted the market.
“The regulations IIROC have put in place has contracted the capital pool even further – although they don’t say it, the client relationship model in interpreted areas has the suitability clause, and also the ‘know-your-product’ clause,” said Mosher. “With the suitability clause , and I have real live examples of extremely wealthy people placing orders with their broker and the broker coming back and having either compliance or IIROC coming back and saying ‘this man is over the age of 65, and this transaction is completely unsuitable for them.”
The VCMA said most provinces – and in particular isolated communities and the territories – are very dependent upon jobs created by venture capitalized companies, especially within the resource sector.
“The large institutions controlling IIROC and influencing the [provincial and territorial securities] commissions are infringing on Canadians' right to speculate on venture investments without any regard for the ramifications that this lack of capital is having on its necessity to keep and create thousands of jobs,” they statement said.
The VCMA said it hopes the decision to consider creating a national security regulator is a positive move to ensure growth and job creation emanating from venture capital.