OSC Highlights Potential Securities Law Requirements for Businesses

TORONTO – The Ontario Securities Commission (OSC) is advising businesses that use distributed ledger technologies (DLT), such as blockchain, as part of their financial products or service offerings that they may be subject to Ontario securities law requirements.

“Many uses of distributed ledger technologies have the potential to increase transparency and efficiencies in our capital markets, and we are keen to support this type of innovation,” said Pat Chaukos, Chief of OSC LaunchPad. “Because this is a novel area, businesses may not be aware that some uses of this technology could trigger securities law requirements. We encourage these businesses to speak with us about securities law and investor protection requirements that may apply.”

Businesses are using DLT in a variety of ways. DLT may be used as the underlying technology in trading, clearing and settling securities. For example, DLT may be used to facilitate issuances of equity and debt securities and to track their ownership. DLT are core to a growing number of new virtual or digital assets. Businesses may also, for example, facilitate initial coin or token offerings where ownership of the coins or tokens is tracked using DLT, or may establish investment funds with DLT-based virtual currencies in their portfolios. Products or other assets that are tracked and traded as part of a distributed ledger may be securities, even if they do not represent shares of a company or ownership of an entity. Businesses’ specific use of DLT may trigger Ontario securities law requirements, including the need to be registered or file a prospectus.

Any business that is operating or planning to operate a DLT-based venture should consider the different types of offerings that involve securities within the meaning of the Ontario Securities Act (e.g. evidence of title to or interest in the capital, assets, property, profits, earnings or royalties of any person or company, a product that is an investment contract); the types of trading activities that will occur; and whether registration as a dealer, adviser and/or investment fund manager is required.

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.

Businesses with questions about securities law requirements that may apply to their DLT-based activities are encouraged to contact OSC LaunchPad at [email protected], (416) 596-4266 (Local) or 1-844-405-1339 (Canada toll-free).  

“We welcome the opportunity to work with these businesses and help them understand and navigate potential regulatory requirements,” added Chief Chaukos.

OSC LaunchPad (www.osclaunchpad.ca) is the first dedicated team by a securities regulator in Canada to provide direct support to eligible fintech businesses in navigating regulatory requirements. OSC LaunchPad strives to keep regulation in step with digital innovation. 

The mandate of the OSC is to provide protection to investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in the capital markets. Investors are urged to check the registration of any persons or company offering an investment opportunity and to review the OSC investor materials available at www.osc.ca

 

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