Convergence Blended Finance Inc.
Headnote
Application for relief from trade confirmation and account statement requirements contained in the securities laws and National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations -- Filer operates an online platform focused on blended financing for international development projects -- Investment is limited to non-individual permitted clients -- Filer is not involved in the negotiation, documentation, financing and transaction closing of any investment -- relief granted subject to certain terms and conditions -- decision is time-limited and will expire in five years.
Applicable Legislative Provisions
Statute Cited
Securities Act, R.S.O. 1990, c. S.5, as am., ss. 36 and 147.
Instrument Cited
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 14.12, 14.14, and 15.1.
May 19, 2022
IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO AND QUÉBEC (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS IN THE MATTER OF CONVERGENCE BLENDED FINANCE, INC. (the Filer)
DECISION
Background
The Filer is a not-for-profit organization that operates a global network relating to blended finance. Blended finance is the application of government funds, philanthropic funds and private investments to projects in emerging and frontier markets and underserved communities in developed nations that support global sustainable development goals, such as ending poverty, improving health and education, reducing inequality, addressing climate change and preserving the oceans and forests. In particular, the Filer supports the development and growth of blended finance through information sharing about blended finance and grants for the design and testing of new blended finance models. The Filer also brings together:
• Parties seeking global funding for potential projects (Deal Sponsors);
• Governmental entities (such as ministries of finance, ministries of foreign affairs, development agencies, development banks) and philanthropic organizations (such as foundations and other charitable/non-profit organizations) (collectively, Donors) who make concessional commitments (i.e., grants or below market rate loans); and
• Global public and private investors.
The Filer operates a limited business model and does not conduct the full range of activities typically associated with a dealer. Apart from facilitating contact among Deal Sponsors, Donors and public and private investors in relation to development projects, and providing a forum for certain members to discuss and evaluate whether to engage in discussions to support potential projects, the Filer does not provide any other securities-related services to any persons. The Filer is not involved in the negotiation, documentation, execution or funding of an investment in a project. The Filer does not hold any investor or issuer funds or other client assets of any kind at any time. The Filer registered as a restricted dealer in Ontario and Québec and received time-limited relief from certain requirements under securities laws in the decision In the Matter of Convergence Blended Finance, Inc. dated November 16, 2016.The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the Legislation) for relief from the following:
a. under Section 15.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103):
i. the requirement in Section 14.12 [Content and delivery of trade confirmation] of NI 31-103 that a registered dealer that has acted on behalf of a client in connection with a purchase or sale of a security promptly deliver to the client a written confirmation of the transaction setting out certain prescribed information (the trade confirmation requirement); and
ii. the requirement in Section 14.14 [Account statements] of NI 31-103 that a registered dealer deliver to a client a statement containing certain prescribed information at least once every three months or, if the client has requested to receive statements on a monthly basis, for each one-month period (the account statement requirement); and
b. under section 147 of the Securities Act (Ontario) (the Act) and its counterpart in the securities legislation of Québec, from the requirement found in section 36(1) [Confirmation of trade] of the Act and its counterpart in the securities legislation of Québec that every registered dealer who has acted as principal or agent in connection with a purchase or sale of a security or derivative shall promptly send or deliver to the customer a written confirmation of the transaction (the trade confirmation delivery requirement, together with the trade confirmation requirement and the account statement requirement, the Requested Relief);
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a coordinated review application):
a. the Ontario Securities Commission is the principal regulator for this application;
b. the decision is the decision of the principal regulator and evidences the decision of each other Decision Maker.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision unless otherwise defined in this decision (the Decision).
Representations
This Decision is based on the following facts represented by the Filer:
The Filer
1. The Filer is organized as a not-for-profit corporation under the Canada Not-for-profit Corporations Act. The Filer's head office is in Toronto, Ontario.
2. The purposes expressed in the Filer's articles of incorporation are:
a. to facilitate the alignment of capital from public, private and philanthropic actors in global development by providing information, services and resources to these groups on a cost-recovery basis; and
b. to receive and maintain government grants and similar funds, and apply all or part of the principal and income thereafter, from time to time, to organizations that are for- and not-for-profit organizations engaged in global development.
3. The mandate of the Filer is to serve as a knowledge broker and accelerator for innovative development finance models for global development projects through establishing an online platform to raise awareness and promote blended financing mechanisms, and to help public, private and philanthropic actors find and connect with each other to co-invest in blended finance projects that address critical investment gaps in health and education delivery, business growth and infrastructure development support. Blended finance is the strategic use of development finance and philanthropic funds to mobilize private capital flows for global development projects in emerging and frontier markets and underserved communities in developed nations.
4. To carry out its mandate, the Filer offers four services in person and through an online platform:
a. Knowledge Products are intended for educational purposes to increase understanding of and share knowledge of blended finance, including training, workshops, working groups, case studies, and a database of past blended finance deals and their financial and social performance.
b. The Design Funding Facility is intended to provide grants from the Filer to any person or entity to design new blended finance products or to test and enhance existing blended finance products suitable for scaling. This is not limited to Deal Sponsors or Investors (as defined below).
c. Membership Services on a subscription fee basis, which services include facilitation of member-to-member engagement, provision of members-only content and training, customized services to enhance individual members' understanding of and ability to implement blended finance solutions in their work, messaging function and for certain members, access to an online Live Deals Database. Members include Donors, Deal Sponsors, private and public investors, consultants, universities/scholars, think tanks and other individuals who wish to learn about blended finance. The Live Deals Database enables Deal Sponsors, on the one hand, and global public and private investors and Donors (together, Investors), on the other hand, to identify and connect with one another online and may only be accessed by Deal Sponsors and Investors.Donor Services as described in paragraph 24 below.
5. As the Filer is based in Ontario and its Membership Services involve the facilitation of trades in securities of issuers to investors in Ontario and Quebec, among other foreign jurisdictions, the Filer is registered as a restricted dealer in the provinces of Ontario and Quebec.
6. In 2016, the Filer received five years of start-up operational funding from the Canadian government. The Filer's current expected primary sources of revenue are government and philanthropic funding, membership and other service fees (including fees from the Donor Services (as defined below)) and design funding fees, which are earned from the administration and management of The Design Funding Facility, based on a percentage of the grant award or on staff time commitments.
7. The Filer is not in default of securities legislation in any province or territory in Canada.
Access to the online platform
8. The Filer limits access to the Live Deals Database to Investors who:
a. are not individuals;
b. where such Investors are resident in Canada, are "permitted clients", as defined in section 1.1 of NI 31-103; and
c. where such Investors are resident in a foreign jurisdiction, are analogous to "permitted clients", as defined in section 1.1 of NI 31-103.
9. As a condition to gaining access to the Live Deals Database, the Filer will require all potential Investors:
a. to provide information sufficient to permit the Filer to take reasonable steps to verify each Investor's status as a permitted client, if resident in Canada, or analogous to a permitted client under the applicable laws of the Investor's home jurisdiction, if resident in a foreign jurisdiction; and
b. to waive in writing the suitability obligations of the Filer, as permitted by subsection 13.3.1(1) of NI 31-103.
10. The Filer has established, maintains and applies policies and procedures reasonably designed to ensure that access to the Live Deals Database is limited to non-individual permitted clients or the analogous to permitted clients in foreign jurisdictions.
Investment projects
11. Investment projects are limited to those projects within Convergence's mandate described in paragraph 3 (Investment Projects).
12. Deal Sponsors apply to the Filer to post an Investment Project on the Live Deals Database.
13. Prior to submitting an application for the Investment Project to be posted, the Deal Sponsor acknowledges that it is responsible for ensuring any eventual financing will be made in compliance with all applicable laws.
14. In order for an Investment Project to be posted, the projects are reviewed by the Filer for the following criteria:
a. is a blended finance deal;
b. is intended to address the United Nations Sustainable Development Goals;
c. has provided the information satisfactory to the Filer for an Investment Project posting;
d. has a Deal Sponsor;
e. is seeking a minimum total investment of USD$5 million; and
f. will not be listed on a "marketplace", as defined in NI 31-103.
15. If an Investment Project meets the criteria specified in paragraph 14, the Filer posts the project on the Live Deals Database.
16. The Deal Sponsor has the ability to edit information about the Investment Project posted on the Live Deals Database. Any subsequent changes to the Investment Project description are monitored and reviewed by the Filer.
Investment process
17. Investors are able to view all Investment Projects posted to the Live Deals Database on a personalized dashboard and are able to filter Investment Project using a variety of objective project criteria, including size, type of financing required, sector, geography, and other criteria.
18. In addition, Investors may elect to receive automated e-mail notifications when Investment Projects which meet their filtered project criteria (as described above) are posted to the Live Deals Database. Based on Investors' self-selected project criteria, a Deal Sponsor with an Investment Project posted on the Live Deals Database may obtain a list of Investors and may request that the Filer introduce the Dealer Sponsor to the Investors on the list.
19. The Filer does not make any recommendations or referrals to Investors, including any recommendations or referrals based on Investors' expressed filter preferences, nor does it make any recommendations or referrals to Deal Sponsors, including any recommendations based on the Deal Sponsors' project criteria.
20. Investors may use the online messaging tool at any point to contact any other Convergence members. Deal Sponsors will only be able to initiate contact with Investors while their Investment Projects are posted on the Live Deals Database.
21. The Filer monitors communications that take place on the platform to ensure that discussions about any Investment Project remain on an introductory level and is limited to whether an Investor is interested in proceeding with an Investment Project.
22. If an Investor is interested in an Investment Project and decides to proceed, negotiation, documentation, financing and transaction closing occur between the Investor and the Deal Sponsor directly and off Convergence's online platform. The Filer is not involved in the negotiation, documentation, execution or funding of an investment in an Investment Project, other than any incidental involvement due to its providing Donor Services.
23. Apart from making available the Live Deals Database and facilitating the introductory contact between Investors and Deal Sponsors, the Filer does not provide any other securities-related services to any persons.
24. The Filer intends to provide Donor Services on a paid basis which is carried on off Convergence's online platform. Donor Services are provided only to Donors and may include:
a. Providing information and analysis and making broad policy recommendations, which could include how a Donor may choose to allocate its overall development aid budget to types of blended finance projects to achieve the Donor's development goals;
b. Advising on Donors' strategies to achieve the Donors' development goals, which could include recommendations to focus on specific geographies, sectors, project stages (such as proof of concept or investment stage), and transaction structures;
c. Advising on setting up blended finance departments or initiatives;
d. Assisting Donors with conducting calls for proposals regarding potential projects that meets the development goals, which could include structuring the call process and reviewing submissions on how they meet the Donor's development goals;
e. Advising on the project selection process, which could include recommendations regarding screening, conducting due diligence (e.g., operability of the proposal and likelihood of achieving the development goals), and selecting relevant criteria for consideration;
f. Convening Donor groups to review projects that are aligned with the Donors' strategy or specifications; and
g. Participating in Donor project selection committees that review and compile blended finance projects that meet the Donors' selected criteria.
25. The projects considered or identified through the provision of the Donor Services may include Investment Projects posted on the Live Deals Database. The Filer has established and applies policies and procedures to address conflicts, including a Conflict of Interest policy, which staff of the Filer are required to review and acknowledge annually.
26. The Filer does not promote any investment or provide any advice on the suitability of any investment opportunities, including in any Investment Project, nor does it carry on any other advising activity as defined in the Legislation.
27. The Filer does not engage in any direct trading or settlement of securities in respect of any particular securities offerings.
28. The Filer does not act as an underwriter, on either a firm commitment or agency basis.
29. The Filer does not hold any Investor or issuer funds or other client assets of any kind at any time, in connection with an offering of securities.
30. The Filer conducts periodic reviews of the Live Deals Database to ensure that all posted Investment Projects are active and seeking investment.
31. The Filer charges user fees for access to some of its service offerings, but does not charge nor earn commissions, transaction-based compensation or incentive fees in connection with Investment Projects.
32. The Filer receives financial support for its operations from the Government of Canada and other sources. The Filer charges membership, training and service membership fees to cover the balance of its expenses, so that as a whole it operates on a cost-recovery basis.
33. As a not-for-profit corporation, the Filer's activities are required to be carried on without the purpose of gain for its members, and any profits or other accretions to the Filer are to be used in furtherance of its purposes.
34. Members of the Filer's Board of Directors serve without remuneration.
35. The Filer has established, maintains and applies policies and procedures that establish a system of controls and supervision sufficient to:
a. provide reasonable assurance that the Filer and each individual acting on its behalf complies with securities legislation; and
b. manage the risks associated with its business in accordance with prudent business practices.
Relief from trade confirmation, account statement and trade confirmation delivery requirements
36. The Filer submits that compliance with the trade confirmation requirement, the account statement requirement, and the trade confirmation delivery requirement are unnecessary in the circumstances and would impose an undue regulatory burden on the Filer and that the cost of such compliance would outweigh the benefits to its Investors.
37. The trade confirmation requirement in Section 14.12 of NI 31-103 applies to "a registered dealer that has acted on behalf of a client in connection with a purchase or sale of a security".
38. Unlike a conventional dealer, the Filer does not act on behalf of Investors as clients in connection with a purchase or sale of securities, since:
a. the Filer's role is generally limited to providing an online introductory platform whereby potential Investors may be made aware of potential Investment Projects meeting the Investor's self-selected criteria;
b. the Filer does not act on behalf of any Investor as a client in connection with that Investor's purchase or sale of any securities and has no involvement in negotiation, execution or funding of an Investment Project posted on the Live Deals Database; and
c. the Filer does not hold or have access to any Investor or issuer funds or securities.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision. The decision of the principal regulator under the Legislation is that the Requested Relief is granted provided and for so long as:
a. unless otherwise exempted by this Decision or by a further decision of the Decision Makers, the Filer complies with all of the registration requirements of a registered dealer under Ontario securities law, including the Act and NI 31-103, and any other terms, conditions, restrictions or requirements imposed by a securities regulatory authority or regulator on the Filer;
b. the Filer deals fairly, honestly and in good faith with users of the platform;
c. the Filer has its head office in Ontario or Québec;
d. the Filer remains a not-for-profit corporation under the Canada Not-for-profit Corporations Act;
e. the Filer's mandate remains focused on blended finance for global development projects in emerging and frontier markets;
f. the Filer ensures that access to the Live Deals Database is limited in Canada to non-individual permitted clients or in foreign jurisdictions to clients analogous to "permitted clients", as defined in section 1.1 of NI 31-103, who, in each case, waive the requirement for the Filer to conduct a suitability assessment, in accordance with subsection 13.3.1(1) of NI 31-103;
g. where the Filer charges user fees, the Filer charges access fees and does not receive any commissions or transaction-based fees or incentive fees for its services;
h. neither the Filer nor any representative of the Filer provides a recommendation or advice to any investor in connection with an offering of securities or potential offering of securities;
i. the Filer is not involved in the negotiation, documentation, financing and transaction closing of any investment;
j. the Filer does not hold, handle or have access to any funds or securities of any investor or issuer in connection with an offering of securities;
k. the Filer does not engage in any direct trading or settlement of securities in respect of any particular securities offering; and
l. the Filer does not act as an underwriter, on either a firm commitment or agency basis.
m. This Decision shall expire on the earlier of:
i. five years after the date hereof; and
ii. 90 days after any material change in the Filer's business.
n. This Decision may be amended by the Director from time to time upon prior written notice to the Filer.
"Debra Foubert"
Director, Compliance and Registrant Regulation Branch
Ontario Securities Commission
OSC File #: 2021/0682