While the proposed exemption thresholds would reduce the burden registration requirements impose on firms that are carrying on relatively small amount of business in the exempting jurisdiction, we are concerned that it may put investors at risk. Making this exemption available to international fund managers just dealing with ‘permitted client’ in Canada, is not a full answer to our investor protection concern. The CAC has stated in several prior comment letters that the definition of what constitutes an exempt investor assumes a level of sophistication that may not be present. For example, an uninformed, inexperienced lottery winner suddenly is deemed to be a sophisticated investor by virtue of a significant increase in net worth, even though the person has acquired no additional investment knowledge. Risk disclosures concerning no recourse or regulatory protection may not be fully understood by these investors or can be dismissed by a high pressure sales pitch. Investors can be reached easily through internet advertising so that the fund manager is able to comply with restrictions on direct solicitation or advertising.
Overview of the Council’s Comments:
The CAC endorses the concept of facilitating access to markets as investors should be given wide choice in their professional advisors and investment selections. But the facilitation of access must be balanced with the need for suitable Investor Protection, which is provided through regulatory oversight of the markets and its participants. Care needs to be taken to ensure that exempting an investment fund manager from registration in a jurisdiction does not put investors at risk. In addition, we are concerned that the proposals may inadvertently give an exempt fund manager an economic advantage over those who have to fulfill regulatory requirements in a particular jurisdiction.