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OSC Meeting - 24 August 2017Key Points

NCFA welcomes the opportunity to discuss the crowdfunding requirements.

Relative to Canada’s global competitors, crowdfunding is not doing well. Canadais failing to take full advantage of the benefits of new financial tools and is fallingbehind (see Background). It is clear that crowdfunding (and FinTech etc) are beingstifled by a combination of regulatory burden and lack of government support.

The crowdfunding sector urgently needs:1. Harmonized OM exemption across jurisdictions;2. Harmonized start up exemption;3. Proportionate, risk based, outcomes focused regulation and an end to regulatoryrequirements that are not justified in cost benefit terms;4. Government support equivalent to that provided in jurisdictions like the UK.

Regulators must resist the urge to constrain the market where no market problemshave been identified or the cost of the regulatory solution exceeds the provenbenefits.This is especially true for SMEs (see Annex 4 - regulatory approach).

Lack of harmonization in particular is very costly for SMEs as they start up or at-tempt to scale up (see Annex 1). Many prescriptive requirements bear no rela-tionship to the risks of crowdfunding and (taken together) add significant costs,especially for start-ups which have few resources to spare. Many firms are de-ciding to raise capital elsewhere. Below are some examples provided by regu-lated portals, experts and practioners:

Description Benefit / Impact

Harmonize MI 45-108 and Crowdfunding requirements Reduce regulatory burden for allstakeholders

Allow advertising and general solicitation Increase investor participation --more liquidity and more investors

Increase threshold for required review and audited financial state-ments

Increase investor participation --attract more companies, reduceundue burden

Reduce frequency of exempt distribution reports Reduce burden (esp for smallEMDs/ funding portals)

Allow accredited investors to fully participate (without caps)Increase investor participation toreach funding targets, assist scale-up

Increase $1.5M issuer caps to $5M or more Increase investor participation, as-sist scale-up

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Increase retail investor cap per deal from $2.5k to $10k Increase investor participation --suitable for more sectors

Increase retail investor cap per year to >$10k More liquidity, more investors

NCFA asks the CSA:1. to work harder to harmonise and reduce unjustified regulatory burden;

2. to follow the lead of the UK FCA and ASIC to work with entities like theNCFA to provide more training for stakeholders, to obtain the research/dataneeded by regulators and the industry to keep up-to-date with a very quicklychanging marketplace, and to more quickly correct roadblocks to success.

BackgroundThe value of crowdfunding Crowdfunding drives innovation, jobs and entrepreneurship and enables more productive in-

vestment in venture markets. It strengthens the early stage capital market. Some examples: 1) Research Funding – American Gun US$1.27 Million;2) Innovation Capital – Revols US$2.5 Million;3) Equity Capital – Impak Finance at CA$$1.04 Million4) See case studies download: 2016 Alternative Finance Crowdfunding industry report

Canadian crowdfunding was $133 million in 2015, and predicted to reach $190 million in2016 (NCFA 2016 Survey), confirming that it is a genuine source of seed and growth capitalbut it is growing much slower than international comparators (see below).

23% of portals responded >50% of successfully funded projects were led by women. 60% of portals reported having between 1001-5000 investors (many retail) on their platform

indicating a concrete public interest in this sector. Besides raising the money needed for product development, pre-sales serve as critical tests of

product/market fit and proof points that a product is in demand. – NCFA member Crowdfinancing is the opportunity to leverage the power of the internet to bring some effi-

ciency, transparency and democracy to fundraising in Canadian private capital markets forthe benefit issuers and investors. – NCFA member

Cost of undue regulatory burdenOn average, the NCFA estimates (based on anecdotal evidence from its members) that lack ofharmonisation & unnecessary complexity adds adds $5,000 - $20,000 in legal fees alone per deal

Overly complex and fragmented rules“…Provincial securities regulators in Canada created a fragmented framework of crowdfundingrules that undermines effective capital formation. It causes confusion and frustration for all mar-ket participants, young companies looking to raise capital, investors and even some securitieslawyers. Harmonization of rules will be key for Canada to take full advantage of crowdfundingas a new way of financing private companies and engaging the wider investor community.” –NCFA member (see Annex 1: Comparison of crowdfunding regulations in Canada)

Sector needs more resources and education

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While educational conferences are in high demand and markets are slowly gaining traction, thesector needs more government support to remain internationally competitive and to encouragemore portals, participants, and investors to “scale up” and operate more cost effectively. NCFA’smost recent survey (Jun-Jul 2017) points to education and awareness gaps as inhibitors alongwith a ‘more of everything’ sentiment. (Annex 2: Select 2017 NCFA Annual Survey Results)

Need for more transparency and market analysis to inform stakeholders and build confidenceTo date there has been no analysis provided by the CSA on the sector. By contrast, the SEC re-cently published a 27 page whitepaper (Feb 2017) on Title III RegCF activity that provides de-tailed analysis on market volumes, offering activity, platform performance and compensationrates. We encourage the CSA to initiate such research and to support data collection initiativessuch as NCFA’s annual survey.

We also suggest that the CSA, perhaps working with the federal Dept of Finance, produce a regu-lar annual Capital Formation Benchmarking Report on how Canada is doing in the technologydriven "crowdfunding" capital formation space relative to countries like UK, US, China, Singa-pore and Switzerland. The benchmarking report could also compare the number of investmentfirms and advisors per $ of capital raised and the amount of regulatory fees per $ of capital raised(to better understand the costs of the Canadian regulatory structure).

UK regimeThe UK market is somewhat different (and larger), nevertheless, the risk based outcomes focusedregulatory regime is acknowledged to be one of the best in the world and the UK market is work-ing well. The FCA is consulting on tightening the financial promotion rules for crowdfunding,but the tightening is not expected to be significant or to detract from the flexibility of the regime.

See Annex 3 - UK Crowdfunding activity continues with government investing and tax in-centives and Annex 4 - regulatory approach.

Canada is falling behind in capital raising and scaling upComparing alternative finance market volume between Canada, US and UK clearly shows a dis-proportionate gap with Canada underperforming:

Country Volume (US$)United States $34.5 Billion (2016)United Kingdom $5.11 Billion (2015)Canada $0.33 Billion (2016)

2016: U.S. raised $8.8B for 143,344 businesses (average raise $61.4K)2016: CA raised $0.17B (1.93% of US) for 7,450 businesses (average raise $23.1K).Source: Cambridge-Chicago-KPMG reports: Americas | United Kingdom

New Reg CF (Title III) research from Crowdfund Capital Advisors in the US showsGrowing interest to fund a wide range of quality deals providing an economic boost in local com-munities and opportunities for start-ups and scale-ups of all backgrounds (diversity): Of 399 offerings, 139 companies raised US$37 million seed funding, which created 1397

jobs for the new economy (growing 15% per month).

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Total investors 37,396 (46.5K have opened accounts) Average funded campaign size $301,930 (Average check size $994); Average valuation of companies $10.7 million Number of industries/sectors represented (funded) 75 (34) Number of states represented (funded) 44 (27) Average jobs created per successfully funded campaign = 2.7

Further, in the US there is an ongoing effort to improve regulation with a focus on protecting in-vestors while providing improved opportunities for smaller investors to generate wealth. For in-stance, the “H.R. 4855 Bill “Fix Crowdfunding Act” passed by the house on July 6th, 2016.

“The newly appointed SEC Chair, Jay Clayton has been chosen by the President to have an agen-da with a threefold mission to protect investors and maintain fair and orderly markets and to alsopromote capital formation.” said Commissioner Michael Piwowar, Acting Chair of the SEC in arecent interview.

Annex 1: Comparison of overly complex crowdfunding requirements in Ca-nada as of Feb 2016 - for illustration only needs updating

EQUITY CROWDFUNDING IN CANADA TODAY (February 2016)Available Now Pending

Securities Ex-emption Re-

Accredited Inves-tor Exemption[1]

Offering Memoran-dum Exemption[2]

Offering Memoran-dum Light Exemp-tion[3]

Start-Up Crowd-funding Exemp-tion[4]

Integrated Crowd-funding Exemp-tion[5]

AB/NU Start-UpBusiness Exemp-tion[6]

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lied OnJurisdictions BC, AB, SK, MB,

ON, QU, NB, NS,NFL, PEI, NU,YK, NWT

BC, AB, SK, MB,ON, QU, NB, NS,NFL, PEI, NU, YK,NWT

AB, SK BC, SK, MB, QU,NB, NS

MB, ON, QU, NB,NSPending: SK

AB, NU

Offering Lim-it

Unlimited. Unlimited. $500,000 cap every12-month period.

$250,000 cap peroffering

$500,000 aggregatecap every 12-month period.

Limit of two offer-ings using exemp-tion per 12 monthperiod

$1,500,000 capevery 12-month per-iod.

$1,000,000 lifetimecap.

Type of Secu-rities

All. All but securitizedproducts and in AB,SK, ON, QU, NBand NS[8] specifiedderivatives andstructured financeproducts.

All but derivativetype securities.

All but derivativetype securities.

All but derivativetype securities.

All but derivativetype securities.

Issuer Re-strictions

None. Available toreporting and non-reporting issuersinvolved in allbusiness sectors.

Available to report-ing and non-report-ing issuers involvedin all business sec-tors, except notavailable to invest-ment funds in AB,NS, SK, NB, ONand QU[8], unless ifoffering is in AB,NS, SK issuer is anon-redeemable in-vestment fund ormutual fund that is areporting issuer.

Not available if a re-porting issuer, in-vestment fund,mortgage invest-ment entity or an is-suer engaged in thereal estate business.

Not available if areporting issuer orinvestment fund.Head office mustbe resident in a par-ticipating jurisdic-tions.

Available to report-ing and non-report-ing issuers involvedin all business sec-tors except invest-ment funds.Must be incorpo-rated or organizedunder the laws of ajurisdiction in Cana-da and have head of-fice in Canada.

Not available if areporting issuer orinvestment fund.Head office must beresident in a AB orNU or in participat-ing jurisdiction ofthe Start-up Crowd-funding Exemption.

Investor Re-strictions

Must be an accre-dited investorbased on annualincome ($200,000individually or$300,000 withspouse) or net fi-nancial assets ($1million excludinghome) or net as-sets ($5 million).No limits on in-vestment amount.

If investing $10,000or more and fromMB, PEI, NU, YKor NWT, must be aneligible investorbased on annual in-come ($75,000 indi-vidually or$125,000 withspouse) or net assets($400,000), or aclose friend, familyor business associ-ate, or accredited in-vestor, or have ob-tained the advicefrom an eligible ad-

12 month invest-ment cap of $2,000in all securities ofissuer group. No 12month investmentcap for all distribu-tions under exemp-tions.

Must be resident inone of the partici-pating jurisdictionsand over the age of18.12-month invest-ment cap of $1,500per distribution byan investor.

Must be resident inone of the partici-pating jurisdictions.12-month invest-ment cap of $2,500per distribution and$10,000 for all dis-tributions under ex-emption, unless anaccredited investorwho is not a per-mitted client, than$25,000 per distri-bution and $50,000for all distributionsunder exemption,issuers. No cap forpermitted clients.

Must be resident inAB or NU or in par-ticipating jurisdic-tion of the Start-upCrowdfunding Ex-emption.12-month invest-ment cap of $1,500per investment or$3,000 per issuergroup unless inves-tor receives suitabil-ity advice from re-gistered dealer thancap of $5,000 perinvestment or$10,000 per issuer

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viser on suitability.Eligible investorsresident in AB, NB,NS, ON, QU andSK[8] have a 12month investmentcap of $30,000 un-less investor re-ceives suitability ad-vice from registereddealer than cap of$100,000 for all dis-tributions under ex-emption in 12month period.

group.

FinancialStatements

Optional. IFRS audited. PE-GAAP unau-dited.

Optional. If in-cluded may be au-dited or unauditedand use eitherIFRS or PE-GAAP.

IFRS audited ifamount raised underall prospectus ex-emptions $750,000or more or issuer isa reporting issuer.Unaudited IFRS fi-nancial statementswith review report ifnon-reporting issuerand amount raisedunder all prospectusexemptions is morethan $250,000 andless than$750,000.Unauditedfinancial statementsif a non-reporting is-suer and amountraised from all pro-spectus exemptionsis under $250,000.

Optional. If in-cluded may be au-dited or unauditedand use either IFRSor PE-GAAP.

Document Re-quirements

SubscriptionAgreement , In-vestor Question-naire and Form45-106F9 Form forIndividual Accre-dited Investor.

Offering memoran-dum in prescribedform (Form 45-106F2 for Non-Qualifying Issuers;or Form 45-106F3for Qualifying Is-suers); subscriptionagreementand Form 45-106F4 – Risk Ac-knowledgement.

Offering memoran-dum in prescribedform (Form 45-106F2 for Non-Qualifying Issuers;subscription agree-ment and Form 45-106F4 – Risk Ac-knowledgement.

Offering documentprescribed form:Form 1 - Start-upCrowdfunding -Offering Docu-ment; subscriptionagreement andForm 2 Start-upCrowdfundingRisk Acknowledge-ment.

Offering documentprescribed form:Form 45-108F1Crowdfunding Of-fering Document;subscription agree-ment, Form 45-108F2 Risk Ac-knowledgement ;and Form 45-108F3Confirmation of In-vestment Limits.

Offering documentprescribed form:Form 1 - Start-upCrowdfunding - Of-fering Document;subscription agree-ment and Form 2Start-up Crowd-funding Risk Ac-knowledgement..

Statutory orContractualRight of Ac-tion

None. Two-day right ofwithdrawal.[7]Statutory or contrac-tual right of actionfor rescission or da-mages if misrepre-sentation in offering

Two-day right ofwithdrawal.Statutory right ofaction against issuerif misrepresentationin offering docu-ment.

None. 48 hour rightof withdrawal aftersubscription andafter notification ofa material amend-ment to the offer-ing.

None. 48 hour rightof withdrawal aftersubscription andafter notification ofa material amend-ment to the offering.Contractual right of

Two-day right ofwithdrawal.Statutory right ofaction against issuerif misrepresentationin offering docu-ment. 48 hour right

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memorandum. action against re-porting issuer ifmisrepresentation inoffering document.Statutory right ofaction against pri-vate issuer if misre-presentation in of-fering document.

of withdrawal aftersubscription andafter notification ofa material amend-ment to the offer-ing.

Post OfferingRequirements

File Form 45-106F1 (Form 45-106F6 in BC)within 10 days ofclosing offering.No annual reportor other continu-ous disclosure re-quirements be-cause of offering.

File Form 45-106F1 (Form 45-106F6 in BC) andoffering memoran-dum within 10 daysof closing offering.If a mining com-pany must also filea Form 43-101Technical Report.If an oil and gascompany must alsofile a Form 51-101F1 or Form 51-101F2 statement orreport.If offering made inAB, SK, ON, QU,NB, or NS[8] sub-ject to continuousdisclosure require-ments: (1) annualaudited financialstatements within120 days from fiscalyear end; (2) annualdisclosure of use ofproceeds; (3) mate-rial change like re-ports in NB, NS andON; and (4) deemedto be a market parti-cipant in ON andNB subject to re-cord-keeping re-quirements andcompliance review.

File Form 45-106F1 and offeringmemorandum with-in 10 days of clos-ing offering. If amining companymust also filea Form 43-101Technical Report.If an oil and gascompany must alsofile a Form 51-101F1 or Form 51-101F2 statement orreport.No annual report orother continuousdisclosure require-ments as a result ofoffering. Not clearif on April 30, 2016,issuers will be sub-ject to continuousdisclosure require-ments,

File Form 45-106F1 (Form 45-106F6 in BC) andoffering documentwithin 30 days ofclosing offering.

File Form 45-106F1and offeringdocument within 10days of closing of-fering.Subject to continu-ous disclosure re-quirements: (1) an-nual financial state-ments within 120days from fiscalyear end review re-port or auditor's re-port if amountraised under exemp-tion is $250,000 ormore but less than$750,000 and au-dited report ifamount raised ismore than$750,000; (2) an-nual disclosure ofuse of proceeds; (3)material change likereports in NB, NSand ON; and (4)must maintainbooks and recordsavailable for inspec-tion by investorsand ON and NB reg-ulators.

File Form 45-106F1 (Form 45-106F6 in BC) andoffering documentwithin 30 days ofclosing offering.

Portal Re-quirements

Direct sales by is-suer on their web-site or offline, orportal operatorneeds to be regis-tered as an exemptmarket dealer, in-vestment dealer ora restricted marketdealer.

Direct sales by is-suer on their web-site or offline, orportal operatorneeds to be regis-tered as an exemptmarket dealer, in-vestment dealer or arestricted marketdealer

Direct sales by is-suer on their web-site or offline, orportal operatorneeds to be regis-tered as an exemptmarket dealer, in-vestment dealer or arestricted marketdealer

Portal operatormust provide30 days ad-vance notice ofintent to act asa Start-upCrowdfundingportal.

Cannot be re-lated to an is-

Portal operatorneeds to be regis-tered as an exemptmarket dealer, in-vestment dealer or arestricted marketdealer

Direct sales by is-suer on their web-site or offline, orportal operatorneeds to be regis-tered as an exemptmarket dealer, in-vestment dealer or arestricted marketdealer.

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suer of securi-ties on portal.

OR:

Registered as anexempt marketdealer, investmentdealer or a re-stricted marketdealer.[9]

Advantages (1) No limit to of-fering size; (2)Available acrossCanada; (3) No fi-nancial statementrequirement; (4)No offering docu-ment obligation;(5) Available to allissuers; (6) No an-nual report orother continuousdisclosure require-ments as a resultof offering; (7) Alltypes of securitiesmay be sold; and(8) No statutory orcontractual rightof action.

(1) No limit to offer-ing size; (2) Avail-able across Canada;(3) Available to allissuers but invest-ment funds in cer-tain jurisdictions;(4) No annual reportor other continuousdisclosure require-ments because of of-fering in BC, MB,PEI, NFL, NU, YKand NWT ; and (5)All types of securi-ties may be soldother than securi-tized products andin AB, SK, ON,QU, NB and NS[8]specified deriva-tives and structuredfinance products.

(1) Can sell to any-one resident in ABand SK; (2) Unau-dited financial state-ment prepared usingPE-GAAP allowed;and (3) No annualreport or other con-tinuous disclosurerequirements as aresult of offering.

(1) Can sell to any-one in participatingjurisdictions; (2)Limited offeringdocument obliga-tion; (3) No finan-cial statement re-quirement; (4) Noannual report orother continuousdisclosure require-ments as a result ofoffering; and (5)No statutory orcontractual right ofaction.

(1) Can sell to any-one in participatingjurisdictions; (2)Limited offeringdocument obliga-tion; and (3) Unau-dited financial state-ments allowed ifnon-reporting issuerand total amountraised under all pro-spectus exemptionsto date less than$750,000 (audit re-view letter requiredif amount raised ismore than$250,000).

(1) Can sell to any-one in participatingjurisdictions; (2)Limited offeringdocument obliga-tion; (3) No finan-cial statement re-quirement; and (4)No annual report orother continuousdisclosure require-ments as a result ofoffering.

Disadvan-tages

(1) Accredited in-vestors only; and(2) Must confirmaccredited inves-tor status.

(1) Rule is compli-cated; (2) RequiresIFRS audited finan-cial statements; (3)Must provide de-tailed offering mem-orandum; (4) Notavailable to invest-ment funds in AB,NS, SK, NB, ONand QU[8], unless ifoffering is in AB,NS, SK issuer is anon-redeemable in-vestment fund ormutual fund that is areporting issuer; (5)$10,000 investmentlimit per 12 monthperiod by investorsin MB, PEI, NU,YK or NWT unless

(1) Offering sizelimited to $500,000every 12 month per-iod; (2) Must pro-vide detailed offer-ing memorandum;(3) Only availablein AB and SK; (4)Not available if a re-porting issuer, in-vestment fund,mortgage invest-ment entity or an is-suer engaged in realestate as a business;(5) No derivativetype securities al-lowed; (6) 12 monthinvestment cap of$2,000 in all securi-ties of issuer group;and (7) Statutory or

(1) Offering sizelimited to $250,000per offering to amaximum of$500,000 in two of-ferings every 12month period; (2)Only available toparticipating juris-diction resident is-suers and inves-tors; (3) Not avail-able if a reportingissuer or invest-ment fund; (4) Noderivative type se-curities allowed;and (5) Offeringmust be madethrough a fundingportal.

(1) Offering sizelimited to maximumof $1,500,000 every12 month period;(2) Only availableto participating jur-isdiction resident is-suers and investors;(3) Not available ifan investment fund;(4) No derivativetype securities al-lowed; (5) Offeringmust be madethrough a fundingportal; (6) 12-month investmentcap of $2,500 perdistribution and$10,000 for all dis-tributions under ex-emption, unless an

(1) Offering life-time limit of$1,000,000; (2)Only available to is-suers and investorsin AB, NU and inparticipating juris-dictions of theStart-up Crowd-funding Exemption;(3) Not available ifa reporting issuer orinvestment fund;and (4) No deriva-tive type securitiesallowed.

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accredited inves-tors, friends, familyor business associ-ate, or receives suit-ability advice fromeligibility advisor.$30,000investmentlimit per 12 monthperiod by investorsin AB, NB, NS,ON, QU or SK un-less eligible inves-tor obtains suitabil-ity advice than$100,000 cap for allinvestments underexemption in 12month period; (6)Statutory or contrac-tual right of actionattached; (7) Con-tinuous disclosurerequirements includ-ing audited financialstatements indefi-nitely if offering se-curities in AB, NB,NS, ON, QU or SK.

contractual right ofaction attached.

accredited investorwho is not a per-mitted client, than$25,000 per distri-bution and $50,000for all distributionsunder exemption;and (7) Statutoryright of action at-tached.

Active PortalExamples

Exempt MarketDealer: Front-Fundr (AB, BC,MB, SK, QU,MB, NS, NB);NexusCrowd (AB,BC, ON); Optimize CapitalMarkets (AB, BC,MB, QU)InvestX (AB, BC,ON, QU)

Restricted Mar-ket Dealer: SocialVenture Connex-ion/MaRs SVX(ON, QU)

Exempt MarketDealer: Front-Fundr (AB, BC,MB, SK, QU, MB,NS, NB)

Exempt MarketDealers ThroughRegistered 3rdParty: SeedUpsCanada (AB, BC,ON, QU via Waver-ley)

Exempt MarketDealer: Front-Fundr (AB, BC,MB, SK, QU, MB,NS, NB)

Exempt MarketDealers ThroughRegistered 3rdParty: SeedUpsCanada (AB, BC,ON, QU via Waver-ley)

Exempt MarketDealer: Front-Fundr (BC, SK,QU, MB, NS, NB)

Start-up Crowd-funding Portals:GoTroo (BC, QU,NS, NB); InvestLo-cal (BC); Small-Starter (BC, SK,MB, QU, NS, NB);StellaNova (QU,NS, NB); Vested(BC)

No Portals. No Portals.

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Annex 2: NCFA Annual Industry Survey Results (Jun-Jul, 2017)

Below are select charts and responses from the recent NCFA annual survey data collection thatwas administered Jun-Jul 2017. The full results will be published, and made widely available, inthe 2017 Alternative Finance Crowdfunding industry report in Q4, 2017.

When asked ‘What do you think isneeded to attract more investors tothe Canadian alternative financecrowdfunding markets?”

A: 70% of the responders and the num-ber one answer was “More education”

When asking issuers “Has your com-pany ever raised capital via alterna-tive finance crowdfunding markets be-fore?”

A: the overwhelming majority (approxi-mately 90%) had responded ‘No’.

The when asking the same responderswhy not, they expressed the number onereason

A: Over 55% of responders said thatthey were ‘Unaware of how it works’

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Annex 3 - UK Crowdfunding activity continues with government investing and tax incen-tives

Crowdfunding continues to help a wide range of businesses from restaurants to cleantechprojects Examples

2017 Beauhurst research highlights top 3 providers of equity investment in the UK for smallrounds between £250K - £2M are equity crowdfunding platforms (Crowdcube, Seedrs, andSyndicateRoom). This level of funding is crucial to ensure startups have the financial sup-port to scale beyond small seed investments

2017 Small Business Equity Tracker (British Business Bank) confirms “Crowdfunding re-mains an important source of funding for early stage companies forming 25% of all an-nounced equity deals in 2016. Crowdfunding platforms were the most prevalent investor atthe seed-stage in 2016 a similar position to 2015), with crowdfunding platforms involved in192 deals compared to 132 for PE/VC funds." (page 5)

State-owned British Business Bank (BBB) has invested £85 million of taxpayer money di-rectly in the peer-to-peer (P2P) lending sector

UK government tax incentives including income tax relief, capital gains tax exemption, lossrelief, and capital gains tax deferral relief. Usage example: approx.. 80% of deals on a lead-ing equity platform, Seedrs, fall under the Enterprise Investment Scheme (EIS) and Seed En-terprise Investment Scheme (SEIS)

UK has great research and innovation support through FCAs Project Innovate (Podcast Mar2017).

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Annex 4 - Regulatory approachIn its recent submission on regulatory burden FAIR: "cautioned against reducing regulatory bur-den in the absence of empirical support that it will be beneficial to the capital markets includinginvestors, a key stakeholder in our capital markets."

While the NCFA is 100% behind the consumer protection objective, the NCFA strongly takes is-sue with this approach. The statement should be turned on its head (and the onus reversed) - ie,No regulatory burden should be imposed unless a risk to regulatory objectives (eg, consumer pro-tection) has been identified by the regulator and the regulatory solution selected (if any) is themost cost-effective to mitigate the risk. (The regulator’s analysis should also be fully transparentso stakeholders can respond effectively.)

Apart from the fact that FAIR’s approach does not support the equally important objective of ef-ficient and competitive markets, it makes any argument for reducing burdens much more diffi-cult. How does the NCFA provide empirical support for a lower trigger for an audit, for exam-ple? How can it show that reducing this burden is "beneficial" for investors? It is a bit like tryingto prove a negative, with the onus on the NCFA and other stakeholders rather than the regulator.

NCFA supports the approach of regulators such as the FCA - https://www.fca.org.uk/publica-tion/consultation/cp13-13.pdf

Speech (Getting regulation right) - https://www.fca.org.uk/news/speeches/getting-regulation-right

FCA’s regulatory principles - https://www.fca.org.uk/about/principles-good-regulation

For ASIC (Australian regulator of equity crowdfunding) see - http://asic.gov.au/regulatory-re-sources/financial-services/crowd-sourced-funding/ and podcast - https://asic.podbean.com/e/epi-sode-25-crowd-sourced-funding/