Key Takeaways
- • The Standing Senate Committee on Banking, Commerce and the Economy published a report on a Wednesday setting out eight major recommendations to improve financing access for small- and medium-sized enterprises (SMEs) in Canada.
- • The committee recommended reducing barriers to prospectus exemptions, including lower financial requirements for investing in treasury shares, reliance on personal financial limits, expanded self-accreditation, and changes to broker know-your-client rules.
- • The report called for a review of how client-focused reforms, including know-your-product rules, affect retail venture investing, which it said has made it almost impossible for stockbrokers to recommend SME stocks.
- • Proposed tailored rules for venture companies would scale disclosure and compliance obligations to company size, risk and stage, and the committee also suggested tougher regulation of short selling in venture company shares.
- • Sen. Clément Gignac, chair of the Senate banking committee, said structural barriers are preventing SMEs from reaching their full potential.
Summary
The Standing Senate Committee on Banking, Commerce and the Economy has called for a set of reforms to improve access to credit and capital for small- and medium-sized enterprises (SMEs), including a potential rollback of advisors' due diligence requirements. According to the committee's report, published on a Wednesday, the proposals are aimed at obstacles to SME funding including the dominance of the big banks, a policy emphasis on safety and soundness over risk and innovation, and an over-reliance on foreign investment. The report links these issues to persistent financing gaps, underinvestment of domestic capital in productive Canadian businesses, and the loss of Canadian talent, business and intellectual property ownership.
A central recommendation concerns prospectus exemptions. The committee urged regulators to reduce barriers to their use, including reducing financial requirements for investing in treasury shares, relying on personal financial limits, expanded self-accreditation, and broker know-your-client rules. It also called for a review of the impact of client-focused reforms on retail venture investing. The report criticized know-your-product rules for making it almost impossible for stockbrokers to recommend SME stocks to clients, and said these rules have removed economic incentives for investment firms to pursue anything beyond wealth management.
On regulation of venture companies, the committee recommended tailored rules, with disclosure, reporting and compliance obligations proportionate to company size, risk and stage of development. Other proposals include narrowing materiality standards for issuers' disclosure obligations, reviewing audit, reporting and governance requirements to reduce the costs of being a public company, and considering tougher regulation of short selling in venture companies' shares. The committee also proposed a roundtable of governments, securities regulators, stock exchanges, investment dealers, exempt market dealers and others to improve the competitiveness of Canada's public markets. Tax and other policy changes supporting the SME ecosystem were also recommended.
In the release accompanying the report, Sen. Clément Gignac, chair of the Senate banking committee, said that structural barriers in Canada's financial system are preventing SMEs from reaching their full potential and that fundamental changes are needed to help these businesses succeed and keep their innovations in Canada.
A central recommendation concerns prospectus exemptions. The committee urged regulators to reduce barriers to their use, including reducing financial requirements for investing in treasury shares, relying on personal financial limits, expanded self-accreditation, and broker know-your-client rules. It also called for a review of the impact of client-focused reforms on retail venture investing. The report criticized know-your-product rules for making it almost impossible for stockbrokers to recommend SME stocks to clients, and said these rules have removed economic incentives for investment firms to pursue anything beyond wealth management.
On regulation of venture companies, the committee recommended tailored rules, with disclosure, reporting and compliance obligations proportionate to company size, risk and stage of development. Other proposals include narrowing materiality standards for issuers' disclosure obligations, reviewing audit, reporting and governance requirements to reduce the costs of being a public company, and considering tougher regulation of short selling in venture companies' shares. The committee also proposed a roundtable of governments, securities regulators, stock exchanges, investment dealers, exempt market dealers and others to improve the competitiveness of Canada's public markets. Tax and other policy changes supporting the SME ecosystem were also recommended.
In the release accompanying the report, Sen. Clément Gignac, chair of the Senate banking committee, said that structural barriers in Canada's financial system are preventing SMEs from reaching their full potential and that fundamental changes are needed to help these businesses succeed and keep their innovations in Canada.
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