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Strangulation by regulation: The death knell for B.C. jobs

An open letter to all members of the Legislative Assembly of British Columbia

from the Venture Capital Markets Association | August 13, 2015

Venture capital is all about speculative investing, innovation and determination for discovery leading to jobs

B.C. has a well-earned reputation for raising venture capital, particularly with companies involved in mineral exploration, where B.C. companies have accounted for about 60% of worldwide activity. Many of the major mines in the world were discovered by Vancouver-based junior exploration companies raising risk capital from speculators. All significant mines in B.C. were initially financed by equity raises subscribed by speculators.

This industry is now in a death spiral because regulators are effectively killing the B.C.-based support industries that have been responsible for creating thousands of jobs in B.C. and around the world.

This industry is now in a death spiral because regulators are effectively killing the B.C.-based support industries that have been responsible for creating thousands of jobs in B.C. and around the world. The exploration financing mechanism based in Vancouver, at one time generating over $300 million annually, is in full retreat.

This strangulation by regulation is led by:

  • BCSC—the B.C. Securities Commission

  • IIROC—the Investment Industry Regulatory Organization of Canada

  • CMRA—the Capital Markets Regulatory Authority

  • the banks that control the major stock exchanges (TSX, TSXV) and have shifted the business focus from risk capital equity raises to wealth preservation

The BCSC, in its current form, is a well-meaning but destructive force:

  • a Crown corporation supposedly reporting to B.C.’s minister of finance

  • receives no financial support from the provincial treasury

  • generates income from fees and fines set by its regulations

  • returns no funds to the provincial treasury

  • 80% of its funds go to salaries and premises

  • “growth” is achieved by creating new regulations and new fee structures

  • contracts out its obligations of oversight of brokerage firms to Ontario’s IIROC

  • rules set by IIROC are killing Canada’s independent brokerage industry, with no regard for investors who may choose some “high-risk/high-reward” speculation

Who is mis-calling the shots?

The BCSC leaders comprise lawyers, a retired economics professor and an accountant—a major absence of expertise in the industries that built British Columbia. There is nobody representing venture capital or mining exploration, when in fact those industries should be controlling their futures.

The irrelevant national regulator

Efforts to create a national regulator have too many obstacles to be of help in this struggle for venture capital to survive the current regulator-generated problems.

Stock exchanges

The TSX and TSXV are Toronto-based and bank-controlled. The TSXV has evolved into a bureaucratic, dysfunctional organization, operating as an unelected board of directors, inflicting its own set of moving target rules on its listed issuers.

Brutalization and extinction of the retail investor

Piling on of regulatory and pseudo-regulatory bureaucracies forces issuers to raise millions of dollars for payment of regulation costs in addition to the constructive capital they require. The BCSC and the Alberta Securities Commission are empowered to regulate the TSXV, but choose not to do so.

Ontario rules

Further compounding the problem, the TSXV continues to list hundreds of non-compliant companies with negative working capital, damaging efforts by others to go forward.

The vision

B.C. is capable of re-establishing itself as a major venture capital centre and must do so or B.C. will lose its position as the world centre of mineral exploration:

  • A restructured, leaner BCSC should report to a new independent board controlled by members who reflect the industry

  • The BCSC should take responsibility for, and control of, its obligations

  • IIROC should be replaced with a BCSC-empowered industry board

  • The BCSC should become pro-active

  • Become responsive to the brokerage industry

  • Actively seek a public exchange to locate in the province

  • Budget for marketing B.C. as a world centre for venture capital

  • Market listing in B.C. to international venture capital centres

  • Focus educational programs on how venture capital works

  • Push to expand the passport system with other jurisdictions

VCMA Advisory Board:

Don Mosher, B&D Capital Inc, don@venturefunding.biz

Joe Martin, Cambridge House International Inc, jmartin@cambridgehouse.com

Brian Ashton, Eagle Advisory Group, brianashton16@gmail.com

Tony Simon CPA CA, Seguro Consulting Inc, tony.whistler@gmail.com

Lawrence Page QC, Manex Resource Group Inc, lpage@mnxltd.com

John Kaiser, Kaiser Research Online, jkaiser@kaiserresearch.com

The Venture Capital Markets Association

Read ‘Scrap IIROC, fix the BCSC’: The Venture Capital Markets Association offers a plan to save junior financings.

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