Navigating private equity regulation in Canada

In our continuing series looking at private equity regulation across the globe, we turn our attention to Canada.  

As with other parts of the world, Canada has experienced rising interest rates and inflationary pressures, but despite these challenges private equity transactions closed in 2023 with a total deal value of C$16 billion (up from C$14.4 billion in 2022), with fund raising hitting a 10-year high (C$32.18 billion raised in 2023). However, it’s not all been upside and the downward trend in private-equity-backed exits in Canada continued, with both exit count and exit value hitting their lowest levels for 10 years.

Private equity has become a significant force in Canada’s economy, helping reshape industries, fostering innovation, and driving growth. A well-established regulatory framework governs this sector, which covers Canada’s ten provinces and three territories.

A federal and regional regulatory framework

At the federal level, the primary legislation governing private equity in Canada is the Investment Canada Act (ICA). This legislation applies to foreign investments in Canadian businesses, including those involving private equity firms. Under the ICA, certain transactions trigger a review process to assess their net benefit to Canada, particularly in terms of economic impact and national security considerations.

Another crucial piece of legislation is the Securities Act, which is administered provincially. Each Canadian province and territory has its own securities regulator responsible for overseeing securities markets and regulating investment funds, including private equity funds.

Regulatory bodies

The main regulatory bodies overseeing private equity activities in Canada include:

1. Canadian Securities Administrators (CSA): The CSA is an umbrella organization comprising provincial and territorial securities regulators. It coordinates securities regulation across Canada.

2. Ontario Securities Commission (OSC): As Canada's largest capital market, Ontario is home to many private equity firms. The OSC plays a pivotal role in regulating securities markets and enforcing securities laws within the province.

3. Autorité des marchés financiers (AMF): Operating in Quebec, the AMF oversees the province's financial sector, including private equity activities. It aims to maintain the integrity of Quebec's financial markets and protect investors.

Regulatory oversight and compliance

Private equity firms operating in Canada must adhere to various regulatory requirements to ensure compliance with applicable laws and regulations. These requirements may include:

• Registration: Depending on their activities, private equity firms may need to register with securities regulators as investment fund managers or exempt market dealers.

• Disclosure: Firms must provide investors with accurate and timely disclosure regarding investment opportunities, risks, fees, and conflicts of interest. Transparency is crucial for investor protection and informed decision-making.

• Conduct Standards: Private equity firms are expected to conduct their business with integrity, honesty, and fairness. They must avoid conflicts of interest and prioritize the interests of their investors.

Recent developments

In recent years, Canadian regulators have introduced regulatory reforms and initiatives to enhance oversight of the private equity industry and address emerging challenges. These developments include:

• Enhanced Disclosure Requirements: Regulators have proposed or implemented measures to improve disclosure by private equity firms, ensuring investors have access to meaningful information to assess risks and make informed investment decisions.

• Increased Enforcement Actions: Regulators have stepped up enforcement efforts to combat securities violations, including misconduct by private equity firms. This includes imposing sanctions, penalties, and other enforcement measures to deter unlawful conduct and protect investors.

• Fostering Innovation: Regulators are exploring ways to foster innovation in the private equity industry while maintaining regulatory objectives. This includes supporting fintech initiatives, streamlining regulatory processes, and adapting regulations to accommodate new business models and technologies.

The need for accurate reporting

In Canada there are regulatory requirements for both General Partners and Limited Partners for private funds, both at a federal and regional level. Both parties can benefit from using technology to help adhere to these regulations, reducing risk and improving reporting for their funds, both in terms of accuracy and timeliness.  

qashqade works with private fund managers in Canada and North America to help CFOs guarantee accuracy, improve transparency and build trust with their investors, clients and beneficiaries. Contact us to learn more.