Nick Wright, BA JD MBA LLM (Tax)

Wright Business Law

Raising capital across the Canada-U.S. border in the exempt/private market presents significant regulatory, structural and operational challenges. A Canadian issuer or fund may wish to engage a U.S.-based dealer or finder to access U.S. investors, or conversely a U.S. fund may target Canadian investors. However, both Canadian and U.S. securities laws impose registration, exemption, disclosure and filing obligations. 

Canadian registrants must ensure that any U.S. intermediary or “finder” is properly registered or relies on a valid exemption, that the distribution relies on appropriate Canadian prospectus exemptions (such as NI 45-106), and that all investor eligibility, marketing solicitation and disclosure issues are addressed. 

Missteps may trigger enforcement risk, unregistered dealer exposure, rescission risk, or subscription enforceability concerns. This article explores how to structure such cross-border distributions, identify key risks, address adjacent legal regimes, and provide practical steps for fund sponsors and Canadian exempt market dealers (EMDs) to engage in cross-border raises.

Regulatory Framework & Sources of Law

On the Canadian side, NI 31-103 requires registration as a dealer for persons or companies engaged in the business of trading securities unless an exemption applies. Part 7 of NI 31-103 sets out dealer categories, including the exempt market dealer (EMD) category.

On the U.S. side, in limited circumstances, certain U.S. broker-dealers and agents may rely on NI 35-101 - Conditional Exemption from Registration for United States Broker-Dealers and Agents, which permits certain U.S. broker-dealers and agents to deal with specified U.S. clients resident in Canada subject to prescribed conditions. Depending on the structure and investor category, foreign dealers may also consider the international dealer exemption under NI 31-103. Canadian issuers and intermediaries engaging U.S. investors must also consider applicable U.S. securities and broker dealer requirements, including Regulation D, Regulation S, U.S. private placement requirements and, where relevant, SEC Rule 15a-6 relating to certain cross-border activities of foreign broker-dealers.

The interplay of Canadian prospectus exemptions (NI 45-106) and U.S. registration/exemptions must therefore be carefully considered. Canadian issuers targeting U.S. investors must ensure compliance with both jurisdictions, and Canadian intermediaries working with U.S. parties must assess whether the U.S. intermediary’s activities trigger Canadian registration requirements. The regulatory rationale is investor protection and maintaining the integrity of cross-border capital raising.

Definitions & Thresholds

In this context:

• Cross-border distribution means a securities offering or investor solicitation where Canadian investors are involved in a U.S. offering, U.S. investors in a Canadian offering, or where intermediaries operate across both jurisdictions.
• In practice, a “finder” generally refers to a person or firm introducing potential investors without acting as a fully registered dealer. Canadian securities legislation does not recognize a separate “finder” category, and compensation, solicitation activity, and involvement in the offering process may trigger dealer-registration requirements.
• Critical thresholds include whether the activity constitutes being “in the business of trading” such that registration is required in Canada under NI 31-103, whether the U.S. intermediary’s activities otherwise trigger Canadian dealer registration requirements under NI 31-103 or whether an exemption may be available. Canadian law does not permit U.S. intermediaries to freely solicit Canadian investors without meeting Canadian registration or exemption criteria. Similarly, issuers must ensure that the U.S. investor complies with U.S. securities laws. For example, if a Canadian issuer uses U.S. finders who receive success-based compensation and solicit U.S. investors, the offering may fall under U.S. Regulation D/Regulation S requirements.

Application in Practice

When structuring a cross-border distribution involving U.S. intermediaries, issuers, or advisors, the following steps are advisable:

1. Map jurisdictions and roles
   The Canadian issuer must identify all jurisdictions of target investors (Canadian provinces, U.S. states). If U.S. intermediaries (dealers or finders) are used, confirm their U.S. registration status (broker-dealer or exempt) and determine whether they can legally solicit Canadian investors (or whether a Canadian dealer/EMD must be relied upon).
2. Identify intermediary role and compensation
   For any U.S. party, identify whether they are acting purely as introducers/finders or whether they will handle subscriptions, closings or investor onboarding. Compensation (especially success-based) may trigger dealer registration requirements under Canadian law. Ensure the U.S. intermediary’s compensation and activities comply with both U.S. and Canadian laws.
3. Select the Canadian exemption and ensure investor eligibility
   The Canadian offering must rely on a valid prospectus exemption (for example, the accredited investor exemption under NI 45-106). Documentation must address residency, investor category, subscription materials, and investor eligibility. Canadian provincial filings (Form 45-106F1) must generally be made after each closing.
4. Confirm U.S. investor compliance
   If U.S. investors participate, determine whether the Canadian offering will be offered into the U.S., which may require reliance on U.S. exemptions (e.g. Regulation D, S, etc.). The U.S. intermediary should verify investor status, exemption eligibility, and ensure legend/resale restrictions.
5. Ensure proper marketing control
   Marketing materials must be tailored to each jurisdiction. When applicable, the Canadian issuer must guard against “directed selling efforts” in the U.S. (which may jeopardize reliance on the Regulation S safe harbor) and ensure U.S. intermediaries do not engage in impermissible solicitation in Canada unless registered. Surveillance of cross-border marketing channels (web, webinars, cold calls) is essential.
6. Implement filings and disclosures
   Canadian filings such as Form 45-106F1 must be completed for each jurisdiction where securities are distributed. Canadian firms must also manage referrals and “finders” per referral-fee disclosure and registration rules. On the U.S. side, notifications and legend requirements (e.g., restricted stock legends) may apply.
7. Document intermediary arrangements
   Formal agreements with U.S. intermediaries are necessary (appointment letters, compensation schedules, jurisdictional delineation, indemnities, registration status disclosures). These agreements should be reviewed for Canadian-law compliance (e.g., whether compensation triggers “dealer” activity under NI 31-103).
8. Maintain books, records and audit trail across jurisdictions
   Both Canadian issuer and U.S. intermediary must maintain records of investor onboarding, communications, eligibility, fund flows, marketing materials, investor subscriptions, and multi-jurisdiction compliance.
9. Monitor secondary trading and resale restrictions
   In Canada, resale of exempt market securities may be restricted (e.g., a 4-month hold under NI 45-106 and NI 45-102 or provincial rules). When U.S. investors or U.S. intermediaries are involved, additional resale eligibility checks may be necessary.
10. Ongoing supervision and portfolio monitoring
    Confirm that the cross-border structure remains compliant (e.g., monitoring solicitation activity, ensuring there are no U.S. “public offering” triggers in the U.S., and that all investor categories remain valid).

Grey Areas & Regulator Focus

Several recurring enforcement themes attract regulatory scrutiny in cross-border exempt market distributions.

One concerns the distinction between a “finder” and a dealer. U.S.-based intermediaries may characterize themselves as passive introducers, but Canadian regulators focus on substance over form. Success-based compensation, repeated solicitation activity, investor communications, or involvement in subscription processes may support a finding that the intermediary is “in the business” of trading securities under NI 31-103, triggering dealer-registration issues.

Regulators also closely examine directed selling efforts into the United States. Where a Canadian issuer uses targeted U.S. marketing, webinars, roadshows, or U.S.-based solicitation activity, reliance on Regulation S may be undermined and U.S. registration or exemption issues may arise. Cross-border digital marketing and online investor outreach are areas of scrutiny.

Another area of focus is the participation of foreign intermediaries in the Canadian exempt market. Canadian regulators increasingly assess whether non-Canadian dealers engaging with Canadian accredited investors are properly relying on available exemptions, including international dealer exemptions, and whether their activities exceed permitted scope.

Operational complexity also creates regulatory risk. Cross-border offerings frequently require coordinated Canadian provincial filings, U.S. federal and state compliance, investor-residency verification, AML/KYC coordination, and tax withholding analysis. Deficiencies in record-keeping, investor qualification, or jurisdictional allocation of responsibilities may become significant during regulatory review.

Interactions with Adjacent Regimes

Cross-border distribution intersects with multiple adjacent regulatory regimes beyond dealer registration and prospectus-exemption rules. U.S. investors investing in Canadian funds may trigger U.S. tax reporting (FATCA), Canadian withholding obligations, and tax treaty rules. 

Fund-structuring (e.g., flow-through LPs, real estate holding companies, etc.) must align with cross-border investor eligibility and subscription documentation. 

AML/KYC regimes apply in both Canada and the U.S., and involving foreign intermediaries introduces additional customer-identification and anti-money-laundering considerations. 

Data privacy regimes (PIPEDA in Canada or U.S. State equivalents) may apply when investor data crosses the border. 

Also, U.S. intermediaries must consider FINRA/SEC status and state broker registration. Canadian intermediaries must manage multi-jurisdiction filings and monitor for unregistered trading. 

Illustrative Scenarios

Scenario 1: A Canadian real-estate fund issuer in Ontario engages a U.S. registered broker dealer to place units with U.S. family-offices. The Canadian fund drafts its offering relying on the accredited investor exemption under NI 45-106. The U.S. broker dealer confirms its U.S. registration, ensures investor accreditation under Regulation D Rule 506, obtains restricted-legend documentation and the Canadian issuer obtains U.S. investor tax residence and withholding status. The Canadian issuer must assess whether any Canadian exempt distribution filings or related cross-border reporting obligations are triggered in the applicable jurisdictions.

Scenario 2: A Canadian issuer engages a U.S.-based finder under a success-fee arrangement to assist with a cross-border exempt offering. Although initially retained to identify U.S. investors, the finder also begins contacting Canadian accredited investors and participating in investor discussions involving Ontario residents. The finder is not registered in Canada and does not rely on an available exemption. During a regulatory review, Ontario securities regulators determine that the finder’s solicitation activity, compensation structure, and repeated involvement in the offering constituted unregistered dealer activity under the NI 31-103 business trigger analysis. The issuer faces remediation obligations and restructures future fundraising through a registered Canadian EMD.

Scenario 3: A U.S. fund uses a Canadian EMD to place securities with Canadian accredited investors. The Canadian EMD ensures investor eligibility, collects KYC/AML, tracks investor residence in each province, does a suitability assessment and files Form 45-106F1 on SEDAR+ within the prescribed timeline. The U.S. fund ensures the offering is conducted in reliance on available U.S. exemptions and appropriately restricts Canadian distribution activity. The coordinating agreements between Canadian EMD and U.S. issuer define who handles filings, who holds funds, and who monitors resale restrictions. The complexity of cross-jurisdiction investor-monitoring and record-keeping proves to be compliance-heavy but the structure works because each side clearly defines responsibilities.

Compliance Checklist

• Consider anticipated investor jurisdictions and intermediary registration statuses
• Prepare a cross-border distribution plan identifying:
  • Investor categories
  • Intermediaries
  • Applicable jurisdictions
  • Applicable exemptions (NI 45-106, Reg D, Reg S)
• Clearly allocate roles, compensation, registration, indemnities, and jurisdictional limits in intermediary agreements
• Review marketing materials for solicitation and registration compliance
• Implement compliant onboarding and verification procedures:
  • Accreditation
  • Residency
  • KYC/AML
  • Tax and withholding
• Ensure subscription documents include required legends, resale restrictions, and investor acknowledgements
• Complete required Canadian and U.S. filings and notice requirements
• Maintain detailed books, records, investor lists, and audit trails
• Monitor ongoing compliance:
  • Transfer restrictions
  • Residency changes
  • Tax reporting
  • Compensation arrangements
• Conduct periodic internal compliance and intermediary oversight reviews.

Conclusion & Next Steps

Cross-border distribution involving U.S. intermediaries and Canadian issuers or EMDs opens access to a broader investor base but also invites complex regulatory and operational risk. Sponsors and intermediaries must treat jurisdictional mapping, intermediary registration, exemption validity, marketing control, investor-verification, subscription documentation, filings, and ongoing compliance as a core part of their strategy rather than an afterthought. Next steps include reviewing the cross-border distribution structure, assessing Canadian and U.S. registration and exemption requirements, documenting intermediary arrangements, implementing jurisdiction compliant marketing and onboarding procedures, establishing filing and investor-verification workflows, and monitoring intermediary activity, investor residency changes, and resale restrictions. Proper planning and oversight are critical to reducing cross-border regulatory risk.

Book a Consultation

If you are forming or operating a private investment fund or Exempt Market Dealer or are a U.S. fund or issuer looking to raise money in Canada, contact us to schedule an initial consultation with Nick Wright.