On November 25th Canadian regulators quietly approved a first-of-its-kind investment platform that employs distributed ledger technology, better known as blockchain. This application, called Finhaven Private Markets, operated by Finhaven Capital Inc., allows for investors to purchase securities from private issuers directly, without the need for a broker, deal representative or clearing house. And perhaps more importantly, allows for those securities to be privately traded on the platform directly between qualified individual investors.
The potential for this application to revolutionize the securities industry is significant. Traditional capital raise models such as IPOs, RTOs and brokered financings could become as outdated as video games disks and home phones.
But as with every new advance in the financial sector, the potential for bad actors and malfeasance has to be identified, addressed and guarded against. That task has fallen largely on the shoulders of Finhaven’s Chief Compliance Officer Sandra Jakab. Ms. Jakab has worked at the highest compliance levels of Canada’s financial and investment industry, heading up Capital Markets Regulation at the BC Securities Commission for nine years, and at one time being the only woman responsible for managing conduct risk for a major Canadian bank.
“It was a big decision to join the team at Finhaven and leave behind the familiar institutional world,” explained Ms. Jakab. “But how many times in a career do you get a chance to build something brand new, something that could fundamentally impact the Canadian investing landscape.”
Sandra and Finhaven Private Markets worked closely with regulators across the country, especially with the BC Securities Commission that served as Finhaven’s principal regulator, who in turn worked with the Securities Administrators Regulatory Sandbox Committee — a group set up specifically to encourage Canadian innovation and technology advances for the industry. Perhaps not surprisingly, something this new is being held to an incredibly high standard – one far beyond what current Exempt Market participants must employ. While the front end of the system offers simple, safe and secure paperless solutions – behind the scenes, the tracking will be cutting edge.
As Sandra outlined, “the platform initially will be restricted to “accredited” investors who must meet some long-standing criteria for income and/or assets. In addition, we apply proprietary tools that assess investors’ asset concentration, market knowledge and the risk of their current portfolio. This will ensure each investment opportunity offered is a good individual match for our clients. And at the same time, connecting our investment product issuers with a highly qualified group of accredited investors.”
Finhaven is banking that accredited investors will be open to the heightened requirements, as it makes them eligible to trade directly and privately with other equally-eligible investors on the platform.
Every Canadian securities dealer must address the inherent conflict-of-interest between the needs of companies seeking to raise capital, and the investor’s need for transparency and surety. Finhaven Private Markets has taken the addional step of establishing an Outside Advisory Board which will conduct an independent assessment of each investment offering from the perspective of the potential future shareholder. “We’re excited to not only bring new opportunities to Canadian investors, but to do it in a way that increases confidence in the process as well,” said Ms. Jakab.
And now that Finhaven Private Markets has been launched from the “sandbox” it will be fascinating to see if the team can deliver on the promise of blockchain technology in the securities industry.