Peer-to-peer lenders are online marketplaces that help consumers and small business owners secure loans, often by pairing them with institutional investors and wealthy individuals willing to lend them cash.
The country's largest securities regulator says it has received a number of queries recently from peer-to-peer lenders, who want to know whether they fall under provincial securities laws.
The regulator says that depends on how the business is structured.
In some cases, a loan arranged online may be considered a security, as defined by the Securities Act.
When in doubt, peer-to-peer lending sites should get in touch with the OSC, the regulator said in a news release Friday.
"If you are approaching any Ontario investors to fund peer-to-peer loans or loan portfolios, then you should be talking to the OSC about securities law requirements, including whether you need to be registered or require a prospectus," Debra Foubert, director of compliance and registrant regulation at the OSC, said in a statement.
Steven Uster, co-founder and chief executive of FundThrough, which lends to small businesses, welcomed the news.
Uster said proper regulation of the peer-to-peer lending industry would benefit lenders, borrowers and the overall economy.
"Our industry is growing rapidly, so guidance from securities regulators at this time is helpful," Uster said in an email.
Canada has been slower to adopt peer-to-peer lending than its southern neighbour, but there are signs that the burgeoning industry is finally gaining traction north of the border.
U.S.-based online marketplace OnDeck Capital, which made an initial public offering last year, has been expanding in Canada, while new startups have been sprouting up.
A number of Canadian bank CEOs have complained that alternative lenders enjoy competitive advantages because they are not regulated as strictly as traditional financial institutions are.
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