Securities Law & Instruments

[Webmaster's Note: The decision In the Matter of Pentecostal Financial Services Group Inc., Pentecostal Securities Corp. and The Pentecostal Assemblies of Canada was published in the OSC Bulletin on October 5, 2017 at (2017), 40 OSCB 8066 with an incorrect headnote. The correct headnote for the decision was published in the OSC Bulletin on October 19, 2017 in Chapter 1 at (2017), 40 OSCB 8481, and the decision was republished in its entirety in Chapter 2 at (2017), 40 OSCB 8504. The correct headnote and decision are set out below.]


Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- interim and ongoing exemptions from the prospectus requirement and an interim exemption from the dealer registration requirement in securities legislation for the first applicant (the Issuer) that operates a church community program for the purpose of making and administering mortgage loans for charitable purposes and funding these mortgage loans by issuing and distributing fixed income securities (Notes).

The Issuer is exempted for an interim period from the prospectus requirement in securities legislation in connection with the renewal distribution of certain legacy Notes -- Issuer requires time limited prospectus relief to transition business model and comply with imposition of additional regulatory requirements -- This decision expires on November 30, 2017.

The Issuer is exempted from the prospectus requirement in securities legislation in connection with the distribution of Notes -- Issuer cannot comply with not for profit issuer prospectus exemption in s. 2.38 of National Instrument 45-106 Prospectus Exemptions (NI 45-106) -- the Issuer requires ongoing prospectus relief to permit certain modifications to the offering memorandum (OM) prospectus exemption in s. 2.9 of NI 45-106 -- advice provided for purposes of subparagraph 2.9(2.1)(b)(iii) of NI 45-106 will be from the second applicant (the Dealer), who is applying for registration as a "restricted dealer", with individuals acting on its behalf that are subject to the same proficiency requirements as a dealing representative of an exempt market dealer -- relief needed to permit the Dealer to comply with subsection 2.9(5.2) of NI 45-106 for purposes of distributing OM marketing materials which have been approved in writing by the Issuer, and other conditions of the OM prospectus exemption in s. 2.9 of NI 45-106 which require the use of prescribed forms to the extent that such forms currently do not refer to the category of "restricted dealer" in reference to registered firms -- relief needed because certain not for profit affiliates of the Issuer may be required to sign an OM certificate under subsection 2.9(9) of NI 45-106 which may put not for profit/charitable assets at risk if used to settle potential claims for misrepresentation in the offering memorandum -- This decision expires in five years.

The Issuer is exempted for an interim period from the dealer registration requirement in securities legislation to trade in Notes through the Dealer prior to the Dealer obtaining registration -- the Issuer will trade through the Dealer on terms and conditions similar to the registration exemption in section 8.5 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) -- This decision expires when the Dealer is registered as a dealer or in one year.

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- interim exemptions from the dealer registration requirement and adviser registration requirement in securities legislation for the Dealer that trades, as agent, in the Issuer's fixed income securities (i.e., Notes), and provides advice in connection with these trades, to sophisticated and unsophisticated persons and companies related to the church community.

The Dealer is exempted for an interim period from the dealer registration requirement to make these trades prior to the Dealer obtaining registration as a dealer -- the Dealer will make these trades on terms and conditions that include certain investor protection measures that will also be available to purchasers, and prospective purchasers, when the Dealer is registered -- This decision expires when the Dealer is registered as a dealer or in one year.

The Dealer is exempted for an interim period from the adviser registration requirement in securities legislation to give advice to purchasers, and prospective purchasers, in connection with its permitted trading activities under this Decision -- the Dealer provides this advice on terms and conditions similar to the registration exemption in section 8.23 of NI 31-103 -- This decision expires when the Dealer is registered as a dealer or in one year.


Applicable Legislative Provisions

Securities Act, R.S.O. 1990, c. S.5, ss. 1(1), 25(1), 25(3), 53(1), 74(1).
Multilateral Instrument 11-102 Passport System, s. 4.7(1).
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.
National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, ss. 3.2, 3.3, 3.9, 8.5, 8.23, 13.2, 13.3.
National Instrument 45-102 Resale of Securities, s. 2.5.
National Instrument 45-106 Prospectus Exemptions, ss. 1.1, 2.3, 2.9, 2.38, 6.1, 6.3, 6.4, 6.5, Form 45-106F1, Form 45-106F2, Form 45-106F4, Form 45-106F16, and Form 45-106F17.

Applicable Decision

In the Matter of Pentecostal Financial Services Group Inc. dated June 21, 2007.

August 30, 2017

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO
(the Principal Jurisdiction)

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
PENTECOSTAL FINANCIAL SERVICES GROUP INC.
(PFSG or the Issuer),
PENTECOSTAL SECURITIES CORP.
(PSC or the Dealer) and
THE PENTECOSTAL ASSEMBLIES OF CANADA
(the PAOC, and collectively with PFSG and PSC, the Filers)

DECISION


Background

For approximately 60 years, oOffene or more of the Filers have operated the Note Program (defined below) in the PAOC Community for the purpose of making and administering mortgage loans for charitable purposes (e.g., building and renovating churches and bible colleges) and have funded these mortgage loans by issuing and distributing Notes (defined below) to members of the Pentecostal community. The Filers have historically operated this Note Program under an exemption from the prospectus and registration requirements available under securities legislation or a prior decision of certain of the Canadian securities regulatory authorities. In the last 10 years, there have been regulatory changes to the registration regime and expansion of the exempt market prospectus regime, which have changed the securities regulatory landscape for offering Notes under the Note Program. Accordingly, it is appropriate for PFSG, the PAOC and PSC (together, the Filers) to transition their business model to align with these regulatory changes. Specifically, PSC is seeking registration as a dealer and PFSG will rely on prospectus exemptions available under securities legislation or under the terms and conditions of this decision (which are similar to the OM Exemption (as defined below)).

The principal regulator in the Principal Jurisdiction has received an application from the Filers for a decision under the securities legislation of the Principal Jurisdiction (the Legislation) for the following exemptions for certain interim periods as provided for in this decision (collectively, the Exemptions Sought):

(a) an exemption from the dealer registration requirement in respect of any trade by PSC in any fixed income security issued by PFSG (a Note) to a Note Investor (as defined below) under the Note Program (the Interim Dealer Registration Exemption Sought);

(b) an exemption from the adviser registration requirement for any advice provided by PSC to a Note Investor where the advice is in connection with a trade by PSC in a Note (the Interim Adviser Registration Exemption Sought);

(c) an exemption from the dealer registration requirement for PFSG in respect of a trade in a Note where the trade is made through PSC (the Interim Issuer Registration Exemption Sought);

(d) an interim exemption from the prospectus requirement for PFSG to permit the distribution of a Renewal Note (as defined below) to a Legacy Investor (as defined below) where PFSG is unable to determine whether an existing prospectus exemption under securities legislation or the Ongoing Prospectus Relief Sought (as defined below) is available for that distribution, and in such cases the term of the Renewal Note will not extend beyond the Legacy Period (as defined below) (the Interim Prospectus Relief Sought); and

(e) an exemption from the prospectus requirement for PFSG to permit the distribution of any Note under the Note Program (as defined below) (the Ongoing Prospectus Exemption Sought), subject to terms and conditions as provided for in this decision (which include certain requirements that are similar to the OM Exemption (as defined below) where the terms and conditions of the OM Exemption (as defined below) cannot be met and another prospectus exemption under securities legislation is not available).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application (the Principal Regulator); and

(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, the Northwest Territories, Newfoundland, Nunavut, Prince Edward Island, Québec, Saskatchewan and Yukon (the Non-Principal Jurisdictions, and together with the Principal Jurisdiction, the Applicable Jurisdictions and each an Applicable Jurisdiction).

Interpretation

(1) For the purposes of this decision:

(a) Acceptable Dealing Representative means:

(i) an individual that is registered under the securities legislation of an Applicable Jurisdiction as a dealing representative of PSC who meets the EMD proficiency requirements (defined below) or has received an exemption therefrom; or

(ii) prior to the registration of PSC as a dealer in an Applicable Jurisdiction, an individual who:

(A) has submitted an Individual Registration Application (defined below) and that application has not been withdrawn,

(B) meets the EMD proficiency requirements (defined below), or has received legal advice at the time the Individual Registration Application was submitted that the individual is reasonably expected to qualify for an exemption therefrom, and

(C) only acts on behalf of PSC in respect of the Note Program under the terms of this decision;

(b) EMD proficiency requirements mean, for an individual, any of the requirements specified in paragraphs (a) through (e) of section 3.9 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), as modified by sections 3.2 and 3.3 of NI 31-103;

(c) Firm Registration Application means the application for registration that PSC has submitted in the Principal Jurisdiction, and that PSC has submitted, or is in the process of submitting, in the Non-Principal Jurisdictions, to become registered as a dealer;

(d) Individual Registration Application means the application for registration or reinstatement of registration that an individual has submitted in the Principal Jurisdiction, and who has submitted, or is in the process of submitting, in the Non-Principal Jurisdictions, to become registered as a dealing representative of PSC;

(e) Legacy Investor means a person or company that was the holder of a Legacy Note or Legacy Notes on June 21, 2017;

(f) Legacy Note means any Note that was issued and outstanding on or before the date of this decision and whose maturity date is during the Legacy Period;

(g) Legacy Period means the period from June 22, 2017 to November 30, 2017;

(h) Offering Memorandum means the offering memorandum prepared in compliance with this decision;

(i) OM Exemption means the prospectus exemption in section 2.9 of National Instrument 45-106 Prospectus Exemptions (NI 45-106), as amended from time to time;

(j) PAOC Community means congregants of the PAOC, pastors, ministry leaders and associated individuals, churches, colleges and camps within the PAOC, the Emergency Relief and Development Organization and any other registered charity administered by the PAOC, including the PAOC itself and any trust in respect of which the PAOC acts as trustee;

(k) Renewal Note means a Note resulting from the renewal of a Legacy Note at the maturity of the Legacy Note; and

(l) Suitability Assessment means, for a trade made by PSC to a Note Investor, compliance by PSC with the requirements that would be applicable to PSC under sections 13.2 and 13.3 of NI 31-103, if PSC were, at the relevant time, a registrant referred to in those sections.

(2) Terms used in this decision that are defined in National Instrument 14-101 Definitions, NI 45-106, NI 31-103 and MI 11-102 and not otherwise defined in this decision, shall have the same meaning as in NI 14-101, NI 45-106, NI 31-103, or MI 11-102 as applicable, unless the context otherwise requires.

Representations

This decision is based on the following facts represented by the Filers:

The Filers

1. The PAOC is a registered charity incorporated under Part ll of the Canada Corporations Act and is a "charitable organization" for purposes of the Income Tax Act (Canada). The PAOC carries on its religious and charitable activities in various provinces and territories in Canada but maintains its head office in Ontario. Member congregations of the PAOC are located in each of the Applicable Jurisdictions.

2. PFSG is a corporation incorporated under the laws of Canada on March 29, 2005, and is wholly-owned by the PAOC.

3. PSC is a corporation incorporated under the laws of Canada on June 15, 2017 and is wholly-owned by the PAOC.

The Note Program

4. PFSG was established and exists for the purpose of, on the one hand, making and administering mortgage loans, and, on the other hand, issuing and distributing Notes (each of which is an unsecured promissory note) to the following persons and companies, or prospective persons and companies, (each a Note Investor) that are:

a. any individual within the PAOC Community, as well as any corporation, trust, partnership and estate associated with such individual (each a Community Investor),

b. any church within the PAOC Community, the Emergency Relief and Development Organization and any other registered charity within the PAOC Community, including the PAOC itself (each a PAOC Charity), and

c. any trust in respect of which the PAOC acts as trustee (each a PAOC Trust).

5. PFSG uses the proceeds from Notes to make mortgage loans to PAOC congregations and other PAOC organizations for charitable purposes, including building, renovating and repairing church buildings, school facilities and similar undertakings within the PAOC Community. The issuance and distribution of Notes to Note Investors and the subsequent mortgage loans made by PFSG to PAOC congregations and other PAOC organizations together comprise the Note Program.

6. PFSG enters into all mortgage and related security documents as the lender. All mortgage loans are funded by the proceeds PFSG receives from Notes pursuant to the Note Program. PFSG manages and administers the associated mortgage loans.

7. In order to mitigate risk in the Note Program, among other factors, the associated mortgage loans made by PFSG must:

a. be secured by first mortgages on real property in a jurisdiction of Canada;

b. have a commercial appraisal of land and buildings to cover market and fire sale liquidation values;

c. not exceed 65% of the appraised value of the property, except in very limited circumstances;

d. be insured under mortgage title insurance;

e. not exceed three times the annual revenue (e.g., donations) of the church or other mortgagor; and

f. be supported by a resolution of the local church membership at a duly called business meeting, with at least a 75% majority approving the decision to apply for the mortgage or a similar threshold of approval for non-church borrowers in the PAOC Community.

8. The business of PFSG is overseen by its board of directors and the day-to-day management is under the direction of its Executive Director.

9. The business and activities of PSC are restricted to acting as a dealer in order to facilitate any distributions or investments in Notes under the Note Program. PSC will not recommend, advise, or solicit a donation from any Note Investor to the PAOC or any entities related to the PAOC.

10. PFSG generates net profits from operating the Note Program. Substantially all such profits are paid to the PAOC for use by the PAOC exclusively in furtherance of its educational, charitable and religious activities, and this will be disclosed in the Offering Memorandum.

11. None of the Filers, or any of their officers, directors, employees or any other individuals acting on behalf of any Filer, will receive any form of commission or transaction-based compensation related to the Note Program.

12. None of the Filers, nor any of their officers, directors, employees or any other individuals acting on behalf of any Filer, will pay or receive any referral fees in respect of their activities related to the Note Program.

13. PFSG promotes the Note Program primarily through its website, in church bulletins and in a magazine published by the PAOC. The Note Program may also be promoted by PSC at certain PAOC events (at which the primary attendees are pastors within the PAOC Community) and PFSG may attend to provide factual information on the Note Program. Following the date of this decision, all such advertising will include a prominent reference to the Offering Memorandum and to the PSC contact information for those interested in pursuing an investment in Notes.

14. Prior to the establishment of PFSG and the launch of the Note Program, the PAOC itself ran a similar program for almost 50 years.

15. There have been no defaults on any of the Notes and no complaints from any Note Program participants in the ten years of operation of the Note Program under the Prior Decision (defined below). To the best of its knowledge, the PAOC is not aware of any such defaults or complaints in the 50 years that the PAOC itself ran a similar program.

Terms and Attributes of the Notes

16. As at the date hereof:

(a) the aggregate principal amount of issued and outstanding Notes is approximately $48 million;

(b) the number of Notes issued and outstanding is approximately 740; and

(c) the number of Community Investors who hold Notes is approximately 237, and they hold approximately $31 million of the aggregate principal amount of issued and outstanding Notes.

17. The Notes are issued in principal amounts varying from $5,000 to several hundred thousand dollars. Interest on the Notes is paid semi-annually and the Notes are issued for terms to maturity ranging from one year to five years (at the Note Investor's option). During the last 10 years, PFSG has raised approximately $7 million per year from the issue of Notes and issued Notes to approximately 35 to 75 Note Investors per year (many of which were returning investors).

18. The interest rate payable under the Notes is determined based on biweekly assessments of current competitive lending rates in the market and may vary based on when an investment in the Notes is made and depending on the term of Notes selected by the Note Investor.

19. As a Note approaches its maturity date, the holder of the Note is given the option to receive repayment of the amount owing under the Note or to reinvest that amount in a new Note. In most cases, Note Investors opt to renew or reinvest their Notes. Historically, the Note renewal rate has been over 92%. As maturity dates are spread throughout the year, Notes are renewed throughout the year.

20. PFSG engages in short-term investing in guaranteed investment certificates (GICs) in order to manage the in-flow of the proceeds from the sale of Notes and the out-flow of proceeds by way of mortgage loans. Short-term investments in GICs last no longer than 30 days (and are only made to account for discrepancies between the date that funds are received from Note Investors and the date that a new mortgage loan is entered into for a PAOC project).

The Prior Decision and Activities

21. Prior to this decision, PFSG operated the Note Program by issuing, distributing and trading in Notes pursuant to an order from the Commission dated June 21, 2007, In the Matter of Pentecostal Financial Services Group Inc. (the Prior Decision) exempting PFSG from the dealer registration requirement and prospectus requirement on terms set out in the Prior Decision. The Prior Decision expired on June 21, 2017.

22. As required under the Prior Decision, PFSG has been providing an information statement in the form of repealed BC Form 32-901F to each Note Investor before that Note Investor agrees to purchase the Notes. The information statement described the Notes, described the relationship between PFSG and the PAOC, explained that PFSG is the entity issuing the Notes, and outlined the risks related to investments in Notes.

23. Each of PFSG, PSC, and the PAOC is not in default of securities legislation in any jurisdiction of Canada, except for the following activities that occurred between June 22, 2017 and the date of this decision:

a. an individual that would satisfy the definition of "Acceptable Dealing Representative" has engaged in certain activity which constituted an act in furtherance of a trade in order to conduct a Suitability Assessment as will be required under this decision for certain Legacy Investors; and

b. in order to avoid a disruption to the Note Program, and with prior disclosure to the Applicable Jurisdiction, three Renewal Notes were distributed to two Legacy Investors under an available prospectus exemption, but without an available registration exemption.

24. From June 22, 2017 until the date of this decision, PFSG has not issued any Notes to Note Investors other than the two Legacy Investors as described above. In addition, PFSG redeemed all Legacy Notes which matured during this period, other than the Legacy Notes for which three Renewal Notes were distributed as described above.

The Current Decision -- the Exemptions Sought

25. Since the date of the Prior Decision (June 21, 2007), the Applicable Jurisdictions have modernized their approach to dealer registration and exemptions therefrom (including implementing NI 31-103 and amending NI 45-106 to eliminate certain registration exemptions that were previously available pursuant to NI 45-106). The Principal Regulator also adopted new prospectus exemptions (including the OM Exemption), and some Applicable Jurisdictions amended the OM Exemption.

26. Accordingly, the Filers require the Exemptions Sought to transition to the modernized registration regime by obtaining registration, transitioning to using available prospectus exemptions such as the accredited investor and minimum amount exemptions (set out in sections 2.3 and 2.10, respectively, of NI 45-106), and transitioning to using the Ongoing Prospectus Exemption Sought which is similar to the OM Exemption except as set out below.

The Current Decision -- the Interim Prospectus Exemption Sought

27. While the Note Program will remain substantially unchanged, the requirements of certain prospectus exemptions (including the Ongoing Prospectus Exemption Sought which is similar to the OM Exemption) are more extensive than the terms of the Prior Decision. In addition, while PSC has filed its application to register in the category of restricted dealer, such registration is not yet complete and is subject to ongoing review by the regulator in the Applicable Jurisdictions. As a result, PFSG requires a limited amount of additional time to transition its business model while limiting disruption to the Note Program.

28. PSC will conduct Suitability Assessments in order to determine whether a prospectus exemption (under securities legislation or the Ongoing Prospectus Exemption Sought) is available for a distribution to a particular Note Investor. However, if PSC is unable to make this determination during the Legacy Period due to its business model transition, PFSG will require the Interim Prospectus Exemption Sought to renew Legacy Notes without the requirement for a prospectus. In these cases, the term to maturity of each Legacy Note will not extend beyond November 30, 2017. In effect, the Interim Prospectus Exemption Sought defers Suitability Assessments to December 1, 2017 for these Renewal Notes.

29. If PSC is able to conduct a full Suitability Assessment during the Legacy Period, and PFSG otherwise complies with an available prospectus exemption under securities legislation or the Ongoing Prospectus Exemption Sought, a Legacy Note may be renewed for a period of time determined at the discretion of the Legacy Investor. In these circumstances, the Interim Prospectus Exemption Sought is not required.

The Current Decision -- the Ongoing Prospectus Exemption Sought

30. Following the date of this decision, PFSG will only distribute Notes to Note Investors either in accordance with prospectus exemptions available under securities legislation or in accordance with the terms and conditions of this decision.

31. PFSG requires the Ongoing Prospectus Exemption Sought in order to effectively modify certain terms and conditions of the OM Exemption to reflect the unique features of its business model and structure.

32. In particular, PFSG requires the Ongoing Prospectus Exemption Sought because PSC is, or will be, registered in the category of a restricted dealer and, therefore, does not meet the requirements of:

a. subparagraph 2.9(2.1)(b)(iii) of NI 45-106 for purposes of determining whether the investment is suitable;

b. subsection 2.9(5.2) for purposes of distributing OM marketing materials which have been approved in writing by the issuer; or

c. various prescribed forms and applicable schedules, which are required under the conditions to the OM Exemption and, without the Ongoing Prospectus Exemption Sought, would not permit PFSG or PSC to include the category of restricted dealer in reference to registered firms when completing these forms and schedules.

33. As the Acceptable Dealing Representative is subject to the same proficiency requirements that a dealing representative of an exempt market dealer would be subject to under NI 31-103, the Acceptable Dealing Representative is appropriately qualified to provide the Suitability Assessment for purposes of subparagraph 2.9(2.1)(b)(iii) of NI 45-106.

34. PFSG also requires the Ongoing Prospectus Exemption Sought as certain PAOC Community entities may fall within the definition of a "promoter" under securities legislation and, as a result, would be required to sign the OM in accordance with subsection 2.9(9)(c) of NI 45-106. However, these entities signing the OM as a promoter may potentially put certain charitable assets at risk if such assets were to be used to settle any potential claims for misrepresentation in the OM. The PAOC Community has undertaken to implement a number of additional investor protection measures (as described below) under the Note Program.

The Current Decision -- the Interim Registration Exemptions Sought

35. In order to limit disruption to the Note Program, PSC and PFSG require relief from certain registration requirements. This relief will allow PSC, acting as an agent of PFSG, to trade in Notes to Note Investors (including conducting Suitability Assessments and providing advice in connection with these trades) prior to obtaining registration as a dealer in the category of restricted dealer. The restricted dealer category is being sought because PSC has a novel business model. Specifically:

a. the Interim Dealer Registration Exemption Sought will allow PSC to trade a Note in relation to a distribution of a Note to a Note Investor where PFSG is relying on the Interim Prospectus Exemption Sought, the Ongoing Prospectus Exemption Sought, or any other available prospectus exemptions under securities legislation;

b. the Interim Adviser Registration Exemption Sought, similar to the exemption from the adviser registration requirement in section 8.23 of NI 31-103, will allow PSC to also provide incidental advice in connection with these trades in Notes if the advice is not in respect of a managed account of a Note Investor; and

c. the Interim Issuer Registration Exemption Sought, similar to the exemption from the dealer registration requirement in section 8.5 of NI 31-103, will provide PFSG with an exemption from the dealer registration requirement when a trade is made through PSC (prior to PSC obtaining registration), PSC is permitted to make this trade under the terms and conditions of the Interim Dealer Registration Exemption Sought, and PFSG does not solicit or contact any Note Investor directly in relation to the trade.

36. Once PSC is registered as a dealer in an Applicable Jurisdiction, PSC and PFSG will no longer require any of the interim registration exemptions noted above in that Applicable Jurisdiction.

Additional Investor Protection Measures and Solvency Matters

37. In operating the Note Program, PFSG follows strict guidelines for making investments in mortgage loans, as described above. Among other business risks, the business model of the Note Program requires PFSG to manage business risks associated with the difference in the term to maturity of the Notes (typically one to five years) and the term to maturity of the mortgage loans (typically five years). The difference in these terms to maturity may, from time to time, lead to the value of PFSG's current assets (e.g., mortgage loan repayments) being lower than the value of PFSG's current liabilities (e.g., Note payments). PFSG addresses this business risk by carefully managing the timing of the maturity dates of the Notes and mortgages, and by taking the steps outlined below.

38. PFSG attempts to align maturity dates of mortgages and Notes so that it has available funds should Note Investors choose to receive repayment of the amount owing under their Notes. In the event that cash-on-hand will or may be insufficient to repay the amounts due on Notes, PFSG and PSC will attempt to find new Note Investors to purchase Notes in the same aggregate principal amount and, if successful, will use the proceeds from the new issue to redeem the existing Notes.

39. PFSG has entered into a subordination agreement with the PAOC with respect to each PAOC Charity and each PAOC Trust (the PAOC Related Investors) such that the repayment of the interest and principal on each Note held by a PAOC Related Investor is subordinate to the repayment of the interest and principal on each Note held by a Community Investor in respect of any Notes having the same maturity date.

40. The PAOC invests in preferred shares of PFSG in order to build additional equity in PFSG to mitigate the business risks outlined above and the risk of any potential default in the payment of a mortgage loan. The PAOC has reinvested in PFSG in the form of preferred shares, which investment is currently approximately $1.8 million. The PAOC will increase its preferred share position to 10% of the mortgage portfolio operated by PFSG by committing 50% of the annual profits paid by PFSG to the PAOC to the preferred share capitalization until it reaches 10% of the total mortgage portfolio.

41. In respect of the preferred share capital provided to PFSG by the PAOC, by operation of corporate law and bankruptcy and insolvency law, this share capital may be available to creditors and any payments owing to the PAOC as a preferred shareholder will be subordinate to the claims of any creditors. In addition, PFSG will only make payments to the PAOC as a preferred shareholder when PFSG is profitable and the current assets of PFSG are greater than the current liabilities of PFSG at the date that a payment to preferred shareholders is payable.

42. The PAOC has qualified for, and has available to it, a line of credit from a bank listed in Schedule I of the Bank Act (Canada). The line of credit has a limit of $3 million dollars, all of which is currently available, as at the date of this decision. The PAOC has agreed that it will make the line of credit available to PFSG as required to meet its obligations to Community Investors under the Notes held by such investors.

43. The Offering Memorandum that will be provided to each Community Investor will describe PFSG's business and operation of the Note Program including its guidelines for making investments in mortgage loans. The Offering Memorandum will also describe among other risk factors material to PFSG and the Notes, the operating risks faced by PFSG due to the difference in the term to maturity of each Note and each mortgage as described above.

44. Annually, PFSG will provide to staff of the Principal Regulator a summary of any repayments, including any advance repayments, of principal in respect of Notes to PAOC Related Investors and a summary of any redemptions of preferred shares to the PAOC that have occurred in the prior 12 month period. At least quarterly, PFSG will provide to staff of the Principal Regulator a summary of Notes renewed, including overall Note renewal rates.

Additional Ongoing Trading and Distribution Activities

45. In respect of a distribution of any Note under the Note Program where PFSG is relying on the Ongoing Prospectus Exemption Sought, PFSG and PSC will adhere to the investment limits in condition I.b of the Ongoing Prospectus Exemption Sought in each Applicable Jurisdiction. Accordingly, if PFSG is relying on the Ongoing Prospectus Exemption Sought in respect of a distribution to a Community Investor that is an individual and also an eligible investor (as defined in NI 45-106), each such Community Investor will be subject to the same investment restrictions.

46. PFSG will continue its historical practice of providing disclosure about the Note Program to each Note Investor; however, this disclosure will be in an updated form. Specifically, PFSG and PSC will deliver an Offering Memorandum to each prospective Community Investor before the prospective Community Investor has agreed in writing to purchase a Note. The Offering Memorandum:

a. will include relevant information including the key terms of the Notes; the relationship between PFSG, PSC and the PAOC; that PFSG is the entity issuing the Notes, and the relevant risks related thereto; and

b. will contain a contractual right of rescission and a right of action for misrepresentation against PFSG unless such rights are otherwise provided under securities legislation where the Community Investor is resident.

47. PSC will record and maintain records in respect of any Suitability Assessments it conducts, including any discussions with Community Investors regarding the suitability of an investment in Notes.

48. The Filers will take reasonable steps to identify, and respond to, any material conflicts of interest between the Filers and the Note Investors. The Filers will manage these conflicts, and will avoid any conflicts that cannot be managed.

49. PSC will not make a recommendation in any medium of communication (e.g. verbal, written, etc.) to buy, sell or hold a Note issued by PFSG unless PSC discloses, in the same medium of communication, the nature and extent of the relationship or connection between PSC and PFSG (i.e., the Issuer).

50. PSC will not lend money, extend credit or provide margin to any Note Investor.

51. PSC does not expect to recommend that a Note Investor use borrowed money to finance any part of a purchase of a Note. However, if PSC ever has cause to recommend that a Note Investor should use borrowed money to finance any part of a purchase of a Note, PSC will, before the purchase, provide the Note Investor with a written statement that is substantially similar to the following:

Using borrowed money to finance the purchase of Notes involves greater risk than a purchase using cash resources only. If you borrow money to purchase Notes, your responsibility to repay the loan and pay interest as required by its terms remains the same even if the value of the Notes purchased declines.

Decisions

The Principal Regulator is satisfied that these decisions meet the tests set out in the Legislation for the Principal Regulator to make these decisions.

Interim Dealer Registration Exemption Sought

The decision of the Principal Regulator under the Legislation is that the Interim Dealer Registration Exemption Sought is granted provided that at the time of the trade:

I. Where the trade consists of a purchase of the Note by the Note Investor, PSC has made the corresponding Suitability Assessment, and established a record of that Suitability Assessment, unless that Note Investor is a Legacy Investor whose Legacy Note is being renewed in accordance with the Interim Prospectus Exemption Sought in which case no Suitability Assessment is necessary;

II. In connection with the trade, PSC has dealt fairly, honestly and in good faith with the Note Investor;

III. No commission or other transaction-based remuneration is paid in respect of the trade;

IV. PSC has responded to any material conflict of interest between PSC and the Note Investor;

V. PSC has disclosed the nature and extent of the relationship or connection between PSC, PFSG and the PAOC;

VI. In connection with the trade, PSC has not lent money, extended credit or provided margin to the Note Investor; and

VII. The trade is made in an Applicable Jurisdiction on or before the date that is the earlier of:

a. the date on which PSC is registered as a dealer in that Applicable Jurisdiction, and

b. the date that is one year after the date of this decision.

Interim Adviser Registration Exemption Sought

The decision of the Principal Regulator under the Legislation is that the Interim Adviser Registration Exemption Sought is granted provided that:

I. The advice is given in connection with a trade made by PSC in accordance with the above decision in respect of the Interim Dealer Registration Exemption Sought;

II. The advice is not given in respect of a managed account of a Note Investor; and

III. This exemption will no longer be available in an Applicable Jurisdiction after the date that is the earlier of:

a. the date on which PSC is registered as a dealer in that Applicable Jurisdiction, and

b. the date that is one year after the date of this decision.

Interim Issuer Registration Exemption Sought

The decision of the Principal Regulator under the Legislation is that the Interim Issuer Registration Exemption Sought is granted provided that at the time of the trade:

I. The trade is made by PSC in accordance with the above decision in respect of the Interim Dealer Registration Exemption Sought;

II. In furtherance of the trade, PFSG did not solicit or contact directly the Note Investor in relation to the trade; and

III. The trade is made in an Applicable Jurisdiction on or before the date that is the earlier of:

a. the date on which PSC is registered as a dealer in that Applicable Jurisdiction, and

b. the date that is one year after the date of this decision.

Interim Prospectus Exemption Sought

The decision of the Principal Regulator under the Legislation is that the Interim Prospectus Exemption Sought is granted provided that during the Legacy Period all of the following conditions are met:

I. If PFSG is unable to determine whether a prospectus exemption was otherwise available under securities legislation or the Ongoing Prospectus Relief Sought:

a. the distribution is restricted to a Renewal Note to a Legacy Investor; and

b. the term to maturity of each Renewal Note must not extend beyond the end of the Legacy Period;

II. If PFSG is able to determine that a prospectus exemption was available under securities legislation or the Ongoing Prospectus Relief Sought:

a. the distribution will be made to any Note Investor provided that the Filers complied with the terms and conditions of the prospectus exemption under securities legislation or the Ongoing Prospectus Relief Sought; and

b. the term to maturity of each Note will be determined by the Note Investor; and

III. The distribution must be made on or before November 30, 2017.

Ongoing Prospectus Exemption Sought

The decision of the Principal Regulator under the Legislation is that the Ongoing Prospectus Exemption Sought is granted provided that all of the following conditions are met:

I. PFSG is distributing a Note where:

a. the Note Investor purchases the Note as principal;

b. the acquisition cost of all securities acquired by a Note Investor who is an individual under the OM Exemption or this decision in the preceding 12 months does not exceed the following amounts:

i. in the case of a Note Investor that is not an eligible investor, $10,000;

ii. in the case of a Note Investor that is an eligible investor, $30,000;

iii. in the case of a Note Investor that is an eligible investor and that received advice from a portfolio manager, investment dealer, exempt market dealer or the Acceptable Dealing Representative on behalf of PSC that the investment is suitable, $100,000,

c. at the same time or before the Note Investor signs the agreement to purchase the Note, PFSG:

i. delivers an offering memorandum to the Note Investor in compliance with conditions VI to XIII, and

ii. obtains a signed risk acknowledgement from the Note Investor in compliance with condition XV, and

d. the Note distributed by PFSG is an unsecured, fixed interest rate, non-convertible debt instrument of PFSG with a term of 5 years or less.

II. PFSG is not an investment fund.

III. The investment limits described in conditions I.b.ii and iii will not apply if the Note Investor is:

a. an accredited investor; or

b. a person described in subsection 2.5(1) of NI 45-106 [Family, friends and business associates].

IV. PFSG is not distributing a short-term securitized product under the Note Program.

V. No commission or finder's fee is paid to any person.

VI. The offering memorandum delivered to Note Investors must comply with the requirements of Form 45-106F2 -- Offering Memorandum for Non-Qualifying Issuers, except that for purposes of Form 45-106F2 and the applicable schedules to Form 45-106F2, PFSG or PSC may include the category of restricted dealer where required.

VII. An offering memorandum delivered to a Note Investor in reliance on this decision:

a. must incorporate by reference, by way of a statement in the offering memorandum, OM marketing materials related to each distribution under the offering memorandum and delivered or made reasonably available to a prospective Note Investor before the termination of the distribution; and

b. is deemed to incorporate by reference OM marketing materials related to each distribution under the offering memorandum and delivered or made reasonably available to a prospective Note Investor before the termination of the distribution.

VIII. A portfolio manager, investment dealer, exempt market dealer or PSC must not distribute OM marketing materials unless the OM marketing materials have been approved in writing by PFSG.

IX. An offering memorandum delivered under this decision must provide the Note Investor with a contractual right to cancel the agreement to purchase the Note by delivering a notice to PFSG not later than midnight on the 2nd business day after the Note Investor signs the agreement to purchase the Note.

X. The offering memorandum delivered under this decision must contain a contractual right of action against PFSG for rescission or damages that

a. is available to the Note Investor if the offering memorandum, or any information or documents incorporated or deemed to be incorporated by reference into the offering memorandum, contains a misrepresentation, without regard to whether the Note Investor relied on the misrepresentation;

b. is enforceable by the Note Investor delivering a notice to PFSG;

i. in the case of an action for rescission, within 180 days after the Note Investor signs the agreement to purchase the Note; or

ii. in the case of an action for damages, before the earlier of

A. 180 days after the Note Investor first has knowledge of the facts giving rise to the cause of action, or

B. 3 years after the date the Note Investor signs the agreement to purchase the Note,

c. is subject to the defence that the Note Investor had knowledge of the misrepresentation;

d. in the case of an action for damages, provides that the amount recoverable

i. must not exceed the price at which the Note was offered, and

ii. does not include all or any part of the damages that PFSG proves does not represent the depreciation in value of the Note resulting from the misrepresentation, and

e. is in addition to, and does not detract from, any other right of the Note Investor.

XI. An offering memorandum delivered under this decision must contain a certificate that states the following:

"This offering memorandum does not contain a misrepresentation."

XII. The certificate required under condition XI of this decision must be signed

a. by PFSG's chief executive officer and chief financial officer or, if PFSG does not have a chief executive officer or chief financial officer, an individual acting in that capacity; and

b. on behalf of the directors of PFSG, by

i. any 2 directors who are authorized to sign, other than the persons referred to in paragraph (a), or

ii. all the directors of PFSG.

XIII. A certificate under condition XI must be true

a. at the date the certificate is signed; and

b. at the date the offering memorandum is delivered to the Note Investor.

XIV. If a certificate under condition XI ceases to be true after it is delivered to the Note Investor, PFSG cannot accept an agreement to purchase the Note from the Note Investor unless

a. the Note Investor receives an update of the offering memorandum;

b. the update of the offering memorandum contains a newly dated certificate signed in compliance with condition XII; and

c. the Note Investor re-signs the agreement to purchase the Note.

XV. A risk acknowledgement obtained under this decision must comply with the requirements of Form 45-106F4, including applicable schedules, except that for purposes of Form 45-106F4 and the applicable schedules to Form 45-106F4, PFSG or PSC may include the category of restricted dealer where required. PFSG must retain the signed risk acknowledgment for 8 years after the distribution.

XVI. PFSG must

a. hold in trust all consideration received from the Note Investor in connection with a distribution of a Note under this decision until midnight on the 2nd business day after the Note Investor signs the agreement to purchase the Note; and

b. return all consideration to the Note Investor promptly if the Note Investor exercises the right to cancel the agreement to purchase the Note described under condition IX.

XVII. PFSG must file a copy of an offering memorandum delivered under this decision and any update of a previously filed offering memorandum with the securities regulatory authority on or before the 10th day after the distribution under the offering memorandum or update of the offering memorandum.

XVIII. PFSG must file with the securities regulatory authority a copy of all OM marketing materials required or deemed to be incorporated by reference into an offering memorandum delivered under this decision,

a. if the OM marketing materials are prepared on or before the filing of the offering memorandum, concurrently with the filing of the offering memorandum; or

b. if the OM marketing materials are prepared after the filing of the offering memorandum, within 10 days of the OM marketing materials being delivered or made reasonably available to a prospective Note Investor.

XIX. OM marketing materials filed under condition XVIII must include a cover page clearly identifying the offering memorandum to which they relate.

XX. For purposes of financial statement reporting, PFSG must comply with subsections 2.9(17.5), (17.7) to (17.13), (17.15) to (17.17) and (17.19) of the OM Exemption as if PFSG had distributed securities under the OM Exemption.

XXI. PFSG must make reasonably available to each holder of a Note acquired under this decision a notice of each of the following events in accordance with Form 45-106F17, within 10 days of the occurrence of the event:

a. a discontinuation of PFSG's business;

b. a change in PFSG's industry;

c. a change of control of PFSG.

XXII. PFSG is required to make the disclosure required respectively by conditions XX (in respect of subsections 2.9(17.5) and (17.19) of the OM Exemption as referenced above) and XXI of this decision until the earlier of

a. the date PFSG becomes a reporting issuer in any jurisdiction of Canada; and

b. the date PFSG ceases to carry on business.

XXIII. In Ontario, PFSG is designated a market participant under the Securities Act (Ontario).

XXIV. For each distribution made in reliance on this decision, PFSG will file a completed Form 45-106F1 Report of Exempt Distribution (Form 45-106F1) in accordance with Part 6 of NI 45-106 within 10 days of the date of the distribution. For purposes of Form 45-106F1 and the applicable schedules to Form 45-106F1, PFSG or PSC may include the category of restricted dealer where required.

XXV. The first trade in securities distributed in reliance on this decision will be deemed to be a distribution that is subject to section 2.5 of National Instrument 45-102 Resale of Securities.

XXVI. The additional investor protection measures for the Note Program described in representations 37 to 44 above must remain in effect as of the date of distribution.

XXVII. The Ongoing Prospectus Exemption Sought will no longer be available after the date that is five years after the date of this decision.

DATED August 30, 2017.

"Grant Vingoe"
"Tim Moseley"
Commissioner
Commissioner
Ontario Securities Commission
Ontario Securities Commission