EXMP — CSI Exempt Market Proficiency Quick Reference

Last revised: June 29, 2026

Compact EXMP reference for Canadian exempt market rules, exemptions, KYC/KYP, suitability, product risks, and dealer conduct.

Quick orientation for EXMP candidates

Use this as an independent study aid for the Canadian Securities Institute CSI Exempt Market Proficiency (EXMP) exam, code EXMP. The exam tests applied judgment: can you identify the investor, the exemption, the security, the dealer obligation, the documentation, and the suitability issue?

High-yield mental model:

Is it a security? Many private investments are securities even if marketed as real estate, loans, units, royalties, or projects.
Is there a distribution? If new securities are being sold, a prospectus is normally required unless an exemption applies.
Which prospectus exemption fits? Investor eligibility and evidence matter.
Is the firm/individual properly registered or exempt? A prospectus exemption is not automatically a registration exemption.
Has KYC/KYP been completed? Know the client and know the product before recommending or accepting certain trades.
Is the investment suitable? Eligibility is not suitability.
Are disclosure, risk acknowledgment, conflicts, records, and filings handled? Compliance is document-driven.

Confirm current Canadian Securities Administrators, provincial/territorial, and course-material details for any threshold, form, filing, or jurisdiction-specific rule before operational use.

Exempt market map

Concept	Exam meaning	Common trap
Exempt market	Market where securities are distributed without a prospectus by relying on a prospectus exemption.	“Exempt” does not mean unregulated, risk-free, or exempt from suitability.
Prospectus exemption	Legal basis to distribute without filing a prospectus.	It does not automatically remove registration, disclosure, anti-fraud, or recordkeeping duties.
Registration requirement	Dealers and representatives generally need appropriate registration when in the business of trading or advising.	Issuer, finder, or consultant compensation can trigger registration concerns.
Exempt market dealer	Registered dealer category commonly associated with exempt market distributions.	Dealer category has limits; do not assume full-service investment dealer powers.
Distribution	Primary sale or other transaction treated as a distribution under securities law.	A resale of restricted exempt securities may itself require an exemption.
Reporting issuer	Issuer subject to continuous disclosure requirements.	Many exempt market issuers are non-reporting issuers with limited public information.
Non-reporting issuer	Issuer not subject to full public issuer continuous disclosure.	Information asymmetry and valuation uncertainty are major suitability concerns.
Offering memorandum	Disclosure document used under an OM exemption or voluntarily supplied.	An OM is not the same as a prospectus and may not receive the same regulatory review.
Misrepresentation	Untrue statement or omission of a material fact.	Liability can arise from sales decks, emails, verbal statements, and omission of risks.
Resale restriction	Limits on selling securities acquired under exemptions.	Clients who need liquidity may be unsuitable even if they qualify for the exemption.
Jurisdiction	Canadian securities regulation is provincial/territorial, with harmonized national instruments and local variations.	A valid approach in one province may need modification elsewhere.

Distribution decision path

    flowchart TD
	    A[Investment opportunity] --> B{Is it a security?}
	    B -- No --> Z[Still check other laws, conflicts, and representations]
	    B -- Yes --> C{Is there a distribution or trade?}
	    C -- No --> D[Assess secondary-market and resale rules]
	    C -- Yes --> E{Prospectus filed?}
	    E -- Yes --> F[Prospectus distribution rules]
	    E -- No --> G{Prospectus exemption available?}
	    G -- No --> X[Do not proceed without prospectus or valid exemption]
	    G -- Yes --> H{Dealer/rep registered or exempt?}
	    H -- No --> X
	    H -- Yes --> I[Verify investor category and evidence]
	    I --> J[Complete KYC and KYP]
	    J --> K{Suitable for this client?}
	    K -- No --> Y[Do not recommend; handle unsolicited order under firm policy]
	    K -- Yes --> L[Deliver required disclosure and risk acknowledgments]
	    L --> M[Complete subscription, records, conflicts, confirmations, filings]

Prospectus exemptions: decision matrix

Exemption or concept	Typical use	What to verify	Exam traps
Accredited investor	Sales to investors that meet specified financial, institutional, or sophistication categories.	Exact category, evidence, required acknowledgments, whether investor is an individual or entity.	High net worth does not automatically mean suitability; category must be documented.
Minimum amount investment	Large purchase by an eligible purchaser, commonly more relevant to entities than individuals.	Purchaser type, cash purchase amount, no financing workaround, issuer documentation.	Splitting subscriptions or lending money to meet the threshold can undermine reliance.
Offering memorandum	Distribution using prescribed disclosure to eligible investors or broader investor groups where permitted.	Correct OM, risk acknowledgment, investor eligibility, investment limits if applicable, jurisdiction.	OM delivery is not enough; suitability and records still apply.
Private issuer	Closely held issuer selling only to permitted investor categories.	Issuer status, transfer restrictions, permitted security-holder categories, no broad solicitation.	If the issuer has lost private issuer status, this exemption may not be available.
Family, friends, and business associates	Sales based on a close relationship with specified principals of the issuer.	Nature, duration, and closeness of relationship; who has the relationship; written evidence.	“Friend of a friend,” social media contact, or casual professional relationship is not enough.
Founder, control person, or close associate	Sales to persons closely connected with issuer formation or control.	Role, relationship, authority, issuer records, insider or control implications.	Do not treat all employees, customers, or suppliers as close business associates.
Employee, executive officer, director, consultant	Compensation or investment plans involving people connected to the issuer.	Status of person, plan terms, voluntary participation, disclosure, resale limits.	Employment relationship does not remove all disclosure or suitability concerns.
Existing security holder	Follow-on investment by current holders where available.	Current holding, issuer eligibility, jurisdiction, purchase limits, required notices.	Client’s prior holding does not prove the new purchase is suitable.
Rights offering or security-holder offering	Issuer offers securities to existing holders on a defined basis.	Offering mechanics, issuer status, disclosure, exercise deadlines, dilution.	Rights can expire worthless and may involve dilution if not exercised.
Institutional or permitted client context	Sophisticated clients may have modified conduct rules in some contexts.	Client classification, waivers where permitted, authority of signers, investment mandate.	Permitted client status is not a universal prospectus exemption or a universal suitability waiver.

Investor classification quick reference

Investor label	Core idea	Why it matters	Evidence to look for
Retail investor	Individual or entity without special exempt-market status.	Strongest suitability, disclosure, and concentration concerns.	Full KYC, risk profile, financial capacity, liquidity needs.
Eligible investor	Investor category often relevant under OM rules.	May affect purchase eligibility or investment limits depending on jurisdiction and exemption.	Financial statements, income/net asset evidence, adviser certification, category checklist.
Accredited investor	Investor meets a prescribed wealth, income, institutional, or expertise category.	Opens access to certain exempt distributions.	Signed certificate, category selected, supporting evidence, risk acknowledgment where required.
Permitted client	Highly sophisticated or institutional client category under registration rules.	May affect suitability and relationship disclosure obligations where rules allow.	Entity documents, investment mandate, written waivers if applicable, authorized signers.
Private issuer permitted purchaser	Person or entity within permitted private issuer categories.	Determines whether private issuer exemption can be used.	Shareholder register, relationship evidence, transfer restriction records.
Close personal friend	Direct, longstanding relationship with an issuer principal.	May support family/friends exemption.	Relationship history, direct knowledge, no mere casual acquaintance.
Close business associate	Sufficient prior business dealings to assess issuer principal’s capabilities and trustworthiness.	May support family/business associate exemption.	Deal history, duration, role, direct relationship.
Individual investor	Natural person.	Often subject to extra acknowledgments and consumer-protection concerns.	Identity, spouse/household context if relevant, personal financial capacity.
Corporate or trust investor	Entity investing through authorized representatives.	Need authority, beneficial ownership, mandate, and entity-level KYC.	Resolutions, trust deed, articles, beneficial ownership, signing authority.

Private issuer vs. family/friends/business associates

Point	Private issuer exemption	Family/friends/business associates exemption
Focus	Status of the issuer and permitted holder group.	Relationship between purchaser and specified issuer insiders/principals.
Solicitation	Broad public solicitation is inconsistent with private issuer logic.	Relationship must be genuine; marketing list contact is not enough.
Purchaser basis	Purchaser falls into a permitted category for private issuer securities.	Purchaser has a qualifying family, personal, or business relationship.
Issuer status	If issuer ceases to qualify, exemption may be unavailable for later trades.	Issuer status still matters, but relationship is the key exemption basis.
Exam signal	Closely held company, restricted transfers, limited security-holder group.	“Long-time friend of founder,” “sibling of director,” “business partner of officer.”
Trap	Counting on old status without checking current holder and transfer records.	Treating casual acquaintances, clients, accountants, or online followers as close friends.

Registration and conduct obligations

Party or role	Core responsibilities	Exam focus
Exempt market dealer firm	Maintain registration, policies, supervision, compliance systems, books and records, complaint handling, and disclosure.	The firm, not only the representative, is accountable for controls and supervision.
Dealing representative	Trade or recommend within registration limits and firm approval; complete KYC, explain risks, document suitability.	Rep cannot sell unapproved products or bypass firm processes.
Chief compliance officer	Establish and monitor compliance systems; escalate deficiencies.	Weak supervision or undocumented exceptions are exam red flags.
Ultimate designated person	Promote compliance culture and oversee firm-level compliance.	Senior accountability matters when systemic issues appear.
Issuer	Provide accurate disclosure, use proceeds as described, manage corporate approvals, support required filings.	Issuer disclosure does not replace dealer KYP.
Finder or referral source	May introduce clients or issuers depending on arrangement.	Referral fees, registration, conflicts, and written disclosure are frequent traps.
Third-party service provider	Legal, valuation, appraisal, trustee, custodian, administrator, or auditor roles.	Outsourcing does not eliminate dealer due diligence.

Conduct topics to recognize

Topic	What the candidate should remember
Relationship disclosure	Clients must understand the nature of the account, products offered, limits on services, costs, conflicts, and complaint process.
Conflicts of interest	Identify, disclose, and address conflicts in the client’s best interest where required; avoid relying on boilerplate disclosure.
Referral arrangements	Written arrangement, disclosure to client, appropriate registration analysis, and supervision are key.
Marketing and advertising	Must be fair, balanced, and not misleading; returns, guarantees, forecasts, and testimonials require caution.
Complaint handling	Complaints need prompt, documented handling and escalation under firm policy.
Books and records	If it was not documented, it is hard to prove on an exam scenario.
AML/ATF	Identity, beneficial ownership, source of funds, suspicious activity escalation, and politically exposed person screening may be relevant.
Privacy	Collect only necessary information, safeguard client data, and disclose use appropriately.

KYC, KYP, and suitability

KYC checklist

KYC area	What to capture	Red flags
Identity and authority	Legal name, address, date of birth or entity details, authorized signers, beneficial owners.	Third party directs transaction; unclear source of funds; signer lacks authority.
Financial circumstances	Income, net worth, liquid assets, debt, cash flow, dependants, tax situation.	Illiquid exempt investment consumes emergency funds or borrowed money.
Investment objectives	Income, growth, preservation, tax benefits, speculation, diversification.	Product return source does not match stated objective.
Time horizon	When client needs capital back.	Investment has no exit mechanism but client needs near-term liquidity.
Risk profile	Risk tolerance, risk capacity, and risk need.	Client accepts risk verbally but cannot financially absorb loss.
Investment knowledge	Understanding of private securities, leverage, valuation, and resale restrictions.	Client signs forms but cannot explain basic risks.
Concentration	Exposure to issuer, sector, product type, illiquid assets, and related parties.	Client’s wealth concentrated in one private issuer or real estate project.
Tax and account constraints	Registered plan eligibility, taxable income, losses, foreign exposure, tax reporting.	Tax-driven product unsuitable without economic merit.

KYP checklist

Product area	Questions to ask	Why it matters
Issuer and management	Who controls the issuer? Track record? Prior failures? Related-party dealings?	Management quality often drives private issuer outcomes.
Business model	How does the issuer make money? What assumptions drive forecasts?	Projections can be optimistic and hard to verify.
Use of proceeds	What will investor funds be used for? Fees? Debt repayment? Related parties?	Misuse or vague use of proceeds is a major risk.
Security terms	Equity, debt, preferred shares, LP units, warrants, convertibles, covenants.	Legal rights differ sharply by instrument.
Capital structure	Senior debt, secured creditors, prior preferred shares, dilution risk.	Client may rank behind lenders or insiders.
Valuation	How is price determined? Independent appraisal? NAV? Comparable transactions?	Private valuations may be subjective.
Liquidity	Redemption rights, resale restrictions, lockups, issuer buybacks, secondary market.	“Intended exit” is not guaranteed liquidity.
Fees and compensation	Sales commissions, management fees, performance fees, carried interest, referral fees.	Costs reduce returns and create conflicts.
Financial statements	Audited, reviewed, unaudited, interim, projections, going-concern notes.	Quality of financial information affects reliability.
Legal and tax	Qualified investment status, tax opinions, flow-through mechanics, legal title.	Tax benefits can be denied or delayed; legal structure matters.
Custody and administration	Who holds assets or cash? Independent trustee/custodian?	Weak asset control increases fraud and operational risk.
Exit strategy	Sale, refinancing, IPO, redemption, maturity, project completion.	Exit assumptions often drive suitability.

Suitability decision points

If the client needs…	Be cautious with…	Why
Capital preservation	Startups, unsecured notes, development projects, subordinated debt.	Principal loss can be total.
Regular income	Products paying distributions from capital, borrowing, or non-recurring proceeds.	Distribution is not the same as earned income.
Liquidity	LP units, private shares, non-redeemable funds, restricted securities.	Resale may be impossible or delayed.
Low volatility	Private securities valued infrequently.	Low reported volatility may reflect stale pricing, not low risk.
Diversification	Single-issuer, single-property, single-sector investments.	Concentration can dominate portfolio risk.
Tax efficiency	Flow-through shares, LP losses, return of capital structures.	Tax results depend on client facts and current law.
Ethical or mandate compliance	Resource, real estate, lending, related-party issuers.	Investment policy restrictions may prohibit the trade.

Product risk matrix

Product type	Return source	Key risks	Suitability clues
Private company common equity	Business growth, sale, IPO, dividends if any.	Total loss, dilution, no dividends, weak governance, no market.	Speculative capital only; long horizon; high risk tolerance and capacity.
Preferred shares	Fixed or target dividends, redemption, priority over common.	Dividends may be discretionary, redemption may be delayed, issuer credit risk.	Do not treat as guaranteed income unless legally and economically supported.
Debentures or promissory notes	Interest and repayment at maturity.	Credit/default risk, subordination, weak covenants, no security, refinancing risk.	Analyze issuer cash flow, security, ranking, and maturity fit.
Secured private debt	Interest, collateral recovery.	Collateral valuation, enforcement delays, prior claims, legal costs.	LTV and asset quality matter; security does not eliminate loss.
Limited partnership units	Project cash flow, tax allocations, eventual sale.	Illiquidity, leverage, capital calls, complex tax, reliance on general partner.	Client must understand limited control and tax reporting.
Real estate development	Project sale/refinancing, rental income, appreciation.	Construction, zoning, cost overruns, financing, market cycle, appraisal risk.	Development is usually higher risk than stabilized income property.
MIC or mortgage investment	Mortgage interest spread and fees.	Borrower default, property values, concentration, liquidity, manager underwriting.	Review portfolio quality, LTV, arrears, redemption terms.
Private investment fund	Portfolio returns managed by adviser.	Strategy opacity, leverage, valuation, lockups, manager risk, fees.	Match strategy and liquidity to client profile.
Flow-through shares	Resource exploration upside plus tax deductions.	Exploration failure, share-price decline, tax reassessment, liquidity.	Tax benefit should not override high resource-sector risk.
Asset-backed or structured product	Cash flows from pool or formula.	Complexity, model risk, tranche subordination, liquidity, counterparty risk.	Client must understand payoff drivers and downside path.
Convertible security	Coupon/dividend plus conversion upside.	Credit risk, dilution, conversion terms, forced conversion.	Compare debt-like downside with equity-like risk.

Calculation and ratio quick sheet

Metric	Formula in words	Use	Trap
Current yield	Annual income / current price	Quick income measure for debt or preferred shares.	Ignores default risk, maturity value, and capital gain/loss.
Total return	Income plus change in value minus costs, divided by initial investment	Measures full economic outcome.	Private valuations may be estimated or stale.
Cash-on-cash return	Annual cash distribution / cash invested	Real estate, LPs, income products.	Distribution may include return of capital or borrowed funds.
Net asset value per unit	Assets minus liabilities, divided by units outstanding	Funds, pools, trusts.	Asset valuation method is critical.
Loan-to-value ratio	Loan amount / property value	Mortgage and real estate lending risk.	Appraised value may be optimistic or outdated.
Debt service coverage ratio	Net operating income / required debt service	Ability of property or issuer to service debt.	Uses assumptions; stress for vacancy and interest rates.
Net operating income	Property revenue minus operating expenses before financing and tax	Property cash-flow analysis.	Excludes capital expenditures unless adjusted.
Capitalization rate	Net operating income / property value	Real estate valuation shortcut.	Small cap-rate changes can cause large value changes.
Post-money valuation	Pre-money valuation plus new investment	Venture/private equity financing.	High valuation can imply dilution risk and return pressure.
Ownership percentage	Shares held / total shares outstanding after financing	Dilution analysis.	Options, warrants, convertibles, and future rounds can dilute further.
Break-even sale price	Purchase cost plus transaction costs minus income received	Exit planning.	Taxes and illiquidity discounts may change the true break-even.
After-fee return	Gross return minus embedded and direct fees	Cost impact analysis.	Private products often have multiple layers of fees.

Offering documents and trade documentation

Document or record	Purpose	Exam trap
Term sheet	Summarizes key economics and terms.	It is not enough if required disclosure is missing or inconsistent.
Offering memorandum	Prescribed or voluntary disclosure about issuer, securities, risks, use of proceeds, management, and financials.	Must be current, accurate, and delivered as required.
Subscription agreement	Investor’s purchase contract and representations.	Signed agreement does not cure an unavailable exemption.
Exemption certificate or schedule	Records the exemption category relied on.	Category selection must match facts and evidence.
Risk acknowledgment	Confirms investor was warned about key exempt-market risks.	A signed form does not prove understanding or suitability by itself.
KYC form and updates	Records client circumstances and risk profile.	Stale KYC can invalidate suitability reasoning.
KYP due diligence file	Shows firm reviewed and approved product.	Relying solely on issuer marketing materials is weak.
Relationship disclosure	Explains dealer relationship, services, limitations, costs, and conflicts.	Boilerplate does not address specific related-party conflicts.
Conflict disclosure	Describes issuer affiliation, compensation, referral, or related-party issues.	Disclosure must be timely and meaningful, not buried after the decision.
Referral disclosure	Explains referral parties, fees, and registration context.	Undisclosed referral fees are a frequent conduct issue.
Trade confirmation	Confirms transaction details after trade.	Must match actual security, price, fees, and settlement.
Account statement or position report	Provides ongoing client reporting where applicable.	Private securities may be hard to value; disclose valuation basis.
Exempt distribution report	Regulatory filing commonly associated with exempt distributions.	Filing responsibility, timing, and content must be assigned and documented.
Marketing deck and emails	Sales communications and representations.	Inconsistent or exaggerated marketing can create misrepresentation liability.

Tax and account considerations

Item	Exam relevance	Trap
Interest income	Common for notes, debentures, mortgage products.	Higher coupon often reflects higher credit or liquidity risk.
Dividends	May apply to shares or preferred shares.	Dividends can be suspended unless terms and issuer capacity support them.
Capital gains or losses	Relevant to equity exits and secondary sales.	No liquid market may mean no practical exit to realize gain or loss.
Return of capital	Cash distribution that may reduce adjusted cost base.	Client may mistake return of own capital for investment income.
Flow-through deductions	Resource-sector tax-driven products.	Tax benefit is uncertain without commercial success and compliance with rules.
Limited partnership income/loss	Allocations can differ from cash distributions.	Client may owe tax without receiving enough cash.
Registered plans	RRSP/TFSA/registered plan eligibility may be an issue.	“Private” does not automatically mean qualified or appropriate.
Borrowing to invest	Leverage can magnify loss and create interest deductibility questions.	Unsuitable for clients with limited risk capacity or unstable cash flow.

High-yield distinctions

Distinction	Remember
Eligibility vs suitability	Investor may legally buy but still should not be recommended the product.
Disclosure vs due diligence	Providing an OM does not replace dealer KYP.
Risk tolerance vs risk capacity	Willingness to take risk is different from ability to absorb loss.
Income vs distribution	A cash payment may be interest, dividend, return of capital, borrowed proceeds, or sale proceeds.
Secured vs safe	Collateral reduces risk only if value, priority, enforceability, and liquidity are reliable.
Appraised value vs realizable value	Appraisals are estimates; forced-sale proceeds may be lower.
Reporting issuer vs non-reporting issuer	Public issuers generally have more continuous disclosure; private issuers often have less transparency.
Registered representative vs issuer employee	Registration and supervision duties differ; compensation and business trigger analysis matter.
Close friend vs casual contact	Close personal relationship requires direct, meaningful history.
Sophisticated investor vs permitted category	Knowledgeable client still needs correct exemption evidence and fair dealing.

Scenario shortcuts

If the question says…	Think…	Likely exam response
“Client qualifies as accredited but needs funds in one year.”	Eligibility conflict with liquidity need.	Likely unsuitable or requires strong documentation and alternative discussion.
“Investor wants to put most savings into one private issuer.”	Concentration and total-loss risk.	Challenge suitability even if exemption is available.
“Issuer is related to the dealer.”	Conflict of interest.	Identify, address, disclose, supervise, and document.
“Salesperson says returns are guaranteed.”	Misleading marketing unless legal guarantee and guarantor capacity are clear.	Correct disclosure; avoid exaggerated claims.
“Client is a long-time customer of the founder’s business.”	May not be close business associate automatically.	Assess relationship depth and direct knowledge.
“Investor signs every form but cannot explain the product.”	Form over substance.	Improve explanation, reassess suitability, document understanding.
“Company invests through its CFO.”	Authority and entity KYC.	Verify signing authority, beneficial owners, mandate, and investor category.
“Product pays monthly distributions from capital.”	Distribution quality risk.	Disclose source; do not present as earned income.
“Client wants to resell after six months.”	Resale restrictions and no market.	Discuss illiquidity; likely unsuitable if liquidity need is real.
“Issuer urgently needs funds and OM is outdated.”	Disclosure and due diligence problem.	Do not rely on stale or inaccurate documents.
“Referral fee to accountant/lawyer/consultant.”	Referral arrangement and registration concerns.	Written agreement, client disclosure, registration analysis, supervision.
“Unsolicited order in a high-risk exempt product.”	Suitability and dealer policy still matter.	Follow firm process; document warning and decision; may need to decline.

Last-week EXMP checklist

Review the difference between prospectus exemptions, registration obligations, and suitability obligations.
Practice identifying the correct investor category from facts, not labels.
Memorize the logic of major exemptions: accredited investor, OM, minimum amount, private issuer, and family/friends/business associates.
For every product, ask: How does it make money? How can it lose money? How does the client exit?
Treat illiquidity, concentration, leverage, related-party transactions, and stale disclosure as major red flags.
Know that signed forms support compliance but do not replace actual KYC, KYP, suitability, and fair dealing.
Be ready for scenario questions involving older clients, tax-driven products, high-yield debt, real estate projects, referral fees, and related issuers.

Practical next step

Work through EXMP-style scenarios and force yourself to write a four-part answer for each case: available exemption, evidence required, suitability conclusion, and documents/records needed. Then compare your reasoning against the current Canadian Securities Institute course materials and applicable rule summaries before doing another practice set.

Scenario Guide

Overview of the Capital Markets