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Canadian Securities Regulatory Monitor News and Insight

Category Archives: Investment Funds

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The Finish Line: CSA Publishes Proposed Amendments in Final Phase of Modernization of Investment Fund Product Regulation

Posted in Amendments, Closed-End Funds, CSA, Investment Funds, Mutual Funds

On September 22, 2016, the Canadian Securities Administrators (the “CSA”) published CSA Notice and Request for Comment – Modernization of Investment Fund Product Regulation – Alternative Funds (the “Proposed Amendments”).  The Proposed Amendments represent the final phase of the CSA’s ongoing policy work to modernize investment fund product regulation in Canada (the “Modernization Project”).  While primarily aimed at the development of a more comprehensive regulatory framework for commodity pool mutual funds that are currently governed by National Instrument 81-104 – Commodity Pools (“NI 81-104”), if adopted, the Proposed Amendments will also have a meaningful impact on other types of mutual … Continue Reading

CSA Sets Out Priorities for 2016-2019

Posted in Advisors, Broker-Dealers, Compliance and Supervision, Continuous and Timely Disclosure, CSA, Enforcement, Exempt Market Dealers, Investment Funds, Mutual Funds, Registrants

The Canadian Securities Administrators (CSA) published on July 7, 2016 their priorities for the three-year period 2016 to 2019 under four categories: “Enhanced Investor Protection”, “Fair and Efficient Markets and Reduction of Risks to Market Integrity”, “Enhancement of Enforcement Effectiveness” and “Enhancement of Information Technology”.

The CSA states its strategic objectives without once mentioning the possible impact on it of the proposed national Cooperative Capital Markets Regulatory Authority (CCMRA) some of its members support. On July 22, it was announced that the CCMRA is expected to be operational in 2018.

Enhanced Investor Protection

The CSA proposes to … Continue Reading

Tomorrow, May 18, Registrants Will Receive the OSC’s 2016 Risk Assessment Questionnaire – What Will Your Firm’s Risk Rating Be?

Posted in Exempt Market Dealers, Industry News, Investment Funds, Mutual Funds, OSC, Portfolio Managers, Registrants

For the first time since 2014, the Ontario Securities Commission (OSC) will send Ontario registrants a risk assessment questionnaire (RAQ) that must be completed by portfolio managers, investment fund managers, exempt market dealers, restricted portfolio managers and restricted dealers registered in Ontario. Registrants will receive the 2016 RAQ tomorrow, May 18.

The OSC uses data gathered through the RAQ to apply a risk ranking to firms. Firms with higher risk rankings are more likely to be targeted by the OSC for compliance reviews. As a result, it is important that the RAQ answers be considered … Continue Reading

The CSA Proposes Mandatory Standardized Risk Classification Methodology for Mutual Funds and ETFs

Posted in Amendments, Continuous and Timely Disclosure, CSA, Investment Funds, Mutual Funds, Portfolio Managers

The Canadian Securities Administrators (CSA) are proposing to introduce a mandatory standardized risk classification methodology for mutual funds and ETFs (the Proposed Methodology).[1] Fund managers would be required to use the Proposed Methodology to determine the investment risk level of conventional mutual funds (which must be disclosed in the Fund Facts document) and exchange-traded mutual funds (ETFs) (to be disclosed in the proposed ETF Facts document). Currently, fund managers may determine the risk level of a mutual fund using a methodology of their choosing, though the methodology developed by the Investment Funds Institute of … Continue Reading

Mutual Fund Compensation and Reinvestment Practices Face OSC Scrutiny

Posted in Compliance and Supervision, Continuous and Timely Disclosure, Investment Funds, Mutual Funds, OSC, Portfolio Managers

The OSC recently published its 2014 Summary Report for Investment Fund and Structured Product Issuers which includes, among other topics, a summary of key OSC policy initiatives affecting investment fund issuers and highlights of 2014 continuous disclosure and compliance reviews of investment funds The report also sets out OSC Staff observations on key emerging issues and trends for mutual funds.

OSC criticizes reinvestment of distributions by “default”

Some mutual funds offer a choice between making distributions to investors in cash, or in the form of reinvested units. OSC Staff is concerned about mutual funds that set the payment of distributions … Continue Reading

OSC mulling ban on mutual fund trailing commissions for fee-based accounts

Posted in Continuous and Timely Disclosure, Industry News, Investment Funds, Mutual Funds, OSC

The OSC Staff has announced steps it will take to eliminate trailing commissions for fee-based mutual fund series when they file their next annual renewal prospectuses. In the latest edition of the OSC’s Investment Funds Practitioner, OSC Staff expressed the view that a mutual fund series intended for fee-based accounts should not also have a trailing commission embedded in the ongoing cost of the fund series. In Staff’s view, this compensation structure is inconsistent with fee-based mutual fund series because of the extra trailing charge on top of the fee. The OSC Staff maintains this result may be contrary … Continue Reading

Investment Fund Managers – A Regulatory Check-up

Posted in Compliance and Supervision, Continuous and Timely Disclosure, Investment Funds, Mutual Funds, OSC

The Ontario Securities Commission (“OSC”) has recently released two notices providing helpful guidance on the compliance operations of investment fund managers (“IFMs”). This guidance is contained in the 2013 annual review summary report for dealers, advisers and investment fund managers (the “Annual Report”) and a June, 2014 notice reporting on the targeted review of investment fund managers (the “June Report”).

In this post, we summarize OSC findings in its compliance reviews of IFMs as discussed in the Annual Report and June Report.

Issues respecting UDPs and CCOs

IFMs are required to maintain a control and supervisory … Continue Reading

Two More Provinces Join the Cooperative Framework for Canadian National Securities Regulation

Posted in CSA, Industry News, Investment Funds, Proposals

Saskatchewan and New Brunswick yesterday joined Ontario, British Columbia and the federal government as parties to the national capital markets regulator (“CMR”) agreement in principle first signed in September 2013. As we discussed in a previous article, the proposed cooperative CMR will be responsible for policy development, regulation-making, regulatory operations and enforcement. On the same day, Alberta, Quebec and Manitoba publicly reiterated their opposition to the CMR.

CMR implementation milestones agreed have been pushed out by about six months. By August 2014, a memorandum of agreement will be entered into setting out the terms and conditions of … Continue Reading

The OSC’s 2014 Risk Assessment Questionnaire Exposes Registrants to Risk of Self-Incrimination

Posted in Exempt Market Dealers, Industry News, Investment Funds, Mutual Funds, OSC, Portfolio Managers, Registrants

For the first time in three years, the Ontario Securities Commission (OSC) has sent Ontario registrants a risk assessment questionnaire that must be completed by portfolio managers, investment fund managers, exempt market dealers, restricted portfolio managers and restricted dealers registered in Ontario. The OSC intends to use the data gathered through the questionnaire to inform its decisions about “which firms require further attention and oversight”.

In some cases, the questionnaire may put recipient registrants at risk of admitting working capital deficiencies, inappropriate marketing practices and other potential violations. As a result, it is important that answers be considered carefully. The … Continue Reading

Ontario and British Columbia Agree With Canada on Cooperative Framework for Canadian National Securities Regulation

Posted in CSA, Investment Funds

British Columbia, Ontario and Canada announced yesterday their agreement to establish a national securities regulator through a cooperative model. The cooperative model is intended to facilitate the launch of a national securities regulator after a 2011 Supreme Court of Canada decision that the provinces enjoy much more constitutional authority to regulate securities law than the federal government… Continue Reading

OSC Staff Clarifies Position on Mortgage Investment Entities as Investment Funds

Posted in Investment Funds, OSC

In a recent Staff Notice, the Ontario Securities Commission clarified that a mortgage investment entity (MIE) is not a non-redeemable investment fund if it invests in mortgages in the following manner:

 

 

  • the issuer proposes to invest all or substantially all of its assets in a pool of mortgages;
  • the mortgages purchased by the MIE are originated and serviced by one or more mortgage originators (each, an Originator);
  • the Originator may use the MIE as a source of funding for the Originator’s mortgage lending business.

According to OSC Staff, regardless of whether the Originator is the MIE’s manager, … Continue Reading

OSC Issues Report on Continuous Disclosure Review of Investment Fund Sales Communications

Posted in Continuous and Timely Disclosure, Investment Funds, OSC

Last week, the OSC published Staff Notice 81-720 – Report on Staff’s Continuous Disclosure Review of Sales Communications by Investment Funds.

The notice summarizes the findings of an OSC targeted continuous disclosure (CD) review of the advertising and marketing materials of publicly offered investment funds and provides related OSC guidance.… Continue Reading

CSA Issues Guidance on Relationship Disclosure Practices for Portfolio Managers and Exempt Market Dealers

Posted in Broker-Dealers, Compliance and Supervision, Continuous and Timely Disclosure, CSA, Investment Funds, Portfolio Managers

Last week, the CSA published Staff Notice 31-334 – CSA Review of Relationship Disclosure Practices. The notice summarizes findings of a recent CSA compliance review of registered portfolio managers (PMs) and exempt market dealers (EMDs) and provides guidance on relationship disclosure information (RDI) practices.… Continue Reading

Investment Fund Amendments Would Bring Sweeping Changes to Closed-End Fund Regime

Posted in Amendments, Closed-End Funds, Continuous and Timely Disclosure, CSA, Investment Funds, Mutual Funds

 Recently, the Canadian Securities Administrators (CSA) released proposed amendments (CSA Proposal) to National Instrument 81-102 – Mutual Funds (NI 81-102) that would impose on closed-end funds certain investment restrictions and operational requirements that currently apply only to conventional mutual funds and exchange-traded funds (ETFs). The CSA Proposal* is likely to be of great interest to managers of closed-end funds, as well as to the entire investment fund community.

In conjunction with the CSA Proposal, the CSA plans to create a comprehensive framework for “alternative funds” through amendments to National Instrument 81-104 – Commodity Pools (NI 81-104). This “Alternative Funds … Continue Reading

OSC Reports on 2012 Compliance Experience

Posted in Compliance and Supervision, Continuous and Timely Disclosure, Exempt Market Dealers, Investment Funds, OSC, Portfolio Managers, Registrants

The OSC has released its 2012 compliance report (OSC Staff Notice 33-738) on dealers, advisers and investment fund managers. This report reflects the increasing importance ascribed by the OSC to registrant practices and registration issues. The report also allows licensed securities businesses to benchmark their practices against regulatory expectations.

Directly and through self-regulatory organizations, the OSC oversees 1,300 firms and 66,000 individuals. The OSC follows a risk-based approach to compliance assessments (p. 35). For the last two years, over 80% of compliance reviews have resulted in requirements for enhanced or significantly enhanced compliance by registrants (p. 36).… Continue Reading

Canadian Securities Regulatory Requirements Applicable to Non-Resident Broker-Dealers, Advisers and Investment Fund Managers

Posted in Advisors, Broker-Dealers, CSA, Enforcement, Exempt Market Dealers, Investment Funds, Portfolio Managers, Registrants, Registration

The purpose of this paper is to provide a non-resident of Canada with an overview of the dealer registration, adviser registration, investment fund manager registration and prospectus requirements that should be considered and addressed by the non-resident before it begins to trade securities with, or provide investment advice to, any person or company located in Canada, or to act as an investment fund manager in Canada. All currency amounts that are referred to in this paper are denominated in Canadian dollars.

The Canadian Securities Regulatory Framework

Like the United States, Canada has a federal system of government whereby the authority … Continue Reading