CSA proposes broad changes to investment fund regulation

With a sweeping set of reform proposals, the Canadian Securities Administrators (CSA) are planning an array of changes designed to cut the regulatory burden in the investment fund sector.

The CSA published a slew of proposed changes to investment fund regulation on Thursday as part of ongoing efforts to reduce regulatory costs for investment fund issuers.

Among other things, the proposals aim to eliminate redundant disclosure requirements, codify routine regulatory relief, minimize duplicative filings, and facilitate online compliance.

In its notice setting out the proposed changes, the CSA says it expects the reforms to “provide streamlined disclosure for investors and generate cost savings for investment fund managers and investment funds.”

The long list of proposed changes includes introducing an exemption from the requirement to deliver Fund Facts disclosure for purchases made in managed accounts, by certain permitted clients, and in model portfolios.

The CSA proposals would also:

• introduce a “notice and access” system for soliciting investment fund issuer proxies;
• broaden the pre-approval criteria for fund mergers;
• repeal the regulatory approval requirements for manager changes and other fund alterations, and;
• require issuers to designate a website for regulatory filings that regulators say will “create possibilities” for issuers to move disclosure from paper documents online, enabling fund managers and funds to “reduce burden and costs.”

Disclosure isn’t the only target of the proposals, however. The CSA is also proposing to codify relief from certain conflict of interest restrictions that is routinely granted.

These measures would allow fund-on-fund investments by funds that are not reporting issuers; enable inter-fund trades between related funds; and allow funds to make a variety of investments involving related firms, among other things.

In its notice, the CSA reports that fund managers have typically been able to show that these kinds of transactions benefit investors, despite the potential conflicts of interest.

The proposed exemptions would impose conditions “designed to mitigate the investor protection concerns and potential risks associated with these transactions,” the CSA says, “largely by promoting transparency, objective pricing, and, in some cases, oversight by an independent review committee (IRC).”

“We are proposing significant changes that will provide cost and time savings to investment funds and their managers without impacting investor protection,” said Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers (AMF).

“We continue to prioritize reducing regulatory burden in all areas of Canada’s capital markets, and today’s proposals represent our efforts to date in the investment fund space,” he added.

The CSA says the changes proposed today can be implemented in relatively short order, but that it’s also looking to introduce future reforms also aimed at burden reduction that may take longer.

Specifically, the CSA says that it will “look for burden reduction opportunities in other areas, including continuous disclosure obligations, securityholder meetings and information circular requirements, prescribed notices and reporting requirements, and prospectus regime provisions.”

Comments on today’s proposals are due Dec. 11.