The Ontario Securities Commission is carrying out a review of investment fund portfolio disclosure, among a variety of other disclosure and compliance reviews.
In its 2011 Summary Report for Investment Fund Issuers outlining its various initiatives in the investment fund sector, the OSC reports that it is currently engaged in a focused review of the investment portfolio holdings disclosed in the management reports of fund performance, financial statements, and the new Fund Facts disclosure documents.
As part of the review, OSC staff are examining: whether the summarized investment portfolio in the management reports of fund performance and Fund Facts is properly classified and provides meaningful information to investors about the fund’s portfolio; and, whether the investment portfolio in the financial statements provides sufficiently organized information for investors to assess consistency and performance against the fund’s stated investment objectives and strategies.
“Our review is intended to examine how closely a fund’s stated investment objectives and strategies are implemented over time. Following the review, we will consider providing guidance around the presentation of a fund’s investment portfolio disclosure and how the fund’s discussion of its investment strategy can be updated and improved based on how the fund has been investing,” it says.
Additionally, the OSC indicates that it is also carrying out a focused review of the investment risk classification methodology in the simplified prospectus, to determine whether the prospectus disclosure is adequate; and whether the investment risk classifications in the simplified prospectus and Fund Facts documents seem to be appropriate.
“Following amendments to the simplified prospectus form which added a requirement to describe the methodology by which the fund manager identifies the investment risk level of a mutual fund, we have noticed that such disclosure in the simplified prospectus may be overly brief,” it says.
The OSC is also reviewing money market funds focused on their risk and liquidity profiles. “We anticipate the reviews will provide us with a better understanding of the makeup of the industry’s capitalization (retail vs. institutional), redemption experience, and any differences between the different types of money market funds. The reviews will also look at differences in exposure between money market funds offered in Canadian and U.S. currencies,” it says, noting that the reviews have provided some initial insights on how the Canadian money market industry competes and how money market funds are dealing with various market risks, including sovereign default risks in Greece and their potential effect on short term paper issued by European banks and businesses.
The notice also indicates that the Canadian Securities Administrators intend to finalize the first phase of rule amendments as part of their project to modernize investment fund product regulation by the end of the year. And it expects to publish a proposed rule for comment regarding the second phase of that project in 2012.