The Canadian Securities Administrators have ssued a staff notice reporting on the findings of a review of hedge funds in Canada.
The review concluded that the current regulatory framework is largely effective, however it also identified areas for improvement, including issues with principal protected notes (PPNs), referral arrangements, distribution, disclosure and registration of fund managers.
Staff Notice 81-316 Hedge Funds, which was released on Friday, reveals that consultations are ongoing regarding PPNs and referrals, and that the CSA will be proposing fund manager registration as part of the registration reform project. It will also continue to monitor disclosure.
The CSA says that it conducted the review in response to increased retail interest in hedge funds. The review included a combination of compliance reviews of fund managers and advisers, disclosure reviews and industry consultations.
“Regulators in Canada recognize the increased popularity of hedge funds among retail investors,” said Jean St-Gelais, chairman of the CSA and president & CEO of the Autorité des marchés financiers. “While we feel the necessary regulatory framework is in place, it is important to continually examine the framework against new products in our evolving markets.”
The CSA said it will introduce new registration requirements for fund managers, those people who set up, operate, and promote fund companies.
Registration means regulators will ensure fund managers have appropriate capital and insurance, and have sufficient experience and proficiency to carry out their duties, said Leslie Byberg, manager of investment funds at the Ontario Securities Commission.
Currently, individuals who manage specific investment portfolios must be registered. But the executives who set up and operate the fund management companies are not covered by registration requirements.