Morningstar Canada says it welcomes a decision this week by the Canadian Securities Administrators that permits Morningstar Ratings to be used by mutual fund companies in sales communications.

“The ruling is a recognition that the new Morningstar Canada fund category system provides a reasonable, objective and appropriate basis for investors and financial advisors to make comparisons among funds,” said Scott Mackenzie, president and CEO of Morningstar Canada, in a new release.

Issued on Jan. 8, the ruling applies to all mutual funds across Canada that are governed by National Instrument 81-102. These regulations include provisions describing the requirements for fund companies that wish to cite performance comparisons compiled by third-party firms such as Morningstar.

The ruling follows the launch of proprietary Morningstar categories, as of the Sept. 30, 2006 reporting period. The Morningstar Ratings, which are compiled for 22 categories, are based on these peer groups. For the purpose of sales communications by fund companies, the Morningstar Ratings are the only ratings that are compliant with Canadian securities regulations.

This week’s CSA decision resolves a technical issue that had arisen after Morningstar decided to withdraw from the Canadian Investment Funds Standards Committee (CIFSC) in early 2006. The original 2000 ruling on Morningstar Ratings made reference to the ratings being based on the set of 33 categories created by the Investment Funds Standards Committee, the former name of the CIFSC. Since that time there have been several major revisions to the CIFSC category system, most recently last year.

“We welcome the flexibility that the regulators have shown in allowing us to make decisions concerning the definition of peer groups for ratings purposes,” Mackenzie said. “This could mean maintaining our current proprietary system or once again being part of a single standard-setting organization,” he added. Talks between Morningstar and other fund measurement firms about setting industry-wide standards continued this week.

“A common industry standard for fund categories is highly desirable, and we are working with CIFSC member firms toward achieving that goal,” Mackenzie said. “However, what’s most important to investors is that the fund categories-and ratings based on these categories-are rigorously defined and monitored. We firmly believe that the most credible and useful categories are those that are created by qualified research firms that operate independently of the fund industry.”