The mutual fund industry in Canada is undergoing some far-reaching proposed changes under the umbrella of harmonization.
Right now, the Canadian Securities Administrators’ multi-faceted registration reform project is front and centre, but other regulatory initiatives are also coming into play, making this one of the busiest times in the history of the mutual fund industry in Canada. Many of the initiatives will affect advisors.
The CSA’s RRP is designed to streamline the registration requirements applied by the 13 securities jurisdictions in Canada. The scope of the regulatory proposals is vast. (For more on the RRP, see page 46.) For example, proposed National Instrument 31-103, released in February, looks at changes that will affect fund managers. These include new regulatory provisions for capital and insurance requirements for fund managers, as well as fund manager proficiency requirements and a broader look at the role of the chief compliance officer.
NI 31-103 also proposes changes to dealer registration requirements, including regulations for exempt and restricted dealer registration, the complaint resolution process and changes in the way businesses will be registered. Dealer/advisor proficiency requirements and suitability requirements for dealer/advisors are also being discussed.
The client relationship model, managed by the Investment Dealers Association of Canada and the Mutual Fund Dealers Association of Canada, is leading discussions and proposals on performance reporting and new account application forms.
The Joint Forum of Financial Market Regulators is involved in a number of other client-related issues, including the content and delivery of new point-of-sale disclosure and harmonization of rescission rights. This is the next major proposal that the industry is expecting, probably this month.
The Investment Funds Institute of Canada has responded with the creation of an ad hoc board committee and three issue-specific task forces to look at the far-reaching implications of these proposals.
For example, when it comes to POS, IFIC members support regulatory direction for simpler, more meaningful disclosure — specifically, a new fund summary document that will contain information about a fund’s investment objectives and strategies, risks, management expense ratio, fund manager and portfolio advisor, key past performance information and references for getting more information.
We want more discussion with regulators on the timing and mode of delivery of a new fund summary document, and requirements for new and subsequent purchases. It is important that the industry get this right so that we do not limit investors’ product choices or reduce the level of service they have come to expect.
With the call for greater harmonization has also come a proposal by the Autorité des marchés financiers, Quebec’s regulator, to recognize a mutual fund industry self-regulatory organization. Quebec is one of two provinces (the other is Manitoba) that do not officially recognize the MFDA.
Recently, the IFIC committee and task forces have had to broaden the scope of their considerations to include additional regulatory initiatives that are related to the RRP.
One deals with the harmonization of prospectus disclosure requirements (in the proposed NI 41-101). IFIC’s concerns centre on the lack of real harmonization among provinces, and the proposed imposition of requirements that may be impractical and inapplicable to mutual funds.
The other proposal deals with the next phase of the passport system (proposed NI 11-102). The immediate concern is there may be reduced harmonization on the exemptive relief application process because of Ontario’s lack of participation in the initiative. IE
Joanne De Laurentiis is president and CEO of the Investment Funds Institute of Canada.