The fund-management industry is praising the country’s largest provincial regulator for a newsletter that signals a more open approach to communication as it oversees the Street.

“It’s a very good initiative,” says Marie Brault, senior legal advisor, securities and subsidiaries, for National Bank of Canada in Montreal. “It’s comforting to see all the issues that are on the [Ontario Securities Commission’s] radar screen right now, and to know that we’re catching them all, and that there’s nothing we didn’t see.”

The OSC is publishing and distributing the quarterly newsletter, entitled Investing Funds Practitioner, to apprise market participants of sticky points on various legal and regulatory applications.

“This is part of a larger commitment by the OSC to communicate with the Street,” says Carolyn Shaw-Rimmington, manager of public affairs at the Toronto-based regulator. “You’ll see that as we go forward with more branch-level communication.”

It’s all part of a more open communications policy championed by vice chairman Larry Ritchie, a former securities lawyer and a partner at Osler Hoskin & Harcourt LLP, and other relatively new senior administrators who have experience dealing with the regulator from the other side of the table, she adds.

The first issue of the Practitioner hit the Street in April. It details the legal nitty-gritty of national instruments that most in the industry aren’t privy to and issues that are more technical or regulatory in nature, as opposed to being enforcement-related, says Doug Welsh, senior legal counsel at the OSC.

“If you look at the newsletter, it refers to one matter that went to a hearing at the commission itself,” says Welsh. “So, the commission rendered a decision with some reasons on that issue. That’s important and worth drawing to people’s attention.”

In this case, the newsletter details the OSC’s latest decisions about how fund companies in-cur the costs of fund mergers. Normally, the cost of a fund merger is not paid by the fund itself, as unitholders effectively end up ponying up for the procedure. The newsletter gives a synopsis of two rulings on separate applications for relief of that regulation, one that was turned down and one that was successful.

Minutiae such as this aren’t always directly related to advisors, but they’re of particular benefit to securities lawyers, corporate finance, legal counsel who draft prospectuses, mutual fund marketing departments and compliance officers. Other points in the document include, for example: rulings on the comingling of cash intended for redemptions and securities purchasing in mutual fund portfolios; disclosure on commissions for deferred sales charges switches; and disclosure on linked notes.

“This tells you what the OSC has considered, and what it thinks about issues,” says Edie Cassels, formerly chief compliance officer for Russell Investments Canada Ltd. in Toronto and now legal counsel for special projects for that firm. “It’s very helpful as a practitioner to know who’s applied for something already, and whether they’ve been turned down or not. It gives you an idea of the OSC’s thinking in an informal way.”

Still, some in the industry suggest that the broader OSC communications policy has been motivated by industry backlash about expensive and publicly damaging issues such as the $200-million market-timing settlement in 2004. In handing it down, the OSC had said that many mutual fund companies were potentially violating their fiduciary obligations to unitholders, while falling short of calling the practice illegal.

The newsletter can be seen as a step toward avoiding major industry gaffes such as that one, and nipping them in the bud, so to speak, before they become larger issues, explains Brault.

The newsletter groups all of the regulator’s rulings about investment funds together, and effectively signals to industry participants how the rulings may apply to their businesses and how to address them. “That looks like what the regulators are doing now,” she says.

It’s this type of communication that was recommended last year by the Investment Dealers Association of Canada’s Task Force to Modernize Securities Legislation in Canada.

“We did recommend that if the commission is going to establish new policy for conduct that it found contrary to the public interest that it publish that policy with clarity and then prosecute any subsequent violations rather than establishing the policy through a prosecution,” says Tom Allen, a senior lawyer at Ogilvy Renault LLP in Toronto who served as the task force’s chairman. (See page 54.)

@page_break@Allen, who admits he has not seen the newsletter, says that greater communication between the Street and the OSC can really be seen as only a positive step.

While the regulator did not receive any formal requests for this type of communication, Welsh admits that over the years, legal counsel for various financial products manufacturers have expressed frustration during the filing process.

The newsletter may help make the filing process more efficient for all involved, says Welsh. Participants will be able to resolve issues while they’re preparing filings for the OSC “instead of having to deal with them in the course of the review, after they’ve filed their materials,” he says.

Bruce Cumming, a financial planner with Cumming & Cumming Wealth Management Inc. in Oakville, Ont. — under the FundEx Investments Inc. umbrella — says the regulator’s approach with fund manufacturers does not directly apply to advisors like him, but he still offers “high praise” for the effort.

“The more people are aware of the issues the OSC is dealing with, and its common response,” Cumming says, “the better for everyone involved.” IE