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CSA – Modernization of the Continuous Disclosure Regime for Investment Funds
Letter Summary:
The Canadian Securities Administrators (CSA) have published for comment a series of proposed amendments aimed at modernizing the continuous disclosure regime for investment funds. These proposals are designed to provide investors with more focused and valuable disclosure while reducing the regulatory burden on investment fund managers.
The CSA proposes to replace the existing annual and interim Management Report of Fund Performance (MRFP) with a new annual and interim Fund Report. The proposed Fund Report was developed using behavioural insights research, which provides information on how people think, behave and make decisions. This included carrying out rigorous investor testing aimed at comparing the effectiveness of several alternative proposed versions of the Fund Report against a sample MRFP.
Overview of the Council’s Comments:
The Canadian Advocacy Council (CAC) recently submitted a letter to the Canadian Securities Administrators (CSA) regarding proposed amendments to the disclosure requirements for investment funds. The CAC expressed appreciation for the regulators’ efforts to balance investor protection with reducing regulatory burden, and supported the data-driven approach used in crafting the policy proposals. The letter provided specific feedback on key aspects of the proposal, highlighting areas for improvement and advocating for changes that would enhance investor transparency and protection.
- Filing Frequency of Fund Reports: The CAC largely supported maintaining the current filing frequency for annual and interim Management Reports of Fund Performance (MRFPs). However, it disagreed with the exemption for scholarship plans and recommended harmonizing these rules across all comparable investment products.
- Performance Disclosure Requirements: The CAC strongly supported disclosing performance of both highest and lowest management fee classes/series of a fund to help retail investors understand costs and distribution channel choices. It also suggested that performance information for fee-based accounts should include illustrative comparable fees.
- Liquidity Disclosure: The CAC agreed with adding a Liquidity Profile section to the Fund Report, viewing it as a crucial investor protection measure. It recommended including a legend to the liquidity chart and additional comparative statistics to improve investor comprehension.
- Scholarship Plan MER Disclosure: The CAC advocated for harmonizing disclosure requirements for scholarship plans with other investment funds, arguing that distinctions in regulatory treatment were probably outdated.
- Fund Performance Assessments by IFMs: The CAC raised concerns about obvious conflicts of interest if Investment Fund Managers (IFMs) were required to self-assess their fund’s success. It suggested clarifying expectations in the Fund Report instructions and considering alternative models, such as expanding the role of fiduciary oversight bodies.
- Additional Recommendations: The CAC emphasized the importance of clear and standardized disclosure formatting to enhance investor understanding and urged regulators to explore regulatory models from other jurisdictions to improve fund governance.