CSA have adopted amendments to investment fund rules intended to reduce and streamline the regulatory burden while maintaining investor protection and the efficiency of capital markets

  • The amendments, which were announced on October 7, are part of the second phase of the CSA’s initiative to reduce the regulatory burden on investment funds
  • Organized into eight workstreams, the amendments were first released for stakeholder comment in September 2019
  • The amendments will begin to come into force on January 5, 2022, with some compliance exemptions lasting until September 6, 2022

As we discussed in an earlier post, during Phase 1 of their burden-reduction project, the Canadian Securities Administrators (CSA) conducted a review of the current investment fund disclosure regime and a public consultation process. This review resulted in the identification of a number of potential areas of focus. During Phase 2, the CSA developed specific proposals in respect of the areas of focus identified in Phase 1. The proposals were released for stakeholder comment in September 2019 and, as we discussed in a post of November 2019, were intended to remove redundant information in selected investment fund disclosure documents, use web-based technology to provide certain information about investment funds, codify exemptive relief that is routinely granted and minimize filing requirements for certain duplicative documents.

The amendments ultimately adopted by the CSA are organized into eight separate workstreams and generally conform, subject to non-material changes, to the original proposals. Specifically, the eight workstreams are:

  1. Consolidate the simplified prospectus and the annual information form for conventional mutual funds, which contain multiple areas of overlapping disclosure, into a single disclosure document;
  2. Require reporting investment funds to designate a publicly accessible qualifying website on which the investment fund intends to post regulatory disclosure;
  3. Codify exemptive relief granted in respect of notice-and-access applications and introduce a notice-and-access system for the solicitation of proxies in National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106);
  4. Eliminate the filing of Personal Information Forms (PIFs) in connection with investment fund prospectus filings for individuals that are registered with securities regulators;
  5. Codify frequently granted discretionary exemptive relief in respect of conflict of interest rules. The exemptions, subject to conditions, will permit:
    • fund-on-fund investments by investment funds that are not reporting issuers,
    • investment funds that are reporting issuers to purchase non-approved rating debt under a related underwriting,
    • inter-fund trades of portfolio securities between related reporting investment funds, investment funds that are not reporting issuers and managed accounts at last sale price,
    • investment funds that are not reporting issuers to invest in securities of a related issuer over an exchange,
    • reporting investment funds and investment funds that are not reporting issuers to invest in debt securities of a related issuer in the secondary market,
    • reporting investment funds and investment funds that are not reporting issuers to invest in long-term debt securities of a related issuer in primary market distributions, and
    • reporting investment funds, investment funds that are not reporting issuers and managed accounts to trade debt securities with a related dealer;

Notably, the CSA have opted not to proceed with the previously-proposed exemption that would have permitted in specie subscriptions and redemptions involving related managed accounts and mutual funds. The CSA also stated that previously-granted exemptive relief would be grandfathered, permitting filers that have previously obtained exemptive relief that are being codified to continue relying on those decision, or on the new codified exemptions.

  1. Introduce amendments to NI 81-102 to broaden the pre-approval criteria for investment fund mergers;
  2. Repeal the regulatory approval requirements for a change of manager, a change of control of a manager, and a change of custodian that occurs in connection with a change of manager; and
  3. Codify exemptive relief from the requirement to deliver a fund facts document in relation to managed accounts and permitted clients, portfolio rebalancing plans, and automatic switch programs.

Subject to Ministerial approval, Workstreams 1 and 2 will come into force on January 6, 2022, with a exemption from compliance (subject to some exceptions) until September 6, 2022. Workstreams 3-8 will come into force on January 5, 2022. For more information, see CSA Notice of Amendments Reducing Regulatory Burden for Investment Fund Issuers – Phase 2, Stage 1.