On July 17, 2009, the Canadian Securities Administrators (the CSA) published in final form their reforms to the registration regime in National Instrument 31-103 – Registration Requirements and Exemptions (NI 31-103), along with certain consequential amendments to other securities laws (collectively, the new rules). Subject to ministerial approval requirements, NI 31-103 will come into force on September 28, 2009 (the effective date).
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- Investment Fund Managers (IFMs) are required to make filings in relation to their financial condition, including reports of net asset value (NAV) errors and adjustments.
These and other important changes in the regulation of the investment fund sector under NI 31-103 are discussed below in this issue.
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IFMs must have an auditor and must file with the regulator the following:
- annual filings (within 90 days of its year end):
- annual financial statements (with an audit report),
- a completed Form 31-103F1 Calculation of Excess Working Capital (showing excess working capital as at the end of the financial year, with the comparative amount as at the end of the preceding financial year), and
- a description of any NAV adjustment made in respect of an investment fund managed by the IFM during the financial year.
- quarterly filings (within 30 days of each quarter end):
- interim financial statements for the quarter,
- a completed Form 31-103F1 Calculation of Excess Working Capital (showing excess working capital as at the end of the quarter, with the comparative amount as at the end of the preceding quarter), and
- a description of any NAV adjustment made in respect of an investment fund managed by the IFM during the quarter.
A description of a NAV adjustment must contain prescribed information, including the effect of the adjustment on NAV per security of the investment fund and any correction made to purchase and sale transactions.
NAV Errors and Adjustments
A NAV adjustment is necessary when there has been a material error and the NAV per security does not accurately reflect the actual NAV per security at the time of computation. Examples of NAV errors would include the mispricing of a security, incorrect numbers used for issued and outstanding securities, and human error, such as inputting the wrong number.
Not all NAV errors are material and require an adjustment. IFMs should have policies and procedures, including threshold levels, to identify and correct material errors. In Companion Policy 31-103CP, the CSA comments that IFMs may wish to consider adopting the threshold in IFIC Bulletin Number 22 or a more stringent policy.
Other Registration Reforms
NI 31-103 and the new rules include other significant changes to registration requirements for dealers, advisers and investment fund managers in Canada.