The Canadian Securities Administrators (the “CSA”) have published for a 90‐day comment period proposed amendments to National Instrument 81‐101 that are intended to implement Stage 2 of the point of sale disclosure framework originally published in October 2008 by the Joint Forum of Financial Market Regulators.
Stage 1, which came into force January 1, 2011, obligated mutual funds to produce and file a “Fund Facts” document, make it available on the fund’s or its fund manager’s website and provide it free of charge to investors on request. The Fund Facts document is a plain language document, no more than two pages (double‐sided) in length, which highlights information that the CSA have determined to be critical to a potential investor’s understanding of the fund, including past performance, risks and the cost of investing.
Stage 2 will require delivery of the Fund Facts to investors within two days of purchase of a mutual fund security. Delivery of the Fund Facts is intended to satisfy the prospectus delivery requirement under securities legislation; this does not impact a fund’s other obligations in respect of the prospectus, which must still be provided to investors on request. Current rights to damages or rescission, or to withdraw from purchase, will be retained but are now triggered upon delivery (or failure to deliver) the Fund Facts. Similarly, as the Fund Facts are incorporated by reference into a fund’s prospectus, rights arising from misrepresentation are retained but now
The CSA have also proposed amendments to the contents of the Fund Facts document. In particular, the document must disclose all fees and expenses payable by the investor when buying, holding, selling or switching units or shares of a fund. The amendments also restrict the documents that may be attached to or bound with the Fund Facts (to be limited to purchase confirmations, other Fund Facts, a prospectus, an AIF, management reports of fund performance and financial statements) and restrict the order in which the documents can be attached or bound. The instrument does not purport to restrict the ability of a fund or dealer to provide investors with non‐educational material with a prospectus or AIF (such as promotional brochures) as currently permitted, but those materials cannot be “included within, wrapped around, or attached or bound to” either type of document.
No changes have been proposed to filing requirements. The Fund Facts must continue to be filed concurrently with a fund’s simplified prospectus and AIF, and the certificate of the fund, which confirms the disclosure in those documents, applies to the Fund Facts in the same way that it applies to all documents incorporated by reference into the simplified prospectus. Similarly, no changes have been proposed to the obligations related to material change and amendment requirements.
The CSA have requested that any comments on the proposed amendments be submitted prior to November 10, 2011.
Any mutual fund manager that did not obtain exemptive relief to begin the early reliance on Fund Fact delivery in lieu of a prospectus (as was contemplated in the CSA’s notice issued February 24, 2011) are urged to ensure that their operations procedures are readied for the expected implementation of Stage 2 of the point of sale disclosure framework