Edited by Paul A. Dempsey.
Modernization of Investment Fund Product Regulation
On March 27, 2013 the Canadian Securities Administrators (the "CSA") published for comment proposed amendments to National Instrument 81-102 – Mutual Funds ("NI 81-102"), proposed changes to Companion Policy 81-102CP, and related consequential amendments, as part of the CSA's Modernization of Investment Fund Product Regulation Project. The comment period closes on June 25, 2013.
The stated objective of the proposed changes is to create a more consistent regulatory framework for comparable investment products and to give investors access to alternative investment strategies. The changes would introduce new requirements for non-redeemable investment funds that are reporting issuers. The proposed requirements are analogous to requirements that apply to mutual funds under NI 81-102. Proposed amendments to National Instrument 81-104 Commodity Pools are intended to create a more comprehensive "alternative fund" framework.
One of the CSA's specific requests for comment is whether it should reconsider its present view that investment funds offering redemptions based on net asset value no more than once a year are non-redeemable investment funds. The CSA has indicated that the alternative is to consider an investment fund to be a mutual fund if it offers any redemptions based on net asset value. The CSA's present view has provided some clarity to industry participants in interpreting the term "mutual fund" as defined in securities legislation. The proposed alternative could result in some pooled funds (that are not currently considered "mutual funds") being caught by certain investment restrictions that apply in some jurisdictions to "mutual funds" organized under the laws of such jurisdictions.
OSC Staff Notice 81-719 – Character Conversion Transactions
On April 3, 2013 staff of the Ontario Securities Commission published OSC Staff Notice 81-719 Effect of Proposed Income Tax Act Amendments on Investment Funds – Character Conversion Transactions. The notice sets outs the views of OSC staff with respect to proposed amendments to the Income Tax Act (Canada) concerning character conversion transactions that were announced in the 2013 federal budget. Staff ask that investment fund managers consider the need to cap affected funds to new and additional investments as well as whether it is appropriate to communicate with current securityholders about the proposed amendments and the potential impact on the applicable funds. Staff also states that investment fund managers must consider longer term responses, including whether the affected funds need to be restructured, reorganized or terminated.
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