On December 12, 2013, the Canadian Securities Administrators
(CSA) published CSA Notice 81-324 Proposed CSA Mutual Fund Risk
Classification Methodology for Use in Fund Facts [available here] The CSA propose to mandate (or
adopt as guidance only) that all Canadian mutual funds use standard
deviation as the measurement of risk and for risk classification
purposes. Once a fund's standard deviation has been calculated,
the fund manager will be required to slot the fund into one of six
standardized risk bands proposed by the CSA for the purposes of the
simplified prospectus and Fund Facts disclosure. Notably, the CSA
have not published proposed rule amendments – the Notice
describes the CSA's proposed methodology, including its
proposals for enhanced disclosure, and is designed to elicit
feedback on the proposals in advance of rule-making.
The CSA consider a mandatory standardized risk classification
methodology to be useful to investors because it would provide a
consistent and comparable basis for measuring the risk of different
mutual funds. However, the CSA do not explain in detail why the
current disclosure practices of the mutual fund industry need
improvement. It will be useful to consider exactly how the
CSA's proposals differ from current industry practices –
given that most fund managers follow the voluntary guidelines for
fund volatility risk classification developed and regularly updated
by The Investment Funds Institute of Canada (IFIC).
Comments are due on the matters outlined in the Notice by
March 12, 2014. We would be pleased to assist you
in providing comments to the CSA on the proposed risk
classification methodology. The ability to formally comment on CSA
proposals is an excellent opportunity to help shape future
regulation that is in the best interests of investors and is
appropriate for the financial services industry in Canada and which
does not have significant unintended consequences. The CSA set out
14 specific questions for comment, in addition to asking for
feedback on all aspects of their proposals.
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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