On September 19, 2024, the Canadian Securities Administrators (CSA) published a series of proposed amendments (the Proposed Amendments) to various Instruments1 with the aim of modernizing Canada's continuous disclosure regime for investment funds. The CSA noted that the Proposed Amendments are intended to improve disclosure quality for investors while reducing unnecessary and duplicative regulatory burdens for investment funds. The Proposed Amendments would impact the reporting obligations of publicly-traded investment funds (including mutual funds and exchange-traded funds) that are reporting issuers under Canadian securities legislation; however, it would not be applicable to private funds.
What you need to know
- The CSA has proposed a set of amendments to various Instruments aimed at improving the continuous disclosure regime for investment funds in Canada.
- The amendments seek to re-calibrate the balance between providing comprehensive disclosure that is meaningful to investors and avoiding duplicative or excessively burdensome requirements for investment funds where the value to investors may not justify the effort.
- The CSA has invited comments on the Proposed Amendments, as well as any other areas where market participants feel the continuous disclosure regime for investment funds could be further improved or modernized. These may be submitted no later than January 17, 2025.
Proposed Form 81-106A: Fund reporting
Currently, Form 81-106F1 sets out the disclosure requirements for investment funds when filing their annual and interim management reports of fund performance. The Proposed Amendments would replace Form 81-106F1 with newly proposed Form 81-106A, which significantly revises existing disclosure requirements. This includes renaming the reports the Interim Fund Report and the Annual Fund Report (collectively, the Fund Report), which the CSA feels is more intuitive for investors. The proposed Form 81-106A involves more streamlined disclosure, thematically organized information, a preference for bullet points over narrative form disclosures, and various call-out boxes to help define key concepts.
Some of the revisions include:
- removing the requirement to include a fund's net assets per unit/share table in the Financial Highlights Section;
- removing several metrics in the "Ratios and Supplemental Data Table" with the revised requirement to only provide one year of historical information instead of five years in the Costs section;
- removing the requirement to provide performance information for each series/class of an investment fund in favour of a requirement to provide performance information for the series/class with the highest management fee (or, if applicable, any other series/class for which performance would vary based on a characteristic besides fees);
- relocating related party transactions disclosure to a new appendix, which will be included in the independent review committee's annual report to securityholders and will only need to include details that are not already available in existing conflict of interest reports filed on SEDAR+;
- creating a new section where an investment fund must give a brief summary of the investment fund managers' (IFMs') assessment of the fund's success in achieving its investment objectives and using its investments strategies to achieve those objectives during the applicable period; and
- creating a new requirement to include disclosure regarding the liquidity profile of the fund's investment portfolio.
Proposed Form 81-107A: Related party transactions
Currently, IFMs have multiple filing obligations when they carry out a related party transaction. Related party transactions include:
- a purchase/sale of securities between an investment fund and a related person or company;
- a purchase/sale effected by an investment fund through a related person or company with respect to which the related person or company received a fee from the investment fund, the other party to the transaction, or both; and
- a transaction in which the investment fund is a joint participant with at least one related person or company, excluding arrangements relating to insider trading in portfolio securities.
In an effort to eliminate duplicative filing obligations, the Proposed Amendments create a new Form 81-107A with which IFMs can report related party transactions as required under subsections 6.2(1), 6.3(3) and 6.4(2) of NI 81-107. The comparable statutory filing obligations under provincial securities legislation2 would not apply where an IFM files a new Form 81-107A. Form 81-107A would only need to be filed annually, whereas the filing requirements in provincial securities legislation are generally required within a set timeframe (in Ontario, for example, within 30 days after the end of the month in which the related party transaction occurred).
Removal of certain class/series-level disclosure
The Proposed Amendments would revise the content requirements of the Statement of Comprehensive Income, the Statement of Changes in Financial Position, and the notes to financial statements by removing the requirement to include certain class/series-level disclosures not otherwise required by International Financial Reporting Standards. The CSA has noted that the information slated for deletion often becomes lengthy and complex, is burdensome for investments funds to prepare, and is otherwise available in other regulatory documents should investors find it pertinent.
Conclusion
The Proposed Amendments appear to be a concrete step in furtherance of the CSA's strategic goal of delivering responsive regulation that protects investors while reducing regulatory burden, as expressed in the CSA's 2022-2025 Business Plan. The CSA has invited comments on the Proposed Amendments, as well as any other areas where market participants feel the continuous disclosure regime for investment funds could be further improved or modernized: these may be submitted no later than January 17, 2025.
The authors are available to discuss any aspects of the Proposed Amendments or to assist in formulating and drafting any comments readers would like to submit to the CSA.
Footnotes
1. The amendments would impact National Instrument 81-101 Mutual Fund Prospectus Disclosure, National Instrument 81-102 Investment Funds, National Instrument 81-106 Investment Fund Continuous Disclosure, National Instrument 81-107 Independent Review Committee for Investment Funds, National Instrument 45-101 General Prospectus Requirements, and National Instrument 44-101 Short Form Prospectus Distributions, among others.
2. In Ontario, for example, sections 117(1)1, 117(1)3 and 117(1)4 of the Securities Act (Ontario) require a management company to report various related party transactions for each investment fund to which it provides services or advice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
