On October 7 the Canadian Securities Administrators (CSA) published amendments (the Amendments) to implement eight initiatives to reduce the regulatory burden for investment funds. Generally, the changes eliminate duplicative requirements, streamline regulatory approvals and processes, and codify frequently granted exemptions from certain requirements. The changes are as follows.
- Consolidating the simplified prospectus and annual information form (AIF) into one document. The Amendments repeal the requirement for a mutual fund in continuous distribution to file an AIF. In lieu of an AIF, the mutual fund may file a new Form 81-101F1 Contents of Simplified Prospectus (Form 81-101F1) that includes unique requirements of the Form 81-101F2 Contents of Annual Information Form (Form 81-101F2). The Amendments also streamline the Form 81-101F1 by repealing difficult-to produce requirements that were found to not be meaningful for investors, and requirements to produce disclosure that is available in other regulatory documents.
- Mandating a requirement for each investment fund to have a designated website on which to post the fund’s regulatory disclosure. The website must be publicly accessible and established and maintained by the investment fund or by the investment fund manager or a person designated by the investment fund manager. This person may include a third-party service provider, or an affiliate or associate of the investment fund manager.
- Codifying exemptive relief allowing for the use of notice-and-access system for the solicitation of proxies by investments funds. Notice-and-access permits delivery of proxy-related materials by sending a notice providing registered holders or beneficial owners with summary information about the proxy-related materials and instructions on how to access them. The Amendments also extend the notice-and-access system to non-management solicitation of proxies, consistent with the rules for non-investment fund reporting issuers.
- Minimizing personal information form (PIF) filings by individual registrants and permitted individuals. The filings will not be required for such persons that have previously filed a Form 33-109F4Registration of Individuals and Review of Permitted Individuals (Form 33-109F4). The CSA noted that this does not affect investor protection as information provided to the regulators in Form 33-109F4 is otherwise required to be kept up-to-date.
- Codifying exemptive relief granted in respect of conflicts applications. These include exemptions to permit (a) fund-on-fund investments by investment funds that are not reporting issuers; (b) in specie subscriptions and redemptions involving related managed accounts and mutual funds; and (c) inter-fund trades of portfolio securities between related reporting investment funds, investment funds that are not reporting issuers and managed accounts at the last sale price. Please note that there are a number of conditions to this relief. The CSA is not proceeding with the codification of exemptive relief to engage in in specie transactions at this time, in order to permit the CSA to consider the impact of CSA Staff Notice 81-333 Guidance on Effective Liquidity Risk Management for Investment Funds on in specie
- Broadening the pre-approval criteria for investment fund mergers. The Amendments provide that subparagraph 5.6(1)(a)(ii) of National Instrument 81-102 Investment Funds (NI 81-102) can be satisfied where: (a) the investment fund manager reasonably believes that the transaction is in the best interests of the investment fund despite differences between the funds; and (b) the information circular discloses the differences between the funds and explains why the investment fund manager is of the belief that the transaction is in the best interests of the investment fund despite the differences. In addition, the Amendments provide that paragraph 5.6(1)(b) of NI 81-102 can also be satisfied where: (a) the investment fund manager reasonably believes that the transaction is in the best interests of the investment fund despite the tax treatment of the transaction; and (b) the information circular: (i) discloses that the transaction is not a “qualifying exchange” within the meaning of section 132.2 of the Income Tax Act (Canada) (ITA) or a tax-deferred transaction under subsection 85(1), 85.1(1), 86(1) or 87(1) of the ITA; (ii) discloses the reason why the transaction is not structured so that the pre-approval criterion applies; and (iii) explains why the investment fund manager is of the belief that the transaction is in the best interests of the investment fund despite the tax treatment of the transaction.
- Repealing the regulatory approval requirement for a change of manager, change of control of a manager, and change of custodian that occurs in connection with a change of manager. The CSA noted that since the adoption of these requirements in NI 81-102, National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations has implemented registration requirements for investment fund managers that allows the CSA to continue assessing suitability for investment fund manager registration. A change of manager will continue to be subject to securityholder approval and the requirement to prepare an information circular. In order to help investment funds meet their disclosure obligations, the Amendments add certain specific disclosure requirements that will apply to the information circular when there is a change of manager.
- Codifying exemptive relief granted in respect of the fund facts and ETF facts delivery requirement for certain purchases. These are with respect to: (a) purchases of conventional mutual fund securities made in managed accounts or by permitted clients that are not individuals; (b) subsequent purchases of conventional mutual fund securities under model portfolio products and portfolio rebalancing services; (c) purchases of conventional mutual fund securities made under automatic switch programs; and (d) conforming Form 81-101F3 Contents of Fund Facts Documents with Form 41-101F4 Information Required in an ETF Facts Document.
The Amendments amend National Instrument 41-101 General Prospectus Requirements (NI 41-101), National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101), NI 81-102, National Instrument 81-106 Investment Fund Continuous Disclosure, and National Instrument 81-107 Independent Review Committee for Investment Funds. In addition to the amendments described above, certain other consequential amendments were made to NI 41-101, NI 81-101 and NI 81-102. Annex D to the Amendments is published in any local jurisdictions that are making changes to local securities laws. For example, in Ontario, the Ontario Securities Commission (OSC) published a summary of public comments and OSC responses on the Ontario cost-benefit analysis along with amendments to OSC Rule 13-502 Fees.
Subject to Ministerial Approval, the Amendments will come into force on January 5 and January 6, 2022.
The Amendments complete the first stage of the CSA’s initiative to reduce regulatory burden on investment fund issuers. Subsequent stages will include further examination of the prospectus filing regime, modernizing the continuous disclosure regime, and exploring alternatives to the current requirements for delivering investment fund related materials.
If you would like to discuss the items highlighted in this summary or any aspect of the Amendments, including your ability to rely on existing exemptive relief you may have received, please do not hesitate to contact us. Please watch for our BLG colleagues’ detailed analysis of these proposals, which will be published in the coming days.
October 29, 2021