On January 27, the Canadian Securities Administrators (the CSA) published CSA Notice and Request for Comment – Proposed Amendments to National Instrument 41-101 General Prospectus Requirements, National Instrument 81-101 Mutual Funds Prospectus Disclosure, and Related Proposed Consequential Amendments and Changes and Consultation Paper on Base Shelf Prospectus Filing Model for Investment Funds in Continuous Distribution – Modernization of the Prospectus Filing Model for Investment Funds (the Notice). If you were able to get through reading the entire title of the Notice, you will already have a sense of its scope.
The Notice is divided into two parts, the first being proposed amendments to a number of national instruments that would reduce the frequency of prospectus filings for funds that are in continuous distribution by extending the lapse date period for pro forma prospectuses (collectively, the Proposed Amendments). As a result, a prospectus would be required to be renewed every two years instead of every year.
The stated purpose of the Proposed Amendments is to modernize the prospectus filing model without affecting the currency of the information available to investors to make an informed investment decision. There would be no change to when the Fund Facts or ETF Facts (as applicable) would need to be filed (i.e., annually) and delivered, and it is those documents which will continue to provide investors with the disclosure that changes from year to year. Funds will still be subject to the requirements relating to material changes if any take place prior to the next prospectus renewal. In addition, the CSA is proposing to repeal the requirement to file a final prospectus no more than 90 days after the issuance of a receipt for a preliminary prospectus for all investment funds. The CSA has determined that the 90-day limit to file a final prospectus is no longer required for investments funds; unlike corporate issuers that could be marketing off of stale data in a preliminary prospectus, investment funds do not generally market through a preliminary prospectus, nor do they usually contain material financial information that could become stale after 90 days.
As part of the Proposed Amendments, the CSA is seeking feedback on four specific questions relating to the proposed change to the prospectus filing requirements (i.e. the proposal to extend the lapse date from 12 months to 24 months). The Notice does indicate that the changes will be contingent on not having a negative impact on filing fees; in other words, it is expected that each jurisdiction will change their filing fees such that the annual filing of the Fund Facts/ETF Facts will incur filing fees instead of the prospectus filed every two years.
As part of a second stage of modernizing the prospectus rules, the CSA released a consultation paper which discusses the possible adaptations to the shelf prospectus filing model that could apply to investment funds in continuous distribution (the Consultation Paper).
In the Consultation Paper, the CSA seeks input from market participants to help them determine whether to publish proposed amendments to permit a base shelf prospectus filing model for investment funds in continuous distribution, similar to the regime set out for corporate issuers in NI 44-102 Shelf Distributions. It is noted that the lapse of a pro forma prospectus causes funds to incur the time and cost of renewal, despite the fact that much of the disclosure does not change on an annual basis. The current regime for corporate issuers includes mechanisms to ensure all material facts are disclosed and that liability is imposed on persons or companies required to certify that the prospectus does disclose all material facts. For investment funds, it is contemplated that the base shelf prospectus could have a lapse date beyond 25 months, and that certain disclosure documents such as the Fund Facts and ETF Facts would be incorporated by reference into the base shelf prospectus and be subject to primary market liability in the event of a misrepresentation. The CSA notes that in connection with any such proposal, it would also look to remove disclosure items from the base shelf prospectus that would not have to be updated annually and moved into documents that would be incorporated by reference.
As part of the Consultation Paper, the CSA is also seeking feedback on a number of specific questions, including with respect to the appropriate disclosure to include in the equivalent of a base shelf prospectus for a group of investment funds, any adverse impacts such a prospectus may have on the disclosure required by investors, or any adverse impacts it could have on current liability rights.
The CSA is seeking comments on the Proposed Amendments and Consultation Paper by April 27, 2022. If you would like to discuss these proposals, please contact a member of our team.
January 31, 2022