CSA Propose Amendments to Continuous Disclosure Requirements for Investment Funds

On September 19, 2024, the Canadian Securities Administrators (“CSA”) released a Notice and Request for Comment regarding proposed amendments to National Instrument 81-101 Mutual Fund Prospectus Disclosure (“NI 81-101”), National Instrument 81-102 Investment Funds (“NI 81-102”), National Instrument 81-106 Investment Fund Continuous Disclosure (“NI 81-106”) and National Instrument 81-107 Independent Review Committee for Investment Funds (“NI 81-107”), together with consequential amendments to associated policies and applicable securities laws and regulations (collectively, the “Proposed Amendments”).

The CSA intend for the Proposed Amendments to modernize the continuous disclosure regime for investment funds offered by prospectus in Canada. The Proposed Amendments are informed by the stakeholder feedback received by the CSA with respect to an earlier Publication for Comment and general feedback received from other sources, such as recommendations made by the Government of Ontario-established Capital Markets Modernization Taskforce. The Proposed Amendments are aimed at reducing regulatory burdens imposed upon investment funds while also enhancing the utility of investment fund continuous disclosure to investors.

The Proposed Amendments

1. Introduction of a New Fund Report to Replace the Management Report of Fund Performance (“MRFP”)

The new Fund Report is intended to offer various improvements to the current MRFP, such as streamlining disclosures, thematically organizing sections, favouring bullets over narrated texts, defining key terms or concepts in call out boxes, including brief summaries, and providing clear directions for investors.

Some of the amendments include:

• Eliminating certain requirements in the “Results of Operations” and “Recent Developments” sections of the MRFP to avoid duplication;
• Removing “The Fund’s Net Assets per [Unit/Share]” table in the Financial Highlights section since this is readily accessible in the financial statements;
• Removing various metrics in the “Ratios and Supplemental Data Table” pursuant to the revised requirement to provide one year’s worth of information (instead of five) in the “Costs” section;
• Removing the requirement to provide performance information for each series or class of an investment fund in favour of a requirement to provide performance information for the series or class with the highest management fee;
• Moving the disclosure of related party transactions to a new appendix, which will be included in the Independent Review Committee’s annual report to securityholders. This appendix will only need to include information that is not already available in existing conflict of interest reports filed on SEDAR+;
• Establishing a new section where an investment fund must provide a brief summary of the investment fund managers’ evaluation of the fund’s success in meeting its investment objectives and in using its investment strategies to achieve those objectives; and
• Addition of a new requirement to include disclosure regarding the liquidity profile of the investment portfolio of the investment fund.

2. Exemption from Select Conflict of Interest Reporting Requirements in Securities Legislation Where Other Similar Reporting Requirements Are Met

To reduce redundancy and streamline reporting requirements by eliminating duplication in overlapping reporting mandates regarding related party transactions, the Proposed Form 81-107A will be introduced as a new, standardized form for filing related party transaction reports in accordance with subsections 6.2(2), 6.3(3) and 6.4(2) of NI 81-107.

3. Elimination of Certain Class or Series-Level Disclosures from the Investment Fund Financial Statement Reporting Requirements

In an effort to simplify disclosure without diminishing the accessibility of key information for investors, it is being proposed to eliminate certain class or series-level disclosure requirements under Part 3 of NI 81-106 that are not required by International Financial Reporting Standards. Specifically, it is being proposed to:

• Delete the requirement in items 18 and 19 of section 3.2 of NI 81-106 to provide class or series-level disclosure of the increase or decrease in total equity from operations or net assets attributable to security holders from operations, in total and on a per security basis, in the Statement of Comprehensive Income;
• Delete the requirement in section 3.3 of NI 81-106 to provide a breakdown of each line item in the Statement of Changes in Financial Position, by each class or series.; and
• Delete the requirement in paragraph (c) of item 2 of subsection 3.6(1) of NI 81-106 to provide disclosure in the notes to the financial statements identifying the differences between classes or series, including differences in sales charges and management fees.

4. Implementation of Fund Expense Ratio (“FER”) into Fund Facts and ETF Facts

The Proposed Amendments will integrate the FER into the Fund Facts and ETF Facts, specifically in the “Quick Facts” and “How Much Does It Cost?” sections of those documents. These changes aim to ensure consistency in the use of the FER in the proposed Fund Report and the FER that will be mandated in the annual report on charges and other compensation, as outlined in section 14.17 of NI 31-103, pursuant to the Total Cost Reporting (TCR) for Investment Funds and Segregated Funds publication dated April 20, 2023.

5. Minor Revisions Related to the Version of Form 81-101F1 Contents of Simplified Prospectus That Came into Force on January 6, 2022

The Proposed Amendments will:

• Allow a mutual fund with multiple, separately bound Part B sections in its multiple simplified prospectus, to prepare a Part B introduction at the end of the Part A section of its multiple simplified prospectus with the aim of enabling a reader to better navigate the document;
• Eliminate the requirement to list the mutual funds to which the multiple simplified prospectus relates on the basis that the front cover must include such a listing. Additionally, the requirement to identify where each Part B section can be found will be maintained; and
• Clearly mandate the disclosure of a mutual fund’s start date in Part B of its simplified prospectus.

Next Steps

The CSA are soliciting comments from market participants on the Proposed Amendments for a 120-day period expiring on January 17, 2025.

If you have any questions with respect to the Proposed Amendments, please contact Ronald Schwass at [email protected] or any other member of Wildeboer Dellelce LLP. The author gratefully acknowledges the assistance of articling student Sepehr Yousef Pour in the preparation of this update.

This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.

If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.