Revised Investment Fund Governance Rule Focuses on Investor Protection

CSA Securities

Toronto – The Canadian Securities Administrators (CSA) have published for second comment a revised version of a proposed rule on the governance of investment funds that focuses on enhancing investor protection.

The proposed rule would impose a minimum, consistent standard of governance for all publicly offered investment funds. Currently, there is no requirement that investment funds have a governance body.

Under the proposal, every publicly offered investment fund must have an Independent Review Committee (IRC) to oversee a fund manager’s decisions in situations where they are faced with a conflict of interest. These conflicts would include “business” or “operational” conflicts that are not specifically regulated today, as well as related-party transactions, which are currently restricted.

“We believe the proposed rule will provide substantial protection to investors,” said David Brown, Chair of the Ontario Securities Commission (OSC). “It will ensure that a manager’s conflicts of interest do not influence the decisions that affect investors.”

The revised rule differs from an earlier proposal, published in 2004, in a number of significant ways, including:

  • It would apply to all publicly offered investment funds, not just mutual funds;
  • Existing rules and prohibitions on related-party and self-dealing transactions would be retained;
  • The IRC would have the ability to stop a manager from proceeding with a prohibited transaction;à
  • Investors would continue to have the right to vote on a proposed increase of management fees, change of manager, and changes to a fund’s investment objective; and
  • It would provide the IRC with effective methods to oversee and report on manager conflicts of interest.

“I’m pleased that the CSA members worked collaboratively to find a good fund governance regime for all investment funds,” said Jean St-Gelais, Chair of the CSA and President and CEO of the Autorité des marchés financiers du Québec. “Going forward, our capital markets will benefit from this proactive approach to investor protection.”

The texts of the proposed instrument, National Instrument 81-107 Independent Review Committee for Investment Funds, and related amendments, are available on several CSA members’ websites. CSA members will accept public comments on the proposal until August 25, 2005.

The CSA, the council of the securities regulators of Canada’s provinces and territories, coordinates and harmonizes regulation for the Canadian capital markets.

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Media relations contacts:

CSA member name

Point of contact

Phone number

Autorité des marchés financiers

Philippe Roy

514 940-2176

Alberta Securities Commission

Joni Delaurier

403 297-4481

British Columbia Securities Commission

Andy Poon

604 899-6880

Director, Communications & Public Affairs Ontario Securities Commission

Wendy Dey

416 593-8120

Manitoba Securities Commission

Ainsley Cunningham

204 945-4733

New Brunswick Securities Commission

Rick Hancox

506 658-3119

Saskatchewan Financial Services Commission

Patti Pacholek

306 787-5871

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