The Ontario Securities Commission (OSC) is planning to streamline disclosure requirements around investment funds – something the regulator says will help reduce the regulatory burden for companies, and allow investors to make better investment decisions.
The OSC says it plans to nail down its specific proposals for funds by the end of the year, and have a paper out for public comment for industry players by the end of the first quarter of next year. New disclosure rules may take effect as early as the end of 2018.
Reducing regulatory red tape is a priority for the OSC this year.
A few weeks ago, the regulator put forward ideas to streamline disclosure rules for publicly-listed companies in a report that was released for public comment.
Some of those proposals included moving away from quarterly financial reporting in favour of semi-annual reporting. Like publicly traded companies, investment funds such as mutual funds, closed-end funds, exchange-traded funds (ETFs) and structured products are required to continually disclose myriad documents on the System for Electronic Document Analysis and Retrieval (SEDAR). Those disclosures include a simplified prospectus, semi-annual financial statements, fund-performance reports and fund-facts sheets.
"We know that investors don't necessarily know how to read [disclosure documents]," John Mountain, director of investment funds and structured products branch with the OSC, said in an exclusive interview.
"And it's pretty easy to confuse them by giving them too much disclosures."
Mr. Mountain says the regulator is looking at the disclosure requirements and figuring what's "really important" and must stay – and what "serves no purpose whatsoever," and therefore can be eliminated.
"Hopefully, the changes will lead investors to the needle, rather than giving them the haystack and asking them to find the needle," he said.
Observers have argued that, in some instances, investors are essentially given a choice of too much information or not enough.
Prospectuses, which are filed when a fund is first offered for sale, typically run more than 100 pages, and but a "fund facts" document that gives investors only the essentials is usually a two-pager. Mr. Mountain raised the possibility that the prospectus document could be shortened as a result of the new rules, but he said the fund-facts document is unlikely to be modified (other than the possible addition of a line).Some disclosure requirements within regulatory documents may be discarded entirely. Mr. Mountain cited the example of every prospectus currently containing a 25-30 page description of what a mutual fund is – something he says was needed 20 years ago when investing in mutual funds was relatively limited, but is largely redundant today.
Mr. Mountain also pointed out the potential confusion that is created when essentially the same information is described in slightly different ways in different documents. For example, the "fundamental objectives" of a mutual fund is described in both the fund facts document and the prospectus, but there are subtle differences in the wording.
Before rejoining the OSC last year (he worked at the regulator in the mid-eighties as an articling student and again from 1989 to 1996 as senior counsel), Mr. Mountain spent a decade in the fund industry. From 2005 to 2015 he worked as chief counsel for Northwest Funds (later NEI Investments).
The OSC is working closely with the Autorité des marchés financiers (AMF), Quebec's securities regulator, on this file. Any new rules would ultimately be introduced by the Canadian Securities Administrators (CSA), an umbrella group for Canada's provincial securities regulators.
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