BCN 2005/30 - Request for Comment National Instrument 81-107 Independent Review Committee for Investment Funds and related amendments [BCN - Lapsed]

Concurrently Published:

• 81-107 - Independent Review Committee for Investment Funds [NI Proposed - Lapsed]

In the attached notice, the Canadian Securities Administrators are publishing proposed National Instrument 81-107 Independent Review Committee for Investment Funds for comment.

The CSA notice describes where your comments and questions relating to the proposed instrument can be directed. We will consider all comments received by August 25, 2005.

In addition to the questions set out in the CSA notice, the British Columbia Securities Commission is particularly interested in your views on the following points.

Expanding the scope of the proposed instrument
1.   Are there other approaches that might be more suitable for investment funds that are not conventional mutual funds. For example, could these funds manage their conflicts of interest by publishing their policies and procedures for identifying and resolving conflicts, having conflict situations reviewed by an independent person with appropriate skills and experience, and publishing an annual report on the implementation of those policies and procedures?

Would this type of approach better balance the costs imposed directly on the securityholders of the funds, with the protection they would receive?

Application of the proposed instrument to small investment funds
2.   For small funds that do not have related party conflicts, could the independent directors of the fund manager, or another independent person with appropriate skills and experience, review whether the fund manager has complied with its policies and procedures on business conflicts, disclose the findings in a report to the manager’s board, and make that report available to the fund’s securityholder’s?

Application of proposed instrument to business conflicts
3.   We also request comment on whether we should require a fund manager to have an IRC only if it wants to engage in transactions covered by the prohibitions in Part 15 of the Securities Act or Part 4 of NI 81-102 Mutual Funds.  Is there a less costly and burdensome way to manage the business conflicts faced by fund managers that do not have related party conflicts? For example,

-     having conflict situations reviewed by an independent person with appropriate skills and experience,

-     requiring disclosure of the manager’s conflicts of interest and its policies and procedures for resolving conflicts in favour of investors, and (or)

-     an annual report to securityholders on the implementation of those procedures.

Cost benefit analysis
4.   The British Columbia Securities Commission has been concerned throughout the development of this proposal that the cost-benefit analysis for the proposal was not done before the decision was made to propose imposition of a new governance rule. Our view is that the cost-benefit analysis should be an important factor in deciding whether to impose new regulatory requirements because the costs of those requirements are ultimately paid for by the investors whom the requirements are intended to protect.

Are you satisfied with the analysis that has been done to date as described in both the CSA notice, and in the CSA notice published on January 4, 2004 when NI 81-107 was published for comment the first time? What further analyses, if any, would you find helpful to determine whether the costs to impose this governance regime are appropriate?

May 27, 2005

Douglas M. Hyndman
Chair 

Ref: CSA Notice of NI 81-107 Independent Review Committee for Investment Funds
Appendix A - Summary of Comments and CSA Responses and List of Commenters
Appendix B - Decision Tree
Appendix C - Amendments to NI 81-101 Mutual Fund Prospectus Disclosure, Form 81-101F1 Contents of Simplified Prospectus, and Form 81-101F2 Contents of Annual Information Form
Appendix D - Amendments to NI 81-102 Mutual Funds and Companion Policy 81-102CP
Appendix E - Amendments to NI 81-106 Investment Fund Continuous Disclosure and Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance
Appendix F - Amendments to NI 13-101 System for Electronic Document Analysis and Retrieval (SEDAR)
Appendix G - Amendments to NI 44-101 Short Form Prospectus Distributions and Form 44-101F3 Short Form Prospectus
Appendix H - Amendments to NI 81-104 Commodity Pools
NI 81-107 Independent Review Committee for Investment Funds
BCN 2002/13
BCN 2004/03

Concept Proposal 81-402 Striking a New Balance: A Framework for Regulating Mutual Funds and their Managers
IOSCO Consultation Report - Examination of Governance for Collective Investment Schemes

This Notice may refer to other documents. These documents can be found at the B.C. Securities Commission public website at www.bcsc.bc.ca in the section Securities Law & Policy: Policies & Instruments.