BCN 2002/46 - New Proposals for Mutual Fund Regulation [BCN]

Publication for Comment

The British Columbia Securities Commission is publishing for comment its paper New Proposals for Mutual Fund Regulation. The paper accompanies this Notice.

Background

The following Proposals describe a complete regime of mutual fund regulation (with the exception of statutory civil liability - see below). Elements of them overlap with other initiatives that the Canadian Securities Administrators (CSA) are currently considering relating to mutual fund governance, funds of funds, and investment fund continuous disclosure. In addition, the Joint Forum of Financial Market Regulators is working on various issues relating to fund distribution.

Our goal is not to develop a stand-alone regime for mutual fund regulation in British Columbia. We are putting these Proposals forward for discussion so that industry and other stakeholders can consider them in the context of all initiatives currently under way. The goal is to arrive at a national approach that incorporates the best ideas.

We are not publishing proposals about a civil liability regime for mutual funds. We are considering civil liability for all our proposals, including mutual funds, in light of the comments we have received on our June proposals, the civil liability provisions recently introduced in the Ontario legislature, and our own further study.

These Proposals were developed from the concepts contained in our paper, New Concepts for Securities Regulation, published for comment in February 2002 (BCN 2002/12). The Proposals reflect the comments we received on the February paper and our further study. Other proposals arising from that paper were described in our paper, New Proposals for Securities Regulation, published in June 2002 (BCN 2002/20). The February and June papers are both available on our website at www.bcsc.bc.ca/bcproposals.

Since releasing our February and June papers, we have held town hall and focus group consultation sessions with interested market participants in Vancouver, Calgary, Winnipeg, Toronto and Montreal. Hundreds of interested people have attended these sessions, representing all sectors of the industry, investors, SROs and other regulators.

We have also received dozens of written comments on our ideas and proposals.

Planned Consultations

We are publishing these Proposals for comment and will be actively consulting with industry and investors, our fellow regulators, self-regulatory organizations (SROs), and other stakeholders to discuss the Proposals in detail.

We will conduct consultations with mutual fund industry participants across the country in the coming months. These events will take place in Vancouver, Winnipeg, Toronto and Montreal. If you are interested in participating in one of these sessions, please contact us at bcproposals@bcsc.bc.ca.

Summary of Proposals

Under these Proposals:

1. The current prospectus-based disclosure system for mutual funds would be replaced by a system based on continuous disclosure. Mutual funds would file an AIF and keep all significant information up to date in the market at all times. Mutual funds could sell to investors based on this record of continuous disclosure. A point of sale document would be permitted but not required.

2. Codes of conduct would be mandated for mutual fund companies, advisers (whether advising mutual funds or other clients) and mutual fund dealers. These Codes would substitute general principles and guidance for detailed, complex and prescriptive rules governing business conduct and product regulation.

3. Foreign funds that do not solicit investors in Canada would be allowed to sell funds to Canadian investors without complying with Canadian requirements, as long as they act in accordance with applicable foreign requirements and make certain disclosures.

4. Non-public mutual funds could only sell their units to

• Accredited investors (financial institutions, pension and investment funds, substantial corporations and wealthy individuals)
• Employees and consultants of the fund company, its affiliates and advisers
• Clients of an adviser who buy securities of in-house pooled funds of the adviser

We invite you to write to us about these Proposals. We will consider everything received before January 31, 2003.

Please send your comments to:

British Columbia Securities Commission
c/o Brenda Benham
Head, Deregulation Project
PO Box 10142, Pacific Centre
701 West Georgia Street
Vancouver, British Columbia V7Y 1L2
Fax: (604) 899-6506
e-mail: deregulation@bcsc.bc.ca

If you are not sending your comments by e-mail, please include a disk containing the submissions (in DOS or Windows format, preferably MS Word).

Please note your comments will not be confidential.They will be published on our website.

If you have questions, please contact any of these people on the Deregulation Project:

Brent Aitken
Chair, Deregulation Project
(604) 899-6749
baitken@bcsc.bc.ca

Brenda Benham
Head, Deregulation Project
(604) 899-6635
bbenham@bcsc.bc.ca

Simon Kent
Senior Legal Counsel
(604) 899-6870
skent@bcsc.bc.ca

Leigh-Anne Mercier
Senior Legal Counsel
(604) 899-6643
lmercier@bcsc.bc.ca

November 14, 2002





Brent W. Aitken
Vice Chair

Ref: BCN 2002/12
BCN 2002/20

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 Commission Documents database or the Historical Documents database.