81-319 - Status Report on the Implementation of Point of Sale Disclosure for Mutual Funds [CSA Staff Notice - Lapsed]

Purpose

This Notice provides an update on the implementation of the Canadian Securities Administrators (CSA) point of sale disclosure project for mutual funds.

Background

On June 19, 2009, the CSA published proposed amendments to National Instrument 81-101 Mutual Fund Prospectus Disclosure, its Forms and Companion Policy (collectively, the Instrument), aimed at providing investors with more meaningful and effective disclosure. The Instrument was the first step in implementing the point of sale disclosure framework published in October 2008 by the Joint Forum of Financial Market Regulators (the Joint Forum), which includes the CSA. Under the framework, investors would receive key information about a mutual fund at a time that is relevant to their investment decision.

Central to the new prospectus disclosure regime is the Fund Facts document. It is in plain language, will be no more than two pages and highlights the potential benefits, risks and the costs of investing in a mutual fund.  Investors would generally receive a Fund Facts when they buy a fund for the first time (at or before the “point of sale”).

The comment period expired on October 17, 2009. We received 54 comment letters on the Instrument. Copies of the comment letters have been posted on the Ontario Securities Commission website at www.osc.gov.on.ca. Copies are also available from any CSA member.

This is a significant investor protection initiative. Canadian investors have approximately $620 billion invested in mutual funds held in over 47 million accounts. We think the disclosure required by the Instrument would provide investors with the opportunity to make more informed investment decisions by giving investors key information about a mutual fund, in language they can easily understand, at a time that is relevant to their investment decision. The Instrument also keeps pace with developing global standards on point of sale disclosure and delivery.

A staged approach to implementation

The comments show that stakeholders generally agree with the benefits of providing investors with a more meaningful and simplified form of disclosure, and support the Fund Facts as a way of providing concise, plain language information that describes key elements of the mutual fund under consideration.

However, we received significant comments related to operational and compliance concerns with point of sale delivery for mutual funds. A large number of commenters also asked the CSA to implement a point of sale disclosure regime for other types of publicly offered investment funds and other securities at the same time.

While the CSA agrees that further review and consideration of issues related to point of sale delivery for mutual funds are necessary, we also think that it would be beneficial for the Fund Facts document to be made available to investors and market participants as soon as possible. This would provide investors with the opportunity to have access to key information about a mutual fund sooner. It would also allow investors and dealers to become familiar with the document and start using the Fund Facts in the decision-making process. Accordingly, the CSA has concluded to proceed with a staged implementation of the project.

The CSA remains committed to implementing point of sale disclosure for mutual funds. A staged implementation will allow us the opportunity to continue to consult with stakeholders and to consider the applicability of the point of sale regime for mutual funds to other types of publicly offered investment funds, with the possible outcome of implementing a point of sale delivery requirement at the same time for all comparable investment fund products. At this time, we are not considering the applicability of point of sale to securities other than publicly offered investment funds.

We anticipate a staged implementation of the project to proceed as follows:

1. File and post Fund Facts

We will finalize the requirements in the Instrument requiring a mutual fund to prepare and file a Fund Facts document and have it posted to the mutual fund’s or its manager’s website. As part of these requirements, a Fund Facts would be required to be delivered to an investor upon request.

Since the expiry of the comment period, we have focused on the feedback related to the Fund Facts. In response to the comments received, we have made some non-material revisions to the Fund Facts document published in June 2009. Appendix A to this Notice contains an example of a form of Fund Facts the CSA expects will satisfy the requirements of the final Instrument.

We anticipate publishing the Fund Facts requirements by December 2010, with an effective date in early 2011. The requirements will include a transition period.

2. Deliver Fund Facts under current requirements

In mid-2011, we expect to publish for comment a proposal to allow delivery of the Fund Facts to satisfy the current prospectus delivery requirements under securities legislation to deliver a prospectus within two days of buying a mutual fund. As part of this proposal, we do not intend to make any changes to a mutual fund’s obligation to file its simplified prospectus and annual information form with the CSA, and these documents would continue to be made available to investors on a website and upon request, at no cost.

While this work on delivery within the existing requirements is underway, the CSA will consider applications for exemptive relief to permit the early use by dealers of the Fund Facts to satisfy the current prospectus delivery requirements.  We will publish a staff notice in 2011 that sets out the key terms and conditions the CSA anticipate requiring as part of any exemption.

3. Point of sale delivery

Once the CSA has completed its review and consideration of the issues related to point of sale delivery, including consultations with all stakeholders, we intend to move forward with requirements for point of sale delivery for mutual funds and possibly for other types of publicly offered investment funds. We will publish for further comment any proposed requirements that would implement these delivery requirements.

Questions

You may refer any questions or comments to any of,

Noreen Bent
Manager and Senior Legal Counsel
Legal Services, Corporate Finance
British Columbia Securities Commission
Phone: 604-899-6741
E-mail: nbent@bcsc.bc.ca

Christopher Birchall
Senior Securities Analyst
Corporate Finance
British Columbia Securities Commission
Phone: 604-899-6722
E-mail: cbirchall@bcsc.bc.ca

Bob Bouchard
Director and Chief Administration Officer
Manitoba Securities Commission
Phone: 204-945-2555
E-mail: Bob.Bouchard@gov.mb.ca

Daniela Follegot
Legal Counsel, Investment Funds Branch
Ontario Securities Commission
Phone: 416-593-8129
E-mail: dfollegot@osc.gov.on.ca

Rhonda Goldberg
Deputy Director, Investment Funds Branch
Ontario Securities Commission
Phone: 416-593-3682
E-mail: rgoldberg@osc.gov.on.ca

Ian Kerr
Senior Legal Counsel, Corporate Finance
Alberta Securities Commission
Phone: 403-297-4225
E-mail: Ian.Kerr@asc.ca

Éric Lapierre
Manager, Investment Funds
Autorité des marchés financiers
Phone: 514-395-0337 ext. 4471
E-mail: eric.lapierre@lautorite.qc.ca

Stephen Paglia
Legal Counsel, Investment Funds Branch
Ontario Securities Commission
Phone: 416-593-2393
E-mail: spaglia@osc.gov.on.ca