CSA proposes amendments to modernize the continuous disclosure regime for investment funds

On September 19, 2024, the Canadian Securities Administrators (the “CSA”) published a set of proposed amendments to update the continuous disclosure regime for investment funds. These proposals are intended to offer investors more relevant and useful information while reducing the regulatory burden on investment fund managers.

The modernization of the continuous disclosure regime for investment funds involves multiple proposals from the CSA. This article summarizes the proposed amendments, including replacement of the current annual and interim Management Report of Fund Performance (the “MRFP”) with a new annual and interim Fund Report, simplifying conflict of interest reporting requirements and the proposal to eliminate some class/series level disclosures from investment fund financial statements.

Management report of fund performance

The CSA proposes to introduce a new and more intuitive Fund Report to replace the MRFP. The proposed Fund Report is based on behavioural insights research that looked at how investors think, act, and make decisions. Further information related to the behavioural insights research is published on the CSA’s website.

According to the CSA, the Fund Report improves on the MRFP by:

• streamlining disclosures by focusing on essential information for investors;
• thematically organizing sections for easier topic review;
• reducing narrative text in favour of bullet points;
• defining key terms and concepts in call-out boxes;
• including brief summaries for quicker review of key information; and
• including clear directions for investors to find detailed information.

For example, the proposed streamlining of disclosures involves eliminating several requirements under the MRFP, such as in the "Results of Operations" and "Recent Developments" sections. This is intended to remove duplicative disclosure requirements where information was reported in multiple sections in the MRFP or in other continuous disclosure filings. Other proposed improvements include:

• removing the "Fund's Net Assets per [Unit/Share]" table in Financial Highlights, since details are in the fund’s financial statements;
• removing metrics in the "Ratios and Supplemental Data" table due to a one-year reporting period in the new Costs section;
• simplifying the "Management Fees" section for better accessibility; and
• replacing the requirement for performance information for each series with a focus on the series with the highest management fee and other series showing performance variations.

In addition, some information currently found in the MRFP will not be included in the new Fund Report but will instead be disclosed through other ongoing disclosure mechanisms applicable to investment funds. For example, related party transactions disclosure will be moved to an appendix of the annual report to securityholders.

Similarly, quarterly portfolio disclosure will no longer be included in the MRFP, but will now be prepared as a standalone document. The content of the disclosure will largely remain the same and investment funds will need to use a new form (Proposed Form 81-106B under NI 81-106: Investment Fund Continuous Disclosure).

The Fund Report would also introduce new information not found in the MRFP, including an investment fund manager (“IFM”) assessment and a liquidity profile. The IFM assessment is intended to enhance environmental, social, and governance (“ESG”) related disclosures for investors. This assessment will summarize the fund's success in achieving its investment objectives and strategies, with specific guidance for investment funds incorporating ESG factors.

Exemption from select conflict of interest reporting requirements

A second proposed amendment to the continuous disclosure regime for investment funds seeks to amend certain statutory requirements in various jurisdictions that require IFMs to file reports on specific related party transactions. Certain transaction-types already apply similar reporting requirements under NI 81-107: Independent Review Committee for Investment Funds. The types of related party transactions include:

• buying or selling securities between an investment fund and a related entity;
• transactions conducted through a related entity that receives a fee from the investment fund or the other party involved; and
• joint participation in transactions with at least one related entity, excluding insider trading arrangements in portfolio securities.

The amendments intend to clarify obligations and eliminate redundancy by exempting certain overlapping statutory reporting requirements. For example, a new standardized reporting form (Proposed Form 81-107A) for related party transactions has been proposed, which will focus on key details without encompassing all elements required by more frequent statutory reporting.

Class/series level disclosures

A third proposal from the CSA aims to eliminate certain class or series-level disclosures that are not required by International Financial Reporting Standards. In particular, the proposed changes would remove class or series-level disclosures of equity changes in the Statement of Comprehensive Income, breakdowns of line items in the Statement of Changes in Financial Position by class or series, and the requirement to disclose differences between classes or series, including sales charges and management fees, in the notes to the financial statements.

These proposals intend to simplify disclosures without impacting investors' access to key class or series-level information. For example, total equity or net assets attributable to securityholders for each class or series would still be required in the Statement of Financial Position.

Conclusion

The CSA's proposed amendments to update continuous disclosure requirements for investment funds will have a 120-day comment period ending on January 17, 2025. If approved, the amendments will take effect three months after final publication, with a proposed nine-month compliance exemption. If you would like to comment on or discuss the CSA’s proposed amendments, we encourage you to contact a member of our Equity Capital Markets team.