CANADA: CSA propose amendments to investment fund product regulations

Friday September 23 2016

The Canadian Securities Administrators (CSA) has issued proposed amendments to investment fund regulations (for both mutual funds and non-redeemable investment funds) as a result of a review of the current regulatory approach and whether it sufficiently addresses product and market developments in the Canadian investment fund industry, and continues to adequately protect investors.

The Proposed Amendments, while focused on alternative funds, also include provisions that will impact other types of mutual funds, as well as non-redeemable investment funds through the Interrelated Investment Restrictions. The Proposed Amendments seek to move most of the regulatory framework currently applicable to commodity pools under NI 81-104 into NI 81-102 and rename these funds as “alternative funds”. They also seek to codify existing exemptive relief frequently granted to mutual funds, and to include additional changes arising from the feedback received on the proposals set out in the Framework Consultation Questions.

The proposed amendments include:

• replacing the term “commodity pool” with “alternative fund”, a new term that the CSA believes will better describe the types of investment objectives and strategies that characterise these types of funds;
• permitting alternative funds to have a higher concentration restriction than the current limit applicable to conventional mutual funds and to commodity pools, specifically from 10% of net asset value (NAV) to 20% of NAV;
• for mutual funds that do not qualify as alternative funds, the expansion of the scope of permitted investment in physical commodities to allow mutual funds to invest directly in silver, palladium and platinum, in addition to gold (including certificates representing these precious metals), and obtain indirect exposure to any physical commodity through the use of specified derivatives;
• permitting mutual funds (other than alternative funds) to invest up to 10% of their net assets in securities of alternative funds and non-redeemable investment funds; and
• increasing the aggregate market value of all securities that may be sold short by an alternative fund to 50% of the NAV of the fund, from the current limit of 20% of NAV for all mutual funds (including commodity pools).

Comments on the proposed changes are requested in writing on or before 22nd December 2016.

For full details of the proposed amendments click on the link above