IFIC concerned over distribution and disclosure requirements

par Andrew Rickard | October 11 2016 01:30PM

Photo: Freepik

The Canadian Securities Administrators (CSA) have proposed changes to the way exempt market dealers are regulated and the Investment Funds Institute of Canada (IFIC) says the new rules may prevent portfolio managers from distributing their own funds beyond a managed account. There are also concerns about how sales incentives are supposed to be disclosed in annual reports.

In July, the CSA proposed amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and its companion policy which, among other things, are intended to clarify what exempt market dealers may and may not do.

“No explanation or investor protection”

IFIC submitted its comments on the proposals last week and warns they may create a situation in which portfolio managers or investment fund managers that are also exempt market dealers would be prohibited from selling their own funds beyond a managed account, thereby ending a long-standing permitted practice.

"If this substantive change was intended, the CSA has provided no explanation or investor protection rationale for it in the Notice," says IFIC. "We would appreciate confirmation that the CSA did not intend to prohibit portfolio managers or investment fund managers from distributing their own prospectus-qualified funds to permitted clients through those managers’ exempt market dealers."

IFIC pushed back against changes to the CRM2

In the same submission, IFIC pushed back against changes to the Client Relationship Model Phase 2 (CRM2) which would require companies to list sales incentives in their annual reports.

"Adding a general statement to the annual report that there may be other forms of compensation is unlikely to cause investor confusion," says IFIC. "However we cannot yet say the same about, and would appreciate much more information about what the CSA intends by, the suggestion that the annual report 'specifically list all additional sales incentives' that are, or may be, received by a firm or its representatives."

The complete submission is available on the IFIC web site.