The Investment Funds and Structured Products Branch ("IFSP") of the Ontario Securities Commission ("OSC") released its Summary Report for Investment Fund and Structured Product Issuers for the fiscal year ended March 31, 2023 (the "Report"). The Report provides an overview of IFSP's recent operational and policy initiatives, which included an increased focus on continuous disclosure reviews.

Report Highlights

What is an investment fund?

As in previous years, the Report describes the role and responsibilities of IFSP and the investment fund market landscape – according to which funds in Canada had approximately C$2.3 trillion in assets under management as of March 31, 2023. This year, IFSP Staff also outline criteria that may be considered when stakeholders evaluate whether a product is an investment fund, as they continue to receive many questions on this topic. The non-exhaustive factors include: (i) the ability to redeem and frequency of redemptions; (ii) calculation of net asset value and investor entitlement; (iii) no active management of underlying assets; (iv) no control of underlying issuers; (v) operations and purpose of the issuer; and (vi) investor expectations.

Filings and reviews

Since there were fewer prospectus filings and applications for exemptive relief in the last fiscal year, IFSP Staff's oversight focused more on continuous disclosure reviews. IFSP Staff also continued to monitor crypto asset and environmental, social and governance-related ("ESG-related") funds, both of which have evolved quickly in recent years.

Notwithstanding the decline in prospectus filings, the Report highlights novel filings related to decumulation and single stock exchange-traded funds that were receipted during the past year. It also shares IFSP Staff's observations from their prospectus reviews of ESG-related funds, following the publication of the Canadian Securities Administrators' guidance to support the improvement of ESG-related fund disclosure, which we discussed in a previous post. Most of the issues from these reviews concerned the disclosure of investment strategies; however, IFSP Staff raised and resolved issues pertaining to fund names, investment objectives, risk disclosure and summaries of proxy voting policies and procedures as well.

While applications for exemptive relief similarly decreased, IFSP Staff note that novel relief was granted in respect of the custody of physical battery metals and value-at-risk-based leverage exposure limits.

By contrast, the Report provides an extensive summary of major continuous disclosure reviews completed in the last fiscal year, for which IFSP Staff assessed:

  • crypto asset funds' continuous disclosure documents and custody of assets, which we discussed in a recent post;
  • ESG-related funds' continuous disclosure, sales communications and portfolio holdings;
  • simplified prospectuses;
  • independent review committees;
  • change of auditor notifications;
  • reports of exempt distributions;
  • standard continuous disclosure filings;
  • investment fund exposure to European bank contingent convertible bonds and the U.S. banking sector; and
  • marketing materials.

Regulatory policy

Modernization and burden reduction remain at the forefront of IFSP's policy initiatives. Notable initiatives that were completed or ongoing during the last fiscal year relate to the:

  • development of an access-based model for investment fund reporting issuers;
  • investment fund settlement cycle, which we discussed in a previous post;
  • proposed modernization of the prospectus filing model, which we also discussed in a previous post;
  • modernization of continuous disclosure documents; and
  • review of principal distributor practices.

Emerging issues and initiatives

IFSP Staff also identify several trends and initiatives that will impact funds going forward. These include the:

  • amendments to OSC Rule 13-502 Fees, which came into force on April 3, 2023, as we discussed in a previous post;
  • transition to SEDAR+, which went live on July 25, 2023, as we also discussed in a previous post;
  • discontinuation of the Canadian Dollar Offered Rate, which will no longer be published after June 28, 2024;
  • Investment Fund Survey, the 2024 version of which is expected to be launched in January 2024; and
  • increasing incidence of cybersecurity breaches.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.