The Canadian Securities Administrators ("CSA") and the Canadian Council of Insurance Regulators ("CCIR") have published enhanced cost disclosure reporting requirements for investment funds, excluding private funds and labour-sponsored investment funds ("LSIFs"), and new cost and performance reporting requirements for individual variable insurance contracts ("Segregated Fund Contracts"), impacting reporting requirements for dealers, advisers and investment fund managers.

Securities law amendments and insurance guidance related to total cost reporting (the "TCR Enhancements") are being implemented to increase investor awareness of the ongoing, embedded costs of owning mutual funds, exchange-traded funds, scholarship plans and Segregated Fund Contracts, including management fees and trading expenses, as well as to improve policy holders' awareness of rights to guarantees under Segregated Fund Contracts and how their actions might affect their guarantees. Currently, securities registrants and insurers are not required to provide ongoing reporting to investors or policy holders on such costs after the initial sale of an investment fund product.

The TCR Enhancements are expected to come into force on January 1, 2026. Both securities registrants and insurers will be required to deliver the first annual reports that incorporate the TCR Enhancements for the year ending December 31, 2026.

The CSA and CCIR have also launched a total cost reporting implementation committee (the "Committee") with the participation of the Canadian Investment Regulatory Organization. The Committee will support industry stakeholders in their implementation of the TCR Enhancements within the transition period, which ends December 31, 2025, by providing guidance and responding to questions.

Securities Law Amendments

The TCR Enhancements will expand the annual report on charges and other compensation requirements in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and its companion policy to include the following information with respect to certain investment fund securities:

  • the aggregate dollar amount of fund expenses;
  • the aggregate dollar amount of any direct fund charges (e.g., short-term trading fees or redemption fees); and
  • the fund expense ratio, as a percentage, for each investment fund class or series.

The TCR Enhancements also outline certain notifications that must be provided to investment fund clients, including:

  • information about fund expenses and how they are deducted;
  • that clients should refer to the prospectus or fund facts document of each investment fund for details on fund expenses and performance, and to the latest account statement for information about market value and ownership;
  • a statement about any action that may be available to the client;
  • information about deferred sales charges, if applicable;
  • an explanation of any other direct fund charges;
  • that approximations and assumptions are used in calculating costs, if applicable;
  • a statement about products that are exempt from the reporting requirements but which may have embedded fees;
  • that fund expenses and fund expense ratios of foreign investment funds may differ, if applicable; and
  • that third-party fees (e.g., custodial fees, intermediary fees or interest charges) may not be included.

Structured products, LSIFs and private funds are excluded from these requirements due to the differences between how those products operate and potential implementation issues. Existing exemptions for statements and reports provided to non-individual permitted clients, including institutional investors, continue to apply.

Insurance Sector Enhancements

An enhanced cost and performance reporting disclosure framework for Segregated Fund Contracts will be outlined in the Individual Variable Insurance Contract Ongoing Disclosure Guidance and will apply to all insurers offering Segregated Fund Contracts to their policy holders. In an effort to align the insurance and securities sectors, additional guidance on ongoing performance disclosure and ongoing disclosure with respect to Segregated Fund Contract guarantees will also be included. The TCR Enhancements related to Segregated Fund Contracts are expected to be adopted by member jurisdictions by way of local guidance or regulation with effective dates to match those of the securities law amendments.

Transition and Implementation

Securities registrants and insurers are encouraged to use the transition period to begin reviewing systems and planning for implementation and testing prior to January 1, 2026. The transition period was extended in light of significant implementation issues and concerns identified in comment letters and further consultations.

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.