Reducing the regulatory burden within the investment funds industry is an important ongoing requirement to ensure that rules remain relevant, effective and efficient, and retain integrity. Two recent initiatives on regulatory burden reduction by the Canadian Securities Administrators (CSA) are good news for the industry.
In September 2022, the CSA requested comments on a proposal to introduce an access-based delivery model for financial statements and interim and annual management reports of fund performance. The proposed amendment would replace the current delivery requirements with a designated website posting requirement along with a news release announcing the availability of the documents. Delivery of physical documents would remain an option. The Investment Funds Institute of Canada supported this proposal and provided recommendations to streamline the news release provisions and to consider expanding the proposal to other annual notices required by securities legislation.
This consultation follows the implementation in September 2022 of the rule to consolidate contents of an annual information form and of a simplified prospectus. The effect was to remove overlapping disclosure between the two forms, requirements that are not meaningful to investors and are difficult to produce, and disclosure requirements that are available in other regulatory documents.
These initiatives are two of the most consequential changes to emerge from the CSA’s wholesale review to streamline investment fund regulation, which began as the Rationalization of Investment Fund Disclosure Project (Project RID) in 2017.
Unfortunately, some people see industry support of regulatory burden reduction as evidence of “de-regulation” or a “race to the bottom.”
Reducing regulatory burden is not de-regulation; nor is it a choice between investor protection and competitive markets. Effective regulation is necessary to maintain market integrity; however, regulatory efficiency is also important.
The higher the cost imposed by regulation, in general terms, the less competitive and attractive Ontario and Canada will be compared to other jurisdictions. Ultimately, these costs are paid by investors.
The CSA has focused on eliminating unnecessary rules; however, there are also opportunities for regulatory burden reduction through operational efficiencies. While Canada does not have a national regulator, it does have a national regulatory system administered by the CSA.
Because CSA operational efficiencies do not involve policy trade-offs, they can be implemented with less controversy and in less time than rule changes. Here are three examples:
- Make Multilateral Instrument 11-102 Passport System a national instrument. This will require the support of the Ontario government, but the benefits would be pan-Canadian. In one step, dual review by the Ontario Securities Commission (OSC) and the other provincial commissions would be eliminated for over 800 Ontario reporting investment funds that do not have the OSC as their principal regulator.
- Implement a single market participant fee model. The CSA tried once without success to standardize the fees paid by market participants. A national fee model would represent a significant regulatory burden reduction and is long overdue.
- Create an independent, not-for-profit national filing systems operator with appropriate CSA policy direction and oversight. This governance model would lower the risk of complex system implementation and allow the CSA to focus on its core regulatory mandate.
Regulatory burden reduction can be achieved in a variety of ways. Project RID is a good example of a strategic policy focus on eliminating unnecessary rules for the investment funds industry without compromising investor protection.
Taking a strategic operational view of how the CSA administers Canada’s national regulatory system has the potential to provide significant benefits to the investment funds industry and investors.
Paul Bourque is past president and CEO of the Investment Funds Institute of Canada.