The Ontario Securities Commission’s (OSC) investment funds branch says it is focusing on fees and conflicts of interest as part of its current round of fund prospectus reviews.

In the latest edition of the branch’s newsletter, the regulator says that the branch’s staff is focusing on disclosure concerning fees and expenses, investment objectives and strategies, and conflicts of interest in prospectus reviews. The aim is to encourage more consistent disclosure by investment funds; to promote better disclosure, rather than generic “boilerplate” disclosure; and, to provide funds with more focused comments on issues of particular importance to investors.

Among other things, the newsletter also indicates that its staff recently conducted targeted continuous disclosure reviews of mutual fund risk ratings in the new Fund Facts disclosure documents that focused on funds in the same family that had both a currency hedged fund and an unhedged version of the same fund. It found that fund managers tend to rate both the hedged and unhedged funds with the same risk rating, “even though volatility of past returns varied significantly between the two funds.”

The OSC says that staff’s view is “that the risk ratings for currency hedged funds should be determined separate and apart from their unhedged counterparts, with due consideration given to the fund’s own volatility rather than the volatility of the corresponding unhedged fund.”

It also flags the issue of a scholarship plan that is using disclosure similar to Fund Facts to promote its plans to investors. It stresses that the prospectus and other mandated disclosure is supposed to be the primary source of information for potential scholarship plan investors.

Additionally, it notes that marketing materials used to promote scholarship plans should not contain information that is not included in a publicly filed document, such as the prospectus or a continuous disclosure document.