Securities regulators expect to publish proposals later this year that will require exchange-traded funds (ETFs) to provide investors with their own version of Fund Facts disclosure documents, according to an Ontario Securities Commission (OSC) report.

They’re also reviewing mutual funds’ distribution policies, short-term trading fees, and the growing structured note business.

The OSC recently published Summary Report for Investment Fund and Structured Product Issuers – 2014, outlining the past year’s activities in its investment funds and structured products branch (which was created in May 2014). The report details the branch’s ongoing policy priorities, emerging issues, compliance reviews, and its outreach efforts, among other things.

The report reveals that the Canadian Securities Administrators (CSA) expect to publish proposed amendments later this spring, or early summer, that will mandate a new summary disclosure document for ETFs, modelled on the Fund Facts documents that are now in use by mutual funds. The proposals would also require delivery of the new documents within two days of a sale.

The branch also indicates that it’s concerned about mutual funds that automatically pay distributions in reinvested units, rather than cash. The report says that regulators believe investors should have the choice of how they prefer distributions to be paid, particularly in cases where the distribution of units could result in additional fees being paid by an investor. For example, it notes that if a fund is purchased under a deferred sales charge (DSC), fees may be payable on redemption of reinvested units.

Also, the form of payment could give rise to conflict of interest issues, it notes, as distributions in units benefit the fund manager and the advisor more than cash distributions would, since additional fund assets generate more management fees and trailing commissions.

“We expect to continue to review fund distribution policies generally, with a particular emphasis on those mutual funds that seek to make regular distributions,” the report says; adding that those reviews will include examining default options, and the differing treatment of reinvested distributions versus cash in DSC funds. “For existing funds, this may result in a request for enhanced disclosure in the prospectus or the Fund Facts. We also expect to seek feedback from fund managers with respect to a reasonable time period to transition towards the removal of any default options, as well as the steps involved in doing so,” it says.

The report also flags the branch’s interest in fund managers that are reducing the period for levying short-term trading fees from 30 days to seven days. “If a fund manager changes their practice relating to the applicability of short term trading fees, staff will seek clarification regarding the rationale for the change,” it says; adding, “As staff continues to review and further consider this issue, we remind investment fund managers of their fiduciary duty to maintain effective policies to deter short term trading.”

Additionally, the report indicates that OSC staff continues to monitor the development of the structured note industry. In January, the commission published a notice setting out its views on disclosure and other issues that structured note issuers should consider when building and administering their note programs.

“We will continue to consider what gaps may exist under our regulatory approach to structured notes and whether more formal regulatory requirements may become necessary to ensure we are regulating like products in a consistent way to achieve investor protection and fair and efficient capital markets,” it says in the report.