Although investment dealers don’t have to worry about the new disclosure regime for ETFs until late next year, ETF companies will have to start producing new summary disclosure documents modelled on the mutual fund Fund Facts documents beginning on Friday.
The Canadian Securities Administrators (CSA) adopted rule changes in December 2016 requiring ETF firms to start filing ETF Facts documents as of Sept. 1. Under the rules, when an ETF sponsor files a preliminary prospectus with regulators, it must also file its ETF Facts and post it to its website.
The CSA indicates that it will take about 13 months for all ETFs to file their ETF Facts as they renew their prospectuses. The deadline for all ETFs to file their ETF Facts is Nov. 12, 2018. The requirement for investment dealers to provide these documents to clients instead of a prospectus doesn’t kick in until Dec. 10, 2018.
The new disclosure documents are modelled on the Fund Facts documents that were pioneered in the mutual fund industry as a new way of providing investors with concise disclosure in place of the traditional prospectuses, which were seen as too long and dense to provide most investors with meaningful, useful disclosure. Regulators aim to solve that problem by mandating new, shorter, plain-language documents that highlight key information about funds.
As with Fund Facts, ETF Facts must be no longer than two, double-sided pages; written in plain language; mandating certain information about past performance, along with the risks and costs of investing. In addition, ETF Facts include information specific to ETFs, given that they’re typically traded on exchanges.
“We think the introduction of the ETF Facts will help provide investors with access to key information about an ETF, in language they can easily understand,” the CSA says in its notice. “Delivery of the ETF Facts to investors will also help improve the consistency with which disclosure is provided to investors of ETFs, and help create a more consistent disclosure framework between conventional mutual funds and ETFs.”
However, unlike Fund Facts, which must now be delivered to investors up front, dealers will only have to deliver ETF Facts within two days of a sale. The CSA has said that it plans to “consider the feasibility of requiring pre-sale delivery of the ETF Facts.”
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