Proposed Implementation of Stage 2 of Point of Sale Disclosure for Mutual Funds
1. Substance and Purpose of Stage 2 of Point of Sale Disclosure for Mutual Funds
The CSA believes that the fund facts document (Fund Facts) is central to the point of sale disclosure framework. The Fund Facts is in plain language, no more than two pages double-sided, and highlights information that is important to investors. The proposed implementation of Stage 2 of Point of Sale Disclosure for Mutual Funds will replace the prospectus delivery requirement under securities legislation, with a requirement that the Fund Facts be delivered in place of the prospectus within two days of the purchase of a mutual fund.
2. History of the Amendments
On October 24, 2008, the Joint Forum of Financial Market Regulators published a framework paper (Framework) with the aim to harmonize the disclosure regime of mutual funds and segregated funds. In order to achieve this, the Framework focused on three main principles: providing investors with key information about a fund; providing the information in a simple, accessible and comparable format; and providing the information before investors make their decision to buy. An article discussing the Framework is available here.
Concurrent to the release of the Framework, CSA Notice 81-318 Request for Comment — Framework 81-406 Point of sale disclosure for mutual funds and segregated funds was published, requesting comments on issues related to the implementation of the Framework and its principles. On June 19, 2009, proposed amendments were published. An article discussing the proposed amendments is available here.
Stage 1 of Point of Sale Disclosure for Mutual Funds came into force on January 1, 2011, and required that all mutual funds subject to NI 81-101 file a Fund Facts for each series or class of a mutual fund concurrent with the filing of the simplified prospectus and annual information form. Stage 1 also required that a Fund Facts be sent to investors free of charge upon request. An article discussing the implementation of Stage 1 is available here.
3. Proposed Implementation of Stage 2 of Point of Sale Disclosure for Mutual Funds
The proposed amendments to NI 81-101 require delivery of the most recently prepared Fund Facts, for the applicable class or series in all instances where the prospectus would otherwise be required to be delivered, although the prospectus and the simplified prospectus must be sent to investors free of charge upon request. Delivery of the Fund Facts must be made within two days of the purchase of the mutual fund. The CSA has published Staff Notice 81-321 Early Use of the Fund Facts to Satisfy Prospectus Delivery Requirements, which provides guidance on key terms and conditions that the CSA will consider in an application to permit the use of the Fund Facts to satisfy the current prospectus delivery requirements, prior to the implementation of this stage.
The amendments also restrict the documents that may be attached to, or bound with, the Fund Facts on delivery. A Fund Facts may only be attached or bound with:
- the confirmation of purchase;
- another Fund Facts of a mutual fund that is required to be sent to the investor;
- the simplified/multiple prospectus or the annual information form of the mutual fund;
- management reports of fund performance; and
- financial statements of the mutual fund.
None of the attachments may be placed in front of the Fund Facts other than a confirmation of purchase, front cover or table of contents. Non-educational material, such as promotional brochures, may be delivered with the Fund Facts provided that it is not included within, wrapped around, or attached or bound to the Fund Facts.
When the Fund Facts is delivered in place of the simplified prospectus, legislative amendments will be sought (where necessary) in order to preserve an investor’s right to:
- damages or to rescind the purchase if the investor does not receive the Fund Facts; and
- withdraw from the purchase within two business days of receiving the Fund Facts.
As the Fund Facts is incorporated by reference into the simplified prospectus, the existing statutory rights for misrepresentation in a prospectus will apply for any misrepresentations in the Fund Facts.
The proposed amendment will make minor changes to NI 81-101F3 to clarify that all fees and expenses payable directly by an investor when buying, holding, selling or switching units or shares of the mutual fund must be disclosed in the Fund Facts.
The proposal also provides a mutual fund with the option to include the fund identification code for the class or series. Mutual funds that wish to include the fund identification code prior to the implementation of Stage 2 may submit an application letter, with the prospectus requesting a variation in the requirements of NI 81-103F3 to include the relevant fund codes for the class or series of the fund described in the fund facts document. This relief will generally be evidenced by way of receipt.
The CSA has stated that the final stage involves reviewing comments submitted and publishing the proposed requirements to implement point of sale delivery for mutual funds. During this stage, the CSA will also consider point of sale delivery for other types of publicly offered investment funds, and intends to seek further feedback on the content of the Fund Facts, in particular the presentation of risk and the inclusion of a benchmark.
Comments on the Implementation of Stage 2 of Point of Sale Disclosure for Mutual Funds must be received by November 10, 2011.