IFIC discards several BCSC mutual fund industry reform proposals

(January 20, 2003) The Investment Funds Institute of Canada has shot down several key provisions contained in the British Columbia Securities Commission’s proposals to reform mutual fund regulations. IFIC believes that fund companies should not be forced to file quarterly performance reports and that foreign fund companies shouldn’t be allowed to sell products in Canada.

In an extensive 81-page report on fund regulation released last year, the BCSC suggested that fund companies be required to report fund performance quarterly, instead of twice a year. In a draft letter sent to members last week, IFIC’s BCSC Proposals Working Group argues that quarterly reports are unnecessary and focus attention on short-term performance.

“We believe investors do not want to receive quarterly performance updates because one of the primary reasons that an individual invests in a mutual fund is the ability to delegate the responsibility of money management to a professional,” IFIC says. “Investors who rely on professional money managers to handle their investments do not want to be inundated with detailed and frequent information on their investments.”

The BCSC also proposes foreign companies that are subject to a “credible regime of regulation” be allowed to offer their securities in Canada, but IFIC dislikes this idea. “Canadian mutual fund companies pay fees and taxes to support Canada’s markets,” IFIC’s letter states. “It is not in the Canadian markets’ best interests to permit a fund company that does not pay into the Canadian marketplace to obtain the benefits of Canadian investors’ money.”

IFIC also expresses concern about the BCSC’s suggestion that investors be given new rights to sue market participants for fraud and other misrepresentations. IFIC notes that, because the BCSC’s proposals are focused on principles rather than specific rules, a civil liability system would be difficult to establish.

“In a regime where there are no bright lines to be crossed, the potential for litigation that tests the limit of potential claims is significant,” IFIC says.

Despite the concerns, IFIC generally supports the commission’s proposals, calling them a “positive step toward achieving a mutual fund regulatory regime that operates efficiently while protecting investors.”

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca