Regulatory roundup: Additional relief measures for registrants and investment funds

In an ongoing effort to address the challenges posed by the current climate, in accordance with investor protection goals, new measures have been introduced by the Canadian Securities Administrators (the CSA) and the Ontario Securities Commission (the OSC) aimed at providing additional guidance and relief to registrants and investment funds.

Increased short-term borrowing limits for mutual funds investing in fixed income

The CSA issued temporary blanket relief that permits mutual funds to engage in certain additional short-term borrowing from April 17, 2020, to July 31, 2020. Subject to certain conditions, the relief increases the limit on borrowings from 5% to 10% of a fund’s net asset value at the time of such borrowing (the Borrowing Relief). 

The Borrowing Relief is available to publicly offered mutual funds in Canada that are subject to National Instrument 81 102 – Investment Funds, other than labour-sponsored or venture capital funds, which  invest a portion of their assets in fixed-income securities, including equity funds holding a portion of fixed-income securities.

In order to engage in the additional borrowing contemplated by the Borrowing Relief, mutual funds must, among other things: ensure the additional borrowing is in the best interest of all investors; have strict controls around its use; and disclose the use of any additional borrowing to investors.

Adjusted implementation date for Client-Focused Reforms

In light of the current situation, the CSA has provided registrants with an additional six months to comply with the conflicts-of-interest provisions in the Client-Focused Reforms. Registrants will now have until June 30, 2021, to implement these changes. 

The relationship-disclosure provisions of the Client-Focused Reforms, which were originally slated to take effect on December 31 of this year, will instead take effect on December 31, 2021, at the same time as the “know your product” and enhanced-suitability provisions, and other remaining changes. This is intended to avoid the need for registrants to make adjustments on more than one implementation date. 

Relief from accrual of late fees charged under OSC Rule 13-502 Fees

The OSC is providing temporary relief to registrants and other market participants by waiving all late fees that accumulate between April 17, 2020, and June 1, 2020. 

The OSC order came into effect on April 17, 2020, and will expire on June 1, 2020. Any additional late fee relief needed for the pandemic period before April 17, 2020, will also be considered. 

Takeaway

The OSC and CSA are monitoring the situation on an ongoing basis and may extend further relief as necessary.