09.14.2011
By Terry Flanagan

Disclosure Rules Challenge Funds

Canadian Securities Administrators’’ Fund Facts requirement is but the first in a series of new regulations.

Regulation aimed at providing investors with more meaningful and effective mutual fund disclosure is heating up, with the Canadian Securities Administrators now requiring Fund Facts for each mutual fund class or series.

The CSA’s Fund Facts requirement places new responsibilities on fund administrators at mutual funds and segregated funds to create and deliver more information to investors.   Moreover, additional amendments to Canada’s National Instrument 81-101, of which Fund Facts is an element, are expected after the CSA’s public comment deadline passes on October 14, 2011.

“Not only is this an example of increased Canadian regulation which requires fund administrators to collect, create, confirm and deliver additional fund information, it is important for fund administrators to recognize that the regulatory landscape continues to change, and they must be prepared to respond to these challenges in order to manage today’s operational risk and tomorrow’s regulatory demands,” Scott Powell, product manager for Confluence, told Markets Media.

The regulation, which will enable the Canadian investing public to more easily compare fund products, is in response to similar initiatives being implemented by the SEC in the United States and UCITS IV in Europe.

By having to rigidly adhere to a fixed format, funds facts documents will provide useful information for comparison shopping rather than merely serving as commercial vehicles.

The fund facts document represents the first stage of the Canadian Securities Administrators’ implementation of the point of sale disclosure project for mutual funds. In the second stage, the CSA will publish a proposal to allow delivery of the fund facts instead of the simplified prospectus to satisfy existing delivery requirements under securities legislation.

Currently, investors must receive a simplified prospectus within two days of buying a fund. However, many investors don’t use the simplified prospects because they have trouble finding and understanding the information they need.

In the final stage, the CSA intends to publish requirements for point of sale delivery of the fund facts for mutual funds; the CSA will also consider point of sale disclosure for other types of publicly-offered investment funds.

For asset management firms, however, the regulations present formidable data management challenges, including the need to produce many more documents than they do today. Mutual fund companies will be required to produce a fund facts document for each class or series for each of their mutual funds.

Confluence’s core product, Unity, automates the collection, creation, confirmation and delivery of fund data for multiple critical fund administration processes, including performance calculation and reporting, financial and regulatory reporting and expense management.

A special feature of Unity is that it leverages a central repository of fund data, entered only once and available for multiple reporting purposes, “This enables fund companies to automate vital regulatory, marketing and reporting functions, with confidence in the integrity of their reports and data,” he said.

Clients of Confluence include mutual funds, hedge funds and other alternative investments, funds of funds, collective funds, separate accounts, variable products, and fund service providers.

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