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On October 19, 2022, the OSC released Staff Notice 81-733 Summary report for issuers of investment funds and structured products (The report). The report provides an overview of key activities and initiatives of the OSC’s Investment Funds and Structured Products Branch (IFSP) in fiscal year 2021-2022. The report’s overview of the market composition of investment funds and structured products in Canada highlighted the growing number of ESG investment funds and a relative decline in the creation of new crypto asset funds in Canada during the 2021-2022 fiscal year. The report is organized according to the following four main areas and some of the highlights are summarized below.

Operational Highlights

The IFSP carried out a total of 359 prospectus reviews during the 2021-2022 financial year (slightly less than the 364 reviews carried out during the 2020/2021 financial year). Some of the new prospectus filings that were received during the fiscal year included crypto asset funds, a lifetime income fund, an interval fund, and two future carbon credit funds.

The report included a reminder of the CSA Staff Notice issued in January of this year which provides guidance to investment funds on their disclosure practices with respect to ESG considerations (the ESG opinion), in particular funds whose investment objectives refer to ESG factors and other funds that use ESG strategies (ESG-related funds). Staff have reviewed and will continue to review the prospectus and related documentation of ESG-related funds in accordance with the ESG Notice. The report highlights the most common issues raised in comments on ESG-related funds and notes that as part of these reviews, staff review marketing communications relating to the ESG-related funds in question.

Exemption requests

The IFSP processed 142 exemption requests during the year. In addition to the exemption requests granted in relation to the prospectus products noted above, a noteworthy exemption included an exemption granted to a group of investment funds and a registered adviser to permit domestic and cross-border interfund trading. In addition, the CSA granted relief to a Schedule I bank to facilitate the distribution of Canadian certificates of deposit.

Continuous Disclosure Reviews

Among the main reviews carried out by the IFSP during the year are:

  1. A review of liquidity risk management for IFMs that experienced large redemptions in the first half of 2020. The objective of the review was to assess how fund managers handled large redemption events and obtain information on their liquidity risk management policies. The IFSP found that all of the managers under review were able to handle large redemptions of their funds in the normal course of business without violating borrowing restrictions under NI 81-102. Investment Funds or requiring a waiver. Investment fund managers (MFI) are referred to CSA Staff Notice 81-333 Guidelines on Effective Liquidity Risk Management for Investment Funds for best practices in this area.

  2. An issues-focused review of crypto asset ETFs in light of a period of market volatility in May 2021 to understand how IFMs handled their subscription and redemption activity, where they sourced crypto assets and how they continued to accurately value their funds. The IFSP found that the majority of crypto asset ETFs traded very close to their net asset value during the volatility period.

  3. A targeted continuous disclosure review of the disclosure documents and marketing communications of a number of ESG-related funds to assess the quality of the fund’s ESG reporting. Based on the findings of the review, the CSA has published the ESG Notice referenced above, which includes the findings of this review.

  4. Several ad hoc reviews of marketing materials in light of complaints received regarding marketing communications that addressed insufficient disclosure and exaggerated and misleading claims in advertising on the Internet and social media platforms. Staff reiterated that all information, including disclaimers, should be easily understood by the retail investor when first viewing an advertisement and directing IFMs to a staff opinion which provides additional guidance when commercial communication is presented with alternative media. The Report also reminds IFMs that they should review the use of personal social media with their employees who use their accounts to market investment funds and that IFMs should have adequate policies and procedures related to the use and social media monitoring (an area in which AUM Law can help).

  5. A review of cybersecurity risk disclosure for a sample of funds, focusing on whether there was some type of cybersecurity risk disclosure in publicly filed fund documents. The report notes that given the threat of cybersecurity attacks, all IFMs should review the risks disclosed in their funds’ disclosure documents and perform a thorough risk assessment to determine whether the cybersecurity risk constitutes a risk. important to their funds that deserves to be disclosed in the prospectus. GFIs that do not include cybersecurity risk may be selected for further review to explain why the disclosure was excluded.

Regulatory policy

The report summarizes major policy initiatives that have been completed or are underway during the period, including the Deferred Sales Charge ban, the Omnibus Order to codify permitted means of complying with the follow-up for order execution only by dealers and changes to reduce the regulatory burden on investment fund issuers (much of which related to exemption from certain conflict of interest requirements ).

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