Request for Comment - Proposed New MFDA Policy No. 11 – Proficiency Standards for the Sale of Alternative Mutual Funds
The MFDA is publishing for public comment new Policy No. 11 Proficiency Standards for the Sale of Alternative Mutual Funds (the Proposed MFDA Policy No. 11) to establish proficiency requirements for the distribution of alternative mutual funds by MFDA Members and Approved Persons.
On October 4, 2018, the Canadian Securities Administrators (CSA) published amendments (Amendments) to adopt the final phase of the CSA's Modernization of Investment Fund Product Regulation Project, relating to the establishment of a regulatory framework for "alternative mutual funds". As part of the Amendments, key provisions of the rules relating to commodity pools were migrated into National Instrument 81-102 Investment Funds and other instruments. The CSA retained the proficiency standards for mutual fund dealers distributing alternative mutual funds in National Instrument 81-104 Alternative Mutual Funds (NI 81-104), with the acknowledgement that alternative mutual funds can be more complex than other types of mutual funds and that additional proficiency may be needed for mutual funds dealers selling these products.
The Ontario Securities Commission and the other CSA regulators recognized that the proficiency requirements in NI 81-104 significantly limited retail investor access to alternative mutual funds. Accordingly, on January 28, 2021, the CSA issued blanket orders to reduce regulatory burden and provide mutual fund dealers and mutual fund dealing representatives with additional course options to satisfy the proficiency requirements in NI 81-104. In Ontario, blanket relief was issued with Ontario Instrument 81-506 Temporary Exemptions from National Instrument 81-104 Alternative Mutual Funds (Ontario Instrument 81-506).
The Proposed MFDA Policy No. 11 aims to: (i) adopt requirements that are consistent with Ontario Instrument 81-506 and similar blanket orders issued by the other CSA regulators; and (ii) ensure that alternative mutual funds, whether sold pursuant to a prospectus or on a prospectus-exempt basis, will be subject to appropriate proficiency requirements.
The Proposed MFDA Policy No. 11 is intended to replace the proficiency requirements in NI 81-104. The CSA expects that NI 81-104 will eventually be repealed if Proposed MFDA Policy No. 11 comes into effect.