Overall the Investment Funds Institute of Canada (IFIC) supports the new risk classification methodology that the Canadian Securities Administrators (CSA) have proposed to use for mutual funds and ETF disclosure documents. It does, however, have a few suggestions.
IFIC filed its submission on the new risk classification system on March 9. While IFIC says its members generally endorse the CSA’s proposals, it has asked the regulators to clarify a number of aspects and proposed changes to others.
One area of concern is the use of a reference index or indices as a proxy when assigning a risk rating to a fund that does not have a ten year performance history. IFIC says the CSA's current proposals do not give fund managers enough guidance and flexibility, especially in cases when they are using new investment strategies. "It would be helpful if the CSA could provide a concrete example of a new fund (that follows an unconventional or innovative strategy) and the process that would be taken to select an appropriate reference index for that fund," reads the submission.
IFIC would also like the CSA to establish an advisory committee similar to its own Fund Risk Classification Task Force to review the risk measurement methodology annually to ensure it keeps pace with market trends and volatility. "It is essential that this committee include broad industry participation, along with representatives from the regulators, data providers,
and academics," says IFIC.