Canadian Mangers Will Need to Register |
Date: Monday, January 15, 2007
Author: Bill McIntosh, Hedgeworld.com
TORONTO (HedgeWorld.com)—Hedge fund managers in Canada are to be subject to new requirements to register with provincial securities commissions, according to statements from the Canadian Securities Commission (CSA), the umbrella group for the commissions. Currently, individuals who manage specific investment portfolios must be registered, but the executives who set up and operate the fund management companies are not covered by registration rules. The new rules will also have executives of the fund management companies meet certain standards regarding competence, integrity, financial backing and ability to manage conflicts of interest. "Regulators in Canada recognize the increased popularity of hedge funds among retail investors," said Jean St-Gelais, chair of the CSA and president & CEO of the Autorité des Marchés Financiers, the Québec regulator, in a statement on the CSA's web site. "While we feel the necessary regulatory framework is in place, it is important to continually examine the framework against new products in our evolving markets." The move comes after a two year review of hedge fund regulations. The process featured a combination of compliance reviews of fund managers and advisors, disclosure reviews and industry consultations. Assets under management in Canadian hedge funds have grown rapidly from a small base to about C$30 billion ($26 billion). The sector looks poised to grow much further since the investment threshold is only C$150,000 – a fraction of the $2.5 million threshold being proposed in the United States by the Securities & Exchange Commission. The areas identified for improvement by the Canadian regulators include issues with principal protected notes (PPNs), referral arrangements, distribution, disclosure and registration of fund managers. A CSA noticeClick me to go to the site! sets out the regulators' views on how these areas will be monitored or their workings improved. The review covered 37 hedge funds with a total value of C$1.25 billion and 9 PPNs with a value of C$1.4 billion. Market participants were chosen based on their size, the number and types of products offered spanning hedge funds, funds of hedge funds and PPNs. The notice cited problems with the way performance returns are presented, and with a lack of clarity about how much investors are paying in fees when they buy hedge fund products. The notice also included advice to fund managers about proper disclosure practices. Canadian regulators have raised concerns about PPNs since 2005, but have yet to address the lack of regulatory oversight. Part of the problem, officials say, is that PPNs are considered bank products, rather than securities, and therefore fall under federal regulation. Regulations about PPNs are expected within the next three months. The matter of referral rules is also under scrutiny. New referral rules to protect investors are expected to be included in a detailed registration reform proposal to be released by the end of February.
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