top of page
  • Laura Bewick Howitt, CFA, CIPM, MBA

What you Should Know About the New Total Cost Reporting (TCR) Enhancements

Updated: Apr 25, 2023

On April 20, 2023, the Canadian Securities Administrators (CSA) released final amendments to National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) and its Companion Policy (CP) regarding TCR for investment funds and segregated funds (collectively, TCR). The Canadian Council of Insurance Regulators (CCIR) will also be updating Individual Variable Insurance Contract Ongoing Disclosure Guidance.



Overview


Currently, investors receive information about costs at the time of purchase. The TCR enhancements are aimed at improving investors awareness of ongoing embedded fees such as management expense ratios (MERs) and trading expense ratios (TERs), through an Annual Report on Charges and other Compensation (ARCC).


The TCR includes all mutual funds, segregated funds, scholarship plans, and foreign investment funds. However, it is not required for prospectus-exempt funds, labour-sponsored funds, private pooled funds and non-individual permitted clients.



Cost Reporting


Under the new rules, firms will need to report annually all costs for the securities owned by clients during the year including:

  • the aggregate amount of fund expenses in dollars for all investment funds

  • the aggregate amount in dollars of any direct investment fund charges (e.g., short-term trading fees or redemption fees)

  • the fund expense ratio (FER) as a percentage for each investment fund class or series

  • the registered firm’s charges (which are already required to be reported)

The revised formula is based on actual fund expenses for each day for which the fund was owned by an investor. Any fee waivers, rebates or absorptions are allowed to be reported as a separate line item.


Notifications


In addition to enhanced cost reporting, the Annual Report on Charges and Other Compensation will require notifications to clients explaining:

  • how clients can take action on the information provided

  • fund expenses

  • any deferred sales charges (DSCs) paid by the client

  • any other direct fund charges charged to the client

  • if information reported on fund expenses, direct investment fund charges or fund expense ratios is based on an approximation or any other assumption

  • that structured products, LSIF’s or prospectus exempt products owned by the client have embedded fees which may not be required to be reported

  • that information about foreign funds owned by the client may not be directly comparable to the information provided for Canadian investment funds and may include different types of fees

The notifications will also refer clients to fund issuers’ documents for more information about fund expenses and performance and to their account statements for information about current holdings.



Modifications to the Enhancements Based on Industry Feedback


The TCR enhancements were released for a 90-day comment period on April 28, 2022. The comments were duly considered by the regulators and resulted in several significant changes. Accordingly, the CSA will:

  • provide an extended transition period

  • require the enhanced disclosures to be provided annually (as opposed to monthly or quarterly)

  • NOT require newly-established funds to provide TCR given that this information may not be available for newer funds, but a notification must be included in the annual report

  • NOT require dealers and advisors to conduct due diligence reviews of the information provided to them by investment fund managers (except in exceptional circumstances)

  • allow dealers and advisors to use reasonable approximations in circumstances where the exact information is unavailable or the costs of obtaining the information outweigh the improvement of approximation

  • require notification of third-party charges and embedded fees for products that are not included in the amendments such as structured products

In addition, the final amendments include a revised ARCC sample document that will help guide firms in implementing the new requirements.



Implementation Timeline


To give registrants sufficient time to operationalize the requirements, the implementation date has been extended to January 1, 2026. As such, the first annual reports that include the required information will be delivered for the year ending December 31, 2026. The CSA and CCIR will establish an implementation committee to provide guidance, respond to questions and assist registrants in operationalizing the TCR enhancements.



SGD COMPLIANCE CONSULTING CAN HELP


Notwithstanding the extended implementation timeline and guidance provided by the implementation committee, the new TCR requirements will involve significant work and preparation to:

  • create updated policies and procedures

  • align systems to automate production of the TCR

  • create a customized firm Annual Report on Charges and Other Compensation document


SGD Compliance will provide resources to its clients in due course to help your firm with timely and effective implementation. If we can be of assistance, reach out: info@sgdcompliance.ce and check out our website: www.sgdcompliance.ca.



© 2023 SGD Compliance Consulting Inc.


No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without permission of the copyright holder.


This article was prepared for informational purposes only and is not intended to provide, and should not be relied on for specific advice. You should not act upon the information in this article without an independent assessment of the law or regulations applied to the facts of your situation.

SGD Compliance Consulting Inc. is not responsible for the content of websites and information resources that may be referenced in the article. Reference to these sites or resources does not constitute an endorsement by SGD Compliance Consulting Inc. of the information contained therein. Although we have endeavored to ensure that the information contained in this article has been obtained from reliable and up-to-date sources, the changing nature of statistics, laws, rules, and regulations may result in delays, omissions, or inaccuracies in information contained in this report.


30 views0 comments

Comments


bottom of page