Final amendments on risk ratings published

The CSA has published the last amendments to its risk classification methodology for mutual funds and ETFs

The Canadian Securities Administrators has published final amendments to its mutual fund risk classification methodology. The methodology is to be used to determine mutual fund and ETF investment risk levels.

Currently, a five-category scale ranging from Low to High must be used by fund managers in Fund Facts, with the methodology of determining investment risk to be chosen at the manager’s discretion.

“We think that a mandated standardized risk classification methodology will provide for greater transparency and consistency of investment risk levels across mutual funds," said CSA Chair Louis Morisset, who is also CEO of the Autorité des marchés financiers. "The use of such a methodology will allow investors to more readily compare the investment risk levels of different mutual funds."

In December 2015, the CSA introduced the mutual fund risk classification methodology, inviting comments from stakeholders. The majority of commenters were in favor of implementing a standardized and mandatory methodology to determine a fund or ETF’s investment risk level on the risk scale used in the Fund Facts or ETF Facts. After taking the comments into consideration, several non-material changes were made to the proposal.

Conditioned on any and all required ministerial approvals, the amendments will come into force on March 8. Starting Sept. 1 next year, risk levels of conventional mutual funds and ETFs must be determined following the methodology. This must be done for each filing of a Fund Facts or ETF Facts, with at least an annual filing required.

In a separate release, the CSA has announced final amendments mandating a summary disclosure document and delivery regime for ETFs.

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